Building expectations
Meanwhile, the office market has seen another record year in leased space and rents while Poland's retail and logistics markets ventured into new cities and regions. For 2008, analysts expect that the focus on the capital will shift to Poland's regions
While most sectors of the market have seen dynamic growth and greater activity than in 2006, the residential market has settled in the second half of the year.
Residential
Following a rapid increase in house prices in 2006 and in the first half of 2007, the end of the year has seen corrections and stabilization which may continue into 2008.
"During the last half of 2007 the residential market in Warsaw has stabilized in terms of prices. Equally, developers have seen the sales slow down," said Pablo Martinez, general director at Espais Probo Asset Management.
The situation varies from city to city. Kraków has seen a continuous decrease in recent months, amounting to over six percent since June and putting the average price per sqm at zł.7,504 in November. Tri-city and Łód have seen similar drops, with the average price per sqm at zł.7,361 and zł.6,262 respectively. In Katowice, Poznań, Warsaw and Wrocław, prices have gone up but only minimally. With an average price of zł.8,673 per sqm, Warsaw remains the most expensive.
"The boom was strong at the beginning of the year but it is coming to an end - that is, if it hasn't already," said Christian Schnell, a managing partner at law firm BSJP Legal and Tax Advice. "There is huge demand, but observers are looking at the overall stability [of the market]. This [situation] will remain the same for the next two to three years," he added.
Experts also believe that while the boom is over, the relatively high level of activity in the residential market will remain. According to analysts at Gold Finance, slight price decreases will encourage buyers in the long term. The balance in the market may continue for a short while as the supply meets demand, but prices will continue to grow, especially if the economic situation in the country remains unchanged, according to Gold Finance.
Office
The year 2007 was another record year for the office sector, with approximately 450,000 sqm of space expected to be leased in Warsaw by the end of December, which represents a 10-percent increase on the previous year.
This large demand will lead to a further increase in rents and a drop in incentives offered by owners.
"This was a special year for landlords - rents have gone up, the proportion of unleased space has fallen and tenants have not been expecting a wide range of incentives," said Nigel Wade, managing director at CB Richard Ellis Polska. "A lack of high-quality office space in buildings located in the city center will continue to affect the high level of rents - at the moment one has to pay EUR 30-33 (zł.108-118) per square meter per month. Even older office buildings located in the central business district lease quickly and prices per square meter are around EUR 19-23 (zł.68-82.5) a month."
Current prices represent an almost 60-percent increase on the previous year and, according to analysts, no correction is likely any time soon.
"Lack of office space in the center will be seen at least for another two years when a number of new projects are scheduled for completion," said Alicja Sitkowska, from the advisory department of Cushman & Wakefield.
This year has also been characterised by a very low proportion of unleased office space. "The vacancy rate decreased to 3.6 percent at the end of the third quarter, which is exceptional, especially if we compare it to 2002, for instance, when it was 17 percent," said Wade.
The year 2008 is projected to see more dynamic growth, with nearly 400,000 sqm of office space expected to be delivered in Warsaw, mostly in buildings currently under construction in Mokotów. However, according to Cushman & Wakefield, nearly half of the office space scheduled for delivery in 2008 has already been leased, and given current economic growth rates, demand will be higher than supply next year as well.
According to Agnieszka Reczyńska, an associate with law firm DLA Piper, "Other cities such as Wrocław, Poznań, Łód, Tri-city and Kraków can also expect dynamic development, as demand for office space is currently considerably higher than what the market can offer."
Retail
One of the most notable events in the retail sector was the long-awaited opening of Złote Tarasy in Warsaw, however, this was only one of many shopping centers completed this year. The total amount of leasable retail space delivered in Poland this year amounted to 653,000 sqm, compared with 370,000 sqm in 2006.
The activity on Wrocław's retail market was especially noteworthy, with three large centers completed: Pasaż Grunwaldzki, Arkady and Magnolia.
"In total, Wrocław has seen the delivery of 145,000 sqm of new space," said Patrycja Dzikowska, an analyst at Jones Lang LaSalle. "That's how Wrocław jumped into second place [among Polish cities] in terms of the proportion of retail space per person. With 556 sqm per 1,000 inhabitants, it is just behind Warsaw, which has 599 sqm per 1,000 inhabitants," she added.
The year 2007 also saw a wave of new shopping centers opening in smaller cities. These include three centers in Białystok, two in Rybnik and one in Gorzów Wielkopolski.
"Developers were actively looking for development opportunities in small and medium-sized cities of 100,000-350,000 inhabitants for two years and now we can see tangible effects of that," said Dzikowska, noting that there is also an increased interest in cities with a population of less than 100,000.
"There is a huge demand for inner-city shopping galleries, and the demand for even larger galleries is growing at an unprecedented speed, all over Poland in any city that has a minimum of 50,000 inhabitants," said BSJP's Schnell.
Despite a large number of projects delivered this year, the need for high-quality retail space has not been satisfied and this is reflected in rents, which have risen by 10-15 percent on average. Dzikowska predicted that the level of rents will stabilize next year, with nearly 860,000 sqm of retail space planned for delivery in 2008.
Warehouse
This year has seen significant activity in logistics, caused by increased demand for warehouse space. The first three quarters alone saw transactions for a total of 892,000 sqm, while the figure for all of 2006 was 781,000 sqm.
"In terms of supply, Prologis continues to be the most significant supplier," said Dominik Witkiewicz, an analyst at King Sturge. "This is the position the company kept at the beginning of the year and which it strengthened further with its acquisitions. It can now offer 1,100,000 sqm of warehouse space. This figure likely rose to 1,300,000 sqm by the end of the third quarter," he added.
Though Warsaw remains the country's most significant region, its position is gradually weakening.
"At the end of 2006, warehouse space in the Warsaw region amounted to almost 59 percent, but this figure has gone down to only 49 percent after three quarters of 2007," said Maciej Konopacki, an analyst at Jones Lang LaSalle.
He pointed to Silesia as a region gaining in significance. In 2006, 142,000 sqm of warehouse space was leased in Silesia, which amounted to an 18-percent share of the Polish market. Moreover, in the first three quarters of 2007, some 239,000 sqm was leased in Silesia, representing a 30-percent share of the market.
Apart from the established logistics centers, new ones are beginning to appear. "With Prologis constructing a new logistics park in the Tri-city, this year has seen a new significant region emerge. The company currently offers 70,000 sqm [in Tri-city] which is likely to increase to 100,000 sqm and other developers are interested in the region as well," said Witkiewicz.
This trend is likely to continue into 2008, with projected developments in the warehouse market not only in Kraków and Gdańsk, but also in cities that are currently of little or no significance in Poland's logistics market, such as Szczecin, Bydgoszcz, Toruń and Rzeszów, said analysts.
