Building Land

Excellent apartment sales results are leading home builders to acquire new sites By Adam Zdrodowski The building land market in Poland has reached record levels in recent months, with the investment activity in the sector now remaining at the highest level in a decade. The prices of the most sought-after plots have been on the rise. The ongoing boom in the residential market in the country has been the main driving force behind the trend. The growing demand for new apartments has encouraged developers to launch construction on more projects and replenish their portfolios with new housing sites. According to preliminary data published by Colliers International in late November, the combined value of all the transactions closed in the building land market in Poland last year amounted to approximately PLN 2 billion, which was the best result since 2006. Warsaw accounted for as much as 70 percent of the deals, but the major regional cities across Poland are now also gaining in significance. There is a chance that this year the volume of transactions will be even higher than in 2015, Colliers International said in a report. Residential market dominant [caption id="attachment_95103" align="alignleft" width="300"] Image: shutterstock[/caption] The share of residential plot purchases in the whole building land market in Poland currently amounts to around 70 percent, according to Colliers International data. The housing sector is also expected to continue to drive demand for new sites this year. The main reason for this has been the unprecedented development activity in the residential market. The availability of relatively cheap mortgages and government support for first-home buyers has boosted new apartment sales in Poland of late. Indeed, last year proved to be the best year in the history of the residential market in the country. Recently published Central Statistical Office of Poland data indicates that in 2015 home builders were as active as never before. Companies launched construction on almost 86,500 housing units in the period, which marked a more than 24 percent increase on 2014 statistics. Building ermits were granted for the construction of over 97,200 homes, which was 25 percent more than in 2014. Last year some of the major home builders managed to record double-digit y/y growth with regard to apartment sales. Many companies from the sector believe that they should be able to achieve even better results this year. For instance, Warsaw Stock Exchange-listed developers Dom Development and Robyg respectively offloaded 2,383 (preliminary data) and 2,333 apartments in 2015, which was 23 percent and 10 percent more respectively than in the previous year. Both of the above-mentioned residential market giants invested considerable amounts of money in the acquisition of land for future projects. Dom Development bought, among other things, plots of land located in the Bemowo and Targówek districts of Warsaw. For its part, Robyg acquired plots located in the Bemowo, Praga Południe, Ursus and Wilanów districts of the Polish capital. The company also bought a number of new sites in Gdańsk. [negative]Home Broker analysts estimate that residential developers in Poland invested a total of more that PLN 1 billion in the acquisition of plots for new projects in 2015[/negative] Murapol, which sold 2,400 apartments in 2015 and thus currently remains the sector leader, last year signed a number of land purchase transactions in cities including Warsaw, Kraków, Łódź, Wrocław, Poznań and Katowice. Also active was Warsaw Stock Exchange-listed LC Corp (2,072 apartments sold in 2015) which acquired plots in Warsaw, Wrocław and Gdańsk, and Warsaw Stock Exchange-listed Atal (1,690 apartments sold in 2015) which bought land in cities including Gdańsk and Poznań. Home Broker analysts estimate that residential developers in Poland invested a total of more than PLN 1 billion in the acquisition of plots for new projects in 2015. The largest of them spent PLN 200-250 million on that purpose, the company said in a recent report. Building land market experts point out that residential developers are now making purchase decisions much quicker than in the past. Due to fierce competition for prime plots, the negotiation process has generally become shorter. In the opinion of Mikołaj Martynuska, a Senior Director at CBRE, the rising investor interest in residential plots has mostly been visible in Warsaw, although a significant number of deals have also been closed in the major regional markets including Kraków, Wrocław and the Tri-city. “The demand for residential sites in Warsaw exceeds the supply,” Martynuska said. It is increasingly difficult to buy prime residential plots in the Polish capital, also because some landowners have high price expectations, and the prices of such sites have gone up, he added. Martynuska pointed out that even some of the plots that were previously expected to house office projects but also allow for the development of residential schemes, are these days being acquired with the aim of launching residential investments. When there is a choice, investors usually take the residential option. This shows that investor sentiment in the residential market is now much better than in the office market and that investors are trying to make the most of the strong demand for new homes. Offices less popular [caption id="attachment_95105" align="alignright" width="300"] Image: shutterstock[/caption] Apart from the residential market, the logistics property sector is also now generating more and more demand for building land – Colliers International data shows that transactions in the logistics sector accounted for approximately 20 percent of the total transactions volume last year. There has been significant growth when it comes to the acquisition of plots of land zoned for logistics space. “Investors often buy such sites for speculative purposes,” said Emil Domeracki, a Senior Associate, Investment Services/Land, at Colliers International. This view was supported by Katarzyna Klementowska, a Senior Consultant at Cushman & Wakefield. “Increased tenant activity is leading developers to build on a speculative basis,” Klementowska said. According to Cushman & Wakefield data, a total of more than 550,000 sqm of warehouse space was leased in Poland in the third quarter of 2015, which marked a 24 percent increase upon the same period in the previous year. The high growth dynamics should continue this year. Hotel sites also attracted more investor attention in 2015. A number of international hotel chains, which are not yet present in Poland, including InterCityHotel, Meininger and Leonardo, are now said to be looking for opportunities to open new hotels in the country. “Investors are more frequently turning to hotel plots located in the smaller regional cities, planning the development of low-budget hotel facilities,” said Daniel Puchalski, Head of Land Advisory Services at JLL. Meanwhile, the share of the office sector in the total volume of transactions in the building land market has been dwindling – in 2015, it amounted to less than 10 percent, according to Colliers International data. The trend is expected to continue this year. The significant number of ongoing and planned projects – especially in Warsaw, which is by far the largest office market in Poland – has been discouraging developers from adding new office sites to their portfolios. The prices of plots zoned for office space decreased last year. According to the latest Polish Office Research Forum data, the vacancy rate in Warsaw fell to 12.3 percent at the end of December, from 13.3 percent a year earlier, but this still represented 571,600 sqm of readily available office space. Tenant activity has been at a very high level but with several hundred thousand sqm of new office space now under construction in the Polish capital, some developers have already come to the conclusion that the office market in the city is overheated. In the opinion of Klementowska, investors now have a very selective approach to office locations in Warsaw – sites located in the downtown of the city and close to the second subway line are in the highest demand. Also, the size of the planned investments seems to be changing – while numerous new high-rise office projects have been announced for Warsaw in recent years, many developers, faced with the huge supply, are now looking for opportunities to develop less ambitious schemes. In Warsaw, office developers are now mostly looking for sites which will allow for the development of medium-sized projects, Martynuska said. He added that investors are now generally more cautious than a few years ago and allocate less capital to particular plots. Some of the largest single transactions closed last year were valued at approximately PLN 100-150 million, Martynuska said. In previous years, some of the record deals exceeded PLN 150 million. For several years, though, transactions exceeding PLN 300 million, like those from the pre-Lehman era, have not been seen. The prospects for the building land market in Poland for this year remain very positive, even if it is difficult to predict exactly what the 2016 transaction volume could be. Much will depend on how much foreign capital flows into the country this year. According to Puchalski, new foreign investors coming from countries such as Saudi Arabia, the United Arab Emirates, India and the Republic of South Africa considered investing in land in Poland last year but, in most cases, have not made any concrete decisions as yet.