Hot in the cities

A recent report prepared by Reas, a real-estate consulting company, gives an overview of several local residential real-estate markets in Poland, and shows that the current boom is creeping into smaller towns.

The residential real-estate market in Poland remains white hot and, due to a discrepancy between demand and supply, dynamic growth is observable in the number of development projects in the works and, even more significantly, in apartment prices.

However, experts continuously highlight the fact that most cities lack adequate spatial development plans. This slows down, or prevents entirely, the process of acquiring and developing new land for residential development.

According to a report by real-estate consultant Reas, Poland's residential-development market is highly fragmented but shows some trends toward consolidation. Philip Evison, a residential-market analyst with King Sturge, says that every developer is looking for new ways to raise additional funds that will be used for new projects. "Entering the stock exchange, as Dom Development did, greatly increases a company's liquidity and therefore helps them acquire ever more expensive plots. Another option seen today by many developers is finding a financial backer, as Ronson Development did with GE Real Estate, in order to increase their product base with the possibility of then contemplating an IPO," he commented.

Evison also suggested that consolidation within the market would be a way for international firms to immediately  enlarge their land portfolios and thus development pipelines in Poland. "When a new developer wants to enter the Polish residential market,  a lack of suitable development plots and intense competition puts them a few years behind other players," said Evison. "Acquiring a local development company is a solution to this problem."

Capital market

As Poland's capital and largest city, Warsaw naturally offers the largest market for investors. Evison highlights its huge development potential, adding that Poles returning from abroad or moving to Warsaw in pursuit of a professional career will push market demand even higher.

In the first half of 2006, about 6,200 apartments were put on sale in Warsaw, a little less than during the same period of 2005, while demand has steadily risen. A number of obstacles contribute to the slow entry of new residential space to the market.

"Some of the most significant factors that limit increasing supply on the residential market are the low level of efficiency of Warsaw's administration, the lack of spatial-development plans as well as processes that slow down the granting of building permits," says Dr Edward Kozłowski, a partner in Reas. "Currently, only 14 percent of Warsaw is covered with a spatial development plan, which is very low if compared to Poland's Tri-city which is 54-percent covered with a plan. Such a situation on the Warsaw market significantly lowers the supply of land plots that could be used for investment."

According to the Reas report, nominal prices of apartments in Warsaw increased by about 25 percent between January and October 2006, reaching zł.6,000 per sqm in September 2006. The total value of new apartments in Warsaw city proper in 2006-2007, is zł.14 billion and two major developers cover 16 percent of the market.

Attractive Kraków

Poland offers a number of large, attractive markets outside of Warsaw. In Kraków, for example, about 3,000-4,500 apartments have been sold on the primary market every year since 1997. Last year could be a record year because, according to the Reas report, the number of apartments completed may have been double the number completed in 2005. The local market doesn't show signs of slowing, either. "Kraków is the second-largest residential market in Poland and I believe that it will continue to grow," said Reas' Kozłowski.

The Reas report also points out that Kraków's residential-market boom is visible in the number of companies currently operating on the market. In February 2006, there were 55 active developers; by October, the number had jumped to 68 companies.

However, Kozłowski said that insufficient spatial-development planning, which, at coverage of less than 10 percent of the city, is the lowest in Poland, could be a factor in decreasing the supply of new developments. "At the same time, rapid price growth means that some apartments are being sold for more than their real value," he added.

 

Poznań, the other giant

The capital of the Wielkopolska region, Poznań, has the second strongest economy after Warsaw. Despite this, the city's residential market lay underdeveloped for many years. In recent years, however, around 2,900 apartments have been built annually in Poznań and, according to Reas, 2006 is thought to have brought a 32-percent increase in the supply of new apartments, compared to 2005. This year will see further growth.

"Poznań's residential market is still less developed than other big cities', which results in low prices as well as the lowest variety between developers' offers," said Kozłowski.

 

Small but growing

King Sturge's Evison highlights that, despite large investments in Warsaw, Kraków and Wrocław, several other cities in Poland could begin to experience a similar residential boom over the coming two years.

"Warsaw's market has been the most developed in Poland. However, since 2005 other cities have reached a level of accelerated growth," said Reas' Kozłowski. "Moreover, in recent months rapid growth has also been noticeable in smaller cities such as Olsztyn, Rzeszów and Szczecin."

"The market has a lot of potential left with room for all kinds of developers," says Evison. "Poles are improving their financial situations, so developers will find markets not only in major cities, but also in secondary cities and towns with populations of up to 200,000."