Past fortunes, future plans

The year 2008 saw much change and many unexpected developments in the Polish real estate market. The cyclical slowdown in the residential segment that began in 2007 continued throughout the year, but its scale has been amplified by its coincidence with the credit crisis that broke out in the developed world in autumn.

In direct consequence, financial institutions have become very restrictive with their lending policies, making it increasingly difficult for both consumers and developers to acquire credit. The latter have been forced to re-evaluate their investment plans.

The main sectors of the market have suffered to varying degrees, with the retail segment arguably weathering the storm best. Nevertheless, at this point it's difficult to say if any area of the Polish real estate industry will truly prosper in 2009.

Housing pains

In 2008, the residential market saw its hangover from the boom of 2005-2007 - when housing and land prices in Poland skyrocketed - continue without relief.

During the boom, buyers lined up for apartments, expecting prices to rise further, and developers delivered ever larger numbers of residential projects to the market. Price stabilization and decisively lower housing demand, partly caused by the expectation of an impending wave of price reductions, characterized the market in H1 2008. This led to a sharp decrease in the number of homes sold, and some developers put new investments on hold.

"We let ourselves get carried away with optimism and did not notice that the housing bubble would soon burst. Admittedly, that was also the case [with foreign developers], of which the completely detached-from-reality Spanish investments in Warsaw are proof," Jarosław Szanajca, president of Dom Development, said at an industry conference.

The symptoms of the slowdown grew even more acute towards the end of the year, when the Polish Financial Supervision Authority (KNF) advised banks to introduce safety measures, including an increase in the size of down-payments.

These initiatives, introduced by banks in the last few months of the year, drove home sales even lower and convinced a number of developers to officially lower prices. Many market experts now expect reductions to continue in 2009, and possibly 2010, with some developers being forced to move ahead with investments without any prospect of profit in order to retain liquidity and avoid bankruptcy.

Next year is also expected to see delays in the realization of many residential projects, although much will depend on how the situation in the mortgage market develops. "The National Bank of Poland's forecast of a 40-50 percent decrease in the volume of mortgages granted in 2009 is exaggerated, but the decrease will certainly be considerable. Banks will be carefully observing the market for at least [six months] before making any significant decisions," said Wojciech Widenka, deputy director in the retail credit department at ING Bank Śląski.

The KNF, for its part, is reportedly working on new recommendations which would not, for example, call for any specific size of down-payment from mortgage takers.

Office capital Annual office supply in Warsaw (sqm)
2005	120,000
2006	186,600
2007	211,500
2008*	267,000
2009*	328,000
2010*	385,000
*Projected
Source: DTZ Research

Office delays

The Polish office market saw healthy growth in 2008, due to strong demand for modern office space in large Polish cities. According to data from DTZ, Warsaw - by far the largest office market in Poland - will have seen the completion of approximately 267,000 sqm of office space by the end of 2008, the highest amount of new office supply delivered since 2000. Wrocław, Łódź, Kraków and the Tri-city conurbation were among the most active regional office markets.

As the global financial crisis plays out, however, the sector is expected to see markedly less dynamic development in 2009. According to analysts from Cushman & Wakefield (C&W), annual delivery of office space in Poland, both in Warsaw and the regional cities, will be lower in the next few years than previously anticipated.

"Due to the unsettled global financial situation and reduced availability of credit, a number of office schemes planned by developers will not be completed or their construction will be delayed in time, in particular with regard to high-rise facilities," said a recent appendix to the company's Marketbeat Poland - Autumn 2008 report.

According to Andrzej Brochocki of real estate agency Brochocki Nieruchomości, securing bank financing will be  the biggest problem for developers in 2009, with banks demanding pre-lease agreements before making any mortgage-granting decisions.

The agreements, for their part, may become more difficult to secure, as tenants grow more cautious and postpone decisions on office space. "A slowdown on both the supply and demand sides has taken place and is likely to be felt in 2009," said Andrzej Mikołajczyk, supervisor of the commercialization of the PoleczkiBusinessPark project at CA Immo International.

Retail sitting pretty

In the first half of 2008, approximately 200,000 sqm of modern retail space was delivered to the market, nearly 50 percent less than in the corresponding period of 2007, according to theMarketbeat Poland report. On account of the growing retail-space saturation in the largest cities, key players are focusing on small- and mid-sized towns. Over 65 percent of all retail schemes currently under construction are in these secondary and tertiary markets. New developments in these areas are expected in 2009.

At the end of Q2 2008, there were 307 shopping centers in Poland (including shopping centers and hypermarkets with small shopping galleries) with a total space of 5.65 million sqm. Almost two million sqm were located in mid-sized towns, and nearly 3.7 million sqm in the eight largest urban areas, according to the C&W report.

The report also forecast that the retail market will remain secure in 2009. C&W expects that banks' current credit policies will result in delays in investments and in the postponement of several shopping centers' opening dates.

However, there have been no signs so far that developers plan to withdraw from retail projects which are in the advanced stages of planning. Additionally, construction costs in the retail market could decrease due to the shrinking residential investment pipeline.

Specialists do not expect a significant limitation of expansion plans by major domestic and international retailers. DTZ estimated that, "2009 and 2010 are expected to be record-breaking years in terms of new supply - over 1.6 million sqm will be built annually." Marketbeat Polandwent even further, saying that, "By the end of 2009 nearly 1.9 million sqm of modern retail space will be delivered onto the market, mainly in small and medium-sized towns."

Uncertainty in logistics

Due to the situation in international financial markets, the slowing economy and rising rents, Marketbeat Poland is projecting a slowdown in the warehouse sector. In addition, higher investment risk has caused developers to focus on regions in which they are already present, such as Warsaw, Łódź, Poznań, Upper Silesia and Wrocław. And since companies are becoming more and more selective about the projects they invest in, supply is also dropping.   

However, other specialist accounts state that investments in the logistics sector are developing well and will continue to do so. Certainly, the warehouse market grew rapidly in 2008, with the most growth in central Poland (especially the Warsaw region) and the Silesia, Lower Silesia, Wielkopolskie and Pomorskie voivodships.

A report by King Sturge stated that, "Within the last 12 months, the Polish warehouse market has noted a demand for 1,590,000 sqm of modern warehouse area." There is growing interest in logistics centers located in such cities as Szczecin, Bydgoszcz, Toruń and Kraków, as well as in places that offer easy access to eastern markets. The eventual completion of the A1, A2 and A4 highways, expected by 2012, should also see logistics centers built where these highways intersect.

For its part, Panattoni Europe saw 2008 as a very good year for the warehouse market. But while demand for modern warehouse space is expected to remain stable, the company is projecting that 2009 will not bring the same record-breaking results as 2008. In the first half of 2009, Panattoni is planning to deliver 100,000 sqm of warehouse area in seven logistics centers in Poland. By the end of 2008, the company was expected to complete around 425,000 sqm of industrial space in Poland.

Nevertheless, in response to growing demand for built-to-suit (BTS) investments, Panattoni has created a new BTS group dedicated to tailor-made projects. The firm expects this kind of investment to become increasingly popular in 2009.

"The trend has been felt for a long time now, however, in the last few months it has increased rapidly. Compared to 2007 results, the estimated growth of those projects has reached as much as 30 percent," said the company in a report.

Expanding scope Major shopping center expansions in Poland
Project	City	GLA (sqm)	Planned delivery
Wzgórze	Gdynia	40,000	2010
Galeria Olimp	Lublin	31,000	2009
Ikea Bulwary Poznańskie	Poznań	30,000	2010
Renoma	Wrocław	30,000	2009
Targówek Retail Park	Warsaw	25,000	2010
Sfera	Bielsko-Biała	24,000	2009
Jantar	Słupsk	23,000	2010
Bielany Retail Park	Wrocław	21,000	2009
Source: DTZ Research