Pipeline predictions
The report forecasts several tendencies that will drive Poland's construction market in 2007. A shortage of land plots for office, residential and retail development as well as a decreasing number of construction workers will push the market towards higher competition and growing costs. However, a major rental price jump should not be expected.
On the shop front
"There are so few real-estate plots, therefore the competition is very significant, especially over land with a decided spatial development plan," said Dorota Flak, a market analyst for King Sturge.
A stable increase in disposable income and higher job security will keep driving strong retail market demand, so developers and prospective tenants will be keen to build and move into new shopping complexes.
"Such developments need to be built some distance from each other, but still located in prominent locations. Therefore, in the several biggest cities there are significant limitations on such land plots that are available under this kind of investment," said Flak. "That will result in increasing rents in prime shopping centers with a prime location and decreasing or stable rent charges in malls located in other places."
These market conditions will mean retailers will keep extending their business operations into cities with populations of between 60,000 to 80,000.
"Instead of competition with different market players, developers will continue to develop shopping centers in smaller cities that present a high purchase power," said Flak. "There is something like a race between developers to search for a suitable location, because in the majority of smaller cities there is market demand for only one or two shopping centers."
Office politics
Many of the problems that have affected the residential market are now filtering through to the office sector, according to King Sturge's research. The lack of construction workers, who are leaving to work in Western Europe, is causing major delays for many projects.
"Currently, to build a modern office building most developers would need two or more years from the moment of receiving a building permit," said Dominik Witkiewicz of King Sturge.
Therefore, because of labor-cost increases and falling vacancy rates in Warsaw's city center and in other cities' markets, tenants should expect a moderate rental growth (on a level of EUR 20-EUR 23, or zł.76-87, per sqm per month) as well as a reduction in rent-free periods.
In addition, only a few A-class buildings are being planned or constructed. Development companies and investment funds are now concentrating in older office buildings where value can be restored through renovation and redecoration.
Witkiewicz said that different companies have a different market approach towards such investments: "Some of those purchased buildings are renovated and kept to bring some profit and others are for immediate sale." He added that another reason for investing in already existing office buildings and their renovation is a lack of development plots and competition between residential and office-building developers.
Record time for warehouses
Thanks to new construction technologies, a significantly shorter time of warehouse delivery, as low as three to four months, can now be achieved. However, an increase in construction costs as well as interest rates might result in moderate rental growth, especially in prime and budget regional warehouse locations.
"Poland has achieved a higher dynamics of warehouse and logistic market development in last few years, if compared to Hungary, Czech and Slovakia, "said Witkiewicz." Such a tendency is partly caused by increasing in speculative development, when in other countries developers construct warehouse after receiving an offer."
