Record year for offices
This is according to a recent report by international property consultants King Sturge. The firm says that Poland is no longer viewed as a risky area to invest in, following EU membership, and private investors from Spain, Ireland and the UK are queuing up behind the more traditional institutional investors from Germany, Austria and the US to invest in Warsaw.
Many smaller companies are also turning their attention to the residential market and the commercial sector, where they are seeking to increase yields through active asset management. Prime investment products in the city are scarce, leading to fierce competition between the investment funds for attractive properties.
Outside of Warsaw, the research indicates that investors are now willing to pay initial yields of around 8.5 percent for regional shopping centers and 8.75 percent for modern warehousing with long leases and good tenants, but these figures are expected to compress further.
The office market in Warsaw, on the other hand, looks well on the way to a full recovery. After several lacklustre years, due to a glut of supply, the office sector enjoyed its highest ever transaction activity, a drop in vacancy rates and improved investor confidence. Although headline rents have declined in central areas, the market as a whole has stabilised. In 2004, new office supply came to 185,600 sqm, mostly around Centrum, Al. Jerozolimskie, and Wola. Total transactions accounted for 404,200 sqm of occupied space, 87 percent of which was modern offices. Vacant space in Warsaw makes up 316,000 sqm. Companies are continuing to drift out of the city center in search of cheaper office space. Of the 10 largest new letting transactions, just two were in central locations.
One interesting trend is in pre-lettings, with deals of this kind, some of which were signed 20 months ahead of construction, amounting to 17 percent of total office take-up. Often, these pre-lets were necessary for developers to obtain financing to begin construction and they have driven a surge in the number of purpose-built offices.
This year will continue the low-supply trend, with between 134,000 and 189,000 sqm of modern offices expected on the market, depending on the completion of the Rondo 1 building. 2006 could see an office-space boom, however, with 300,000 sqm expected on the market.
Currently, vacancy rates stand at 13.3 percent, down from 16 percent in 2003. Age seems to be a deciding factor for companies, with property less than five years old showing high vacancy rates. Landlords are offering significant breaks to tenants to fill up their property, according to the report, in the form of rent-free periods and capital contributions to buy out existing leases, with headline rents are continuing to decline in central areas and stabilising elsewhere.
King Sturge expects some of the most popular buildings to raise headline rents slightly in 2005, by no more than E1 sqm/month. Outside of Warsaw, Kraków and Poznań are expected to attract more investor attention, but only 17 percent of the 2.9 million sqm of modern space is outside of Warsaw.
The warehousing market had a very good year in 2004, with record-breaking take-up suppressing vacancy rates. This sector is expected to surge in 2005 and 2006, particularly in central Poland, Poznań and upper Silesia, with take-up this year of no less than 400,000 sqm. Currently, the Warsaw market is balanced, with no change in rental levels, new constructions in the pipeline, and vacancy at a reasonable 8.2 percent. Again, pre-lets are starting to become a feature of the sector, with some developers signing leases at net effective rents below EUR 3 sqm/month.
With the retail market in Warsaw close to saturation, thanks to a boom last year in the amount of retail space opened, investors are becoming less concerned about regional cities' sizes, with some growth in investor interest in regional shopping centers.
Last year saw Arkadia and Blue City open their doors, with 110,000 and 60,000 sqm of space respectively, which accounted for one fifth of existing retail space in Warsaw. This year is likely to be a quiet one for new retail space, with the opening of the Złote Tarasy center postponed until Spring 2006, because of legal reasons. The largest schemes for this year are in Silesia City Center in the old Gottwald mine in Katowice (65,000 sqm) and Manufaktua in Łódź. (90,000 sqm).
Many smaller companies are also turning their attention to the residential market and the commercial sector, where they are seeking to increase yields through active asset management. Prime investment products in the city are scarce, leading to fierce competition between the investment funds for attractive properties.
Outside of Warsaw, the research indicates that investors are now willing to pay initial yields of around 8.5 percent for regional shopping centers and 8.75 percent for modern warehousing with long leases and good tenants, but these figures are expected to compress further.
The office market in Warsaw, on the other hand, looks well on the way to a full recovery. After several lacklustre years, due to a glut of supply, the office sector enjoyed its highest ever transaction activity, a drop in vacancy rates and improved investor confidence. Although headline rents have declined in central areas, the market as a whole has stabilised. In 2004, new office supply came to 185,600 sqm, mostly around Centrum, Al. Jerozolimskie, and Wola. Total transactions accounted for 404,200 sqm of occupied space, 87 percent of which was modern offices. Vacant space in Warsaw makes up 316,000 sqm. Companies are continuing to drift out of the city center in search of cheaper office space. Of the 10 largest new letting transactions, just two were in central locations.
One interesting trend is in pre-lettings, with deals of this kind, some of which were signed 20 months ahead of construction, amounting to 17 percent of total office take-up. Often, these pre-lets were necessary for developers to obtain financing to begin construction and they have driven a surge in the number of purpose-built offices.
This year will continue the low-supply trend, with between 134,000 and 189,000 sqm of modern offices expected on the market, depending on the completion of the Rondo 1 building. 2006 could see an office-space boom, however, with 300,000 sqm expected on the market.
Currently, vacancy rates stand at 13.3 percent, down from 16 percent in 2003. Age seems to be a deciding factor for companies, with property less than five years old showing high vacancy rates. Landlords are offering significant breaks to tenants to fill up their property, according to the report, in the form of rent-free periods and capital contributions to buy out existing leases, with headline rents are continuing to decline in central areas and stabilising elsewhere.
King Sturge expects some of the most popular buildings to raise headline rents slightly in 2005, by no more than E1 sqm/month. Outside of Warsaw, Kraków and Poznań are expected to attract more investor attention, but only 17 percent of the 2.9 million sqm of modern space is outside of Warsaw.
The warehousing market had a very good year in 2004, with record-breaking take-up suppressing vacancy rates. This sector is expected to surge in 2005 and 2006, particularly in central Poland, Poznań and upper Silesia, with take-up this year of no less than 400,000 sqm. Currently, the Warsaw market is balanced, with no change in rental levels, new constructions in the pipeline, and vacancy at a reasonable 8.2 percent. Again, pre-lets are starting to become a feature of the sector, with some developers signing leases at net effective rents below EUR 3 sqm/month.
With the retail market in Warsaw close to saturation, thanks to a boom last year in the amount of retail space opened, investors are becoming less concerned about regional cities' sizes, with some growth in investor interest in regional shopping centers.
Last year saw Arkadia and Blue City open their doors, with 110,000 and 60,000 sqm of space respectively, which accounted for one fifth of existing retail space in Warsaw. This year is likely to be a quiet one for new retail space, with the opening of the Złote Tarasy center postponed until Spring 2006, because of legal reasons. The largest schemes for this year are in Silesia City Center in the old Gottwald mine in Katowice (65,000 sqm) and Manufaktua in Łódź. (90,000 sqm).
