The commercial state of play
Colliers International recently updated its report on the commercial market in Poland. It says yields in all sectors fell sharply, with the increasing investment capital competing to buy a relatively limited stock of institutional quality property. Even the top retail and office developments had to settle for net initial yields of seven percent or lower.
Capital bounces back
Many agents pointed to last year as strong evidence of a recovery in Warsaw's office market. Take up for the year hit 373,000 sqm, with tenants flocking back to the city center from the suburbs. CBD take-up increased by 60 percent, while suburban areas saw new leases drop by seven percent. In recent years, city-center properties have failed to compete effectively on rents with suburban locations, but the tide now seems to have turned.
The total stock of class A and B+ office space in Warsaw came to 2.3 million sqm at the end of 2005, with 60 percent of this in non-central locations. Some 128,000 sqm was introduced to the market, down from 145,000 sqm in 2004. Although this figure is low, two major projects are due on the market in the near future. Hochtief Project Development's 39-storey Rondo 1 tower has 58,000 sqm and has just opened its doors. Lumen, the office section of ING Real Estate's flagship Złote Tarasy development, saw the launch of its first phase of 23,500 sqm delayed until the third quarter of 2006. A second phase, Złote Tower with 21,500 sqm, is being held back until 2007 for clients with requirements of at least 10,000 sqm.
The town and the city
Outside of these projects supply in the city center will be limited in 2006, with vacancy rates of 15 percent scaring many developers off. In its report, Colliers says that firms brave enough to start work on new developments will reap the benefits in the next 24 months, especially in projects in the city-center fringe, with easy access by car and lower parking charges.
Tenants in the city center are now looking beyond rents to location and the level of prestige attached to different developments. Headline rents dropped significantly from EUR 18-21 (zł.69-80) per sqm to EUR 15-18 (zł.57-69) and once landlord inducements are factored in, this knocks around 20 percent off the price. These better deals meant the CBD's vacancy rate plummeted from 19 percent in Q4 2004 to 12.2 percent at the end of 2005. However, the introduction of Rondo 1 and Lumen will probably push this back towards the 15-percent mark. Colliers is confident that rents have now bottomed out and landlords are now in a better negotiating position, but gains will not be significant yet.
In the 'burbs
Supply in Warsaw's suburbs was just below 100,000 sqm in 2005, and Colliers says new space will be needed to stop the market becoming too tight. The largest sub-district, Upper South, saw the greatest increase in space. Its proximity to the ever-popular Mokotów district and Okęcie airport makes it top of many investors' lists in the retail, office and residential markets. The two major deals in the year were the delivery of the Allianz building and Dom 50, both on ul. Domaniewska. GTC is due to open its Topaz office building (11,000 sqm) and Ghelamco could introduce both phase one and two of its Trinity Park development this year (18,500 and 24,000 sqm respectively).
Colliers says the most popular suburban locations are attracting rents of around EUR 14 (zł.54) per sqm per month, dropping to EUR 12 (zł.46) in other districts. Colliers says the rental cycle has also bottomed out here, with incentives eroding and rents beginning to recover. Vacancy dipped slightly in 2005 to 5.5 percent, and in both the city center and the suburbs the tenants' market seems to be at an end.
Shop takes a drop
Diversification was the key word in Poland's retail market last year. Investors began to focus on regional towns and cities, and new formats, such as outlet centers and retail parks, became more popular.
The capital's retail scene was quiet, and towards the end of the year the Outlet Company followed in Neinver's footsteps by opening up an outlet center selling discounted branded goods. A number of second- and third-generation stores opened their doors outside of the capital. In March GTC opened Galeria Kazimierz in Kraków, with 32,600 sqm of retail space, and just days before King Cross opened King Cross Marcelin in Poznań, which has 34,173 sqm. Colliers says the latter is going through a retail boom, with work underway on the 29,687-sqm Poznań Plaza. A Factory outlet center, the second phase of the Stary Browar development, Apsys Polska's Łacina, Polimeni's Galeria Hetman and Neinver's Komandoria are all in the Poznań pipeline.
Retail developers are also set to do battle in several other cities, including Rzeszów and Białystok. A number of companies are also launching retail-park developments, including Ikea, Immochan, Helical Bar and Parkridge CE Retail.
A number of city-center redevelopments are also taking place, including Warsaw's Pasaż Wiecha, which is set for a long overdue revamp. The other major new developments this year include Złoty Tarasy in Warsaw (65,000 sqm), Galeria Krakowska in Kraków (60,000 sqm), and Manufaktura in Łód (90,000 sqm).
Retail rents are difficult to pigeonhole in Poland, due to the huge variety of products, locations and leases on offer. The recent strong supply of high-quality space has led to a stratification of the market, and many dominant centers can negotiate higher rents and even have tenant waiting lists. The most popular chains in Poland are now thinking very carefully before committing themselves to further expansion.
