Upwards and out

This year, total property investment volumes are expected to beat the 2006 figure of E4.75 (zł.18.5) billion, according to Cushman & Wakefield's (C&W) spring report. An accelerating economy combined with a record level of foreign direct investment has caused a substantial increase in the demand for commercial and residential properties in Warsaw and across Poland.

Office space

Office yields have been falling year-on-year, reaching record levels of some 5.5 percent for prime office buildings in Warsaw's Central Business District, which is a sign of the market's maturity. Prime retail yields amounted to 5.5-5.75 percent at the beginning of 2007 compared to 6.5 percent a year earlier. The number of retail transactions in 2006 compared to 2005 grew by almost 60 percent. Prime industrial yields are now in the region of seven percent with a potential for further yield compression.

"Last year, the largest number of office-investment transactions were concluded in Warsaw, although regional markets continued to develop and more deals were closed in Kraków, Wrocław, Katowice as well as in other cities. This trend is likely to continue. Movement on the investment market will also be driven by new developments, as well as sale and leaseback opportunities," says Michael Atwell from C&W.

Jakub Marszałek from C&W says that high demand resulted in a decrease in vacancy (5.3 percent for Warsaw) and a rise in rental levels. Prime rents in Warsaw's Central Business District increased between 10 and 20 percent, depending on location, exceeding E24 (zł.93.4) per sqm in the best locations. Gross take up increased once again, reaching a record level of 412,200 sqm, 10.5 percent more than in 2005.

"The demand for office space in Warsaw in 2007 should remain high, however absorption may fall due to the limited number of planned completions. Companies are now signing pre-lease agreements to secure the office space that will become available in 2008 and 2009," says Marszałek.

Zeroing in on retail

At present, the modern-retail- space market in Poland comprises approximately 6,300,000 sqm. An additional 600,000 sqm of modern retail space is under construction while 1,000,000 sqm is at an advanced stage of development. Development in shopping centers is shifting to medium-sized towns (100,000-350,000 inhabitants).

"The years 2007-2008 are a period of building shopping centers in medium-sized towns, amounting to approximately 800,000 sqm by the end of 2008," says Katarzyna Michnikowska from C&W.

In terms of warehouse space, Poland's is the most developed in the region as development has been spurred by improved road infrastructure, mainly highways.

Residential pinch

"The Warsaw residential market is also experiencing considerable growth in terms of supply and demand for residential space and is treated as an attractive destination for new residential investments," says C&W's Anna Kwiatkowska. Last year, approximately 15 percent of the total number of dwellings completed in Poland were found on the Warsaw market. Forecasts show the annual number of apartments completed in Warsaw exceeding 21,000 in the following years, however, even this high a level of supply is not likely to meet demand, as up to 95 percent of projects are sold before their completion dates. The highest average price per sqm for residential properties is registered in Warsaw (zł.7,300). Kwiatkowska says that in 2007 the prices of residential units will continue to rise, but at a considerably slower rate. Warsaw's housing market is followed by Kraków, Wrocław and Tri-city.