Warsaw gminas bullish despite economic gloom

By : Anna Staniszewska

    Firm foundations: A recently built apartment block in Ursynów, one of Warsaw’s most popular gminas for residential housing.

   The expansion of Warsaw’s residential sector, which grew 370% between 1995 and 2000, has started to slow, although three of the capital’s gminas – Centrum, Białołęka and Ursynów – will continue to attract new construction projects, real estate analysts said.

   “There are basically four components in Warsaw’s residential market: Centrum, Białołęka, Ursynów and the rest,” said Richard Quigley, vice president of Reas Konsulting, a Warsaw-based residential consulting firm.

   The trend to concentrate the bulk of construction in the three gminas started three years ago and is likely to continue into the future, Quigley said. Last year of 14,406 apartments built in Warsaw, 10,538 of them were built in Centrum, Ursynów and Białołęka.

   Centrum

   Centrum is not only the largest municipality in Warsaw in terms of size and population, but also the leader in terms of homes completed in 2000, totalling 25% of residential construction. Geographically, Centrum covers a quarter of Warsaw, but during the past six years it has gobbled up 34% of the city’s residential construction. This comes as no surprise to the capital’s deputy mayor, Wojciech Kozak, who said Centrum’s location makes it attractive for people who work downtown.

   “Large demand in the city center is created mainly by professionally active people who want to get to work quickly,” Kozak said.

   About 3,720 apartments were built in Centrum last year, according to a recent report by Reas Konsulting in cooperation with Arthur Andersen. The gmina has a special administrative order and is divided into seven districts with Mokotów ranking top for residential development due to its proximity to the downtown area, good transport links and an image of respectability. “It has a lot of nice neighborhoods, good urban planning and access to the city center is convenient,” said Kazimierz Kirejczyk, president of Reas Konsulting. He added that the success of a Mokotów investment is almost guaranteed. He said that the pace of construction in Mokotów is also still high because of the substantial land still available in the area. By comparison, land in Żoliborz, one of Centrum’s most popular districts, is in short supply and the number of residential construction projects is low.

   Likewise, the number of vacant plots in Centrum’s Ochota is diminishing, although the municipality has accumulated 4.5% of residential construction during the past five years.

   As for Praga Południe, it has two subdistricts – Saska Kępa and Grochów. “The first one (Saska Kępa) is ranked third or fourth within Centrum because of its nice character and good transportation links,” Quigley said. “It also has a stable residential output, but less and less land for new projects.” Grochów, on the other hand, is a traditionally lower-income area and is attracting most of the cooperative developments. “With the construction of Trasa Siekierkowska, the housing activity should increase (in Grochów),” Kirejczyk said.

   Another Centrum district, Praga Północ, took 1.1% of the residential construction last year. Kirejczyk labeled the district as the dark-horse candidate to receive additional construction in the future. “Although nothing was completed in the first half of 2001, it has lots of potential locations, especially post-industrial sites, which will become more attractive when the metro reaches the other bank of the river,” he said.

   But two factors that work against the district are its low-income population and the high crime rate. “To change it, Warsaw has to create more reserves of social housing and replacement units, but it will take some time,” Kirejczyk said. (Under the city’s program of communal housing, 1,000 apartments have been built for low-income inhabitants since 1995, but that has not been enough to satisfy the demand for such housing.)

   Œródmieœcie gained 4.9% of the city’s residential construction last year. As with Mokotów, residential construction there is mainly marketed toward the high-end sector due to the district’s expensive land prices and proximity to the city center. But according to Kirejczyk, construction in the district is likely to slow down until more land is freed up from residents. “A lot of the buildings in Œródmieœcie are occupied by people not paying rent, who can’t afford to live there,” he said.

   Wola earned 3% of the residential construction last year or 425 new apartments. But market watchers predict this year’s construction figures to be less than last year, and they don’t expect the district to boom again soon as land reserves run out.

   Ursynów

   Covering 44.6 square kilometers, Ursynów is the fourth-largest gmina in Warsaw. But in terms of housing output it ranked second last year. Some 3,564 apartments were built there in 2000, and in the first half of 2001 Ursynów increased its share to 30.5% from 25% the previous year.

   The popularity of the gmina has significantly increased since 1995 when the metro arrived at the Ursynów district of Kabaty, said Kozak, adding that vacant fields surrounded the Kabaty station when it first opened. Now there are fewer vacant lots for building in the district.

   “Ursynów, and Kabaty in particular, have the advantage of good communications with the city center and proximity to the Kabaty forest,” he said.

   Kirejczyk said demand in Ursynów often comes from families who moved there more than a decade ago and now buy apartments for their children. “The next generation is creating the local demand and they are very loyal to the area,” he said.

   Unlike in the gmina of Białołęka, the majority of new residential settlements in Ursynów are developed by housing cooperatives. The area mainly boasts popular (up to $900 per square meter) and mid-priced apartments ranging from about $900 to $1,300 per square meter.

   Białołęka

   Białołęka has recorded a 20-fold increase in residential construction during the past six years. In 1995, 157 apartments were built there, but in 2000 that number increased to 3,254. One of the factors contributing to Białołęka’s rapid development is the investor-friendly environment authorities have created.

   “Local authorities encouraged developers by putting in infrastructure, roads and a sewage plant,” Kirejczyk said. He added that his company expects the gmina to continue holding a good position, but like other areas it will suffer from the economic slowdown. The number of apartments sold in Ursynów and Białołęka might be comparable, he said, but the demographics differ significantly.

   Białołęka and its district Tarchomin are fairly new and attract people who come to Warsaw looking for work. “In Białołęka there are mainly settlers from other Polish cities and villages,” Quigley said. “So if the stream of people coming into town is much weaker than before, it will first be witnessed in this gmina.” Indeed, most market watchers agreed that Białołęka’s boom is likely to drop because of the economic slump.

   According to Kirejczyk, rising unemployment will mean less potential buyers, even if prices are attractive. Developers will also find it more difficult to receive financing from banks for large projects. “At this stage of the market, investments have to be phased and banks are more interested in financing smaller projects,” he said. Nevertheless, Kirejczyk expects Białołęka to revive in four to five years. The gmina has huge reserves for low-price or single-development housing, he said.

   The rest

   Other Warsaw gminas have far fewer residential projects, and last year their individual growth in the housing market varied from 1% to 5%. However, there are some potential areas that could attract developers in the near future.

   Kirejczyk said Bielany gmina, bordering Centrum to the north, will see an increase in residential developments in the near future. “It will be a rising star in the coming two years since it has substantial land reserves and commuting will be easier when the metro reaches Bielany,” he said.

   The neighboring Bemowo gmina is struggling with a transport problem. Many railway tracks cut through it and bus and tram connections with the city center are inadequate. Bemowo is estimated to keep its pace of growth to around 700-800 apartments per year. The only hope the gmina has of gaining more housing is the building of a second metro line, Quigley said.

   Warsaw’s third-smallest gmina, Targówek, has also been recognized as a good area for residential development. “Although it had a very bad reputation five years ago, people realized its advantages: good location, tram connection, easy access to labor centers and decent social infrastructure,” Kirejczyk said.

   The Rembertów and Wawer gminas suffer from the same problem – insufficient road infrastructure and poor public transport links. “Everything depends on the transportation issue,” Quigley said. He added that when transport improves, Wawer, Rembertów, Sulejówek and other suburban areas of Warsaw could become much more attractive for residential investors.

   Deputy Mayor Kozak agreed. “Siekierkowski Bridge and Siekierkowska Route will spur housing development there,” he said.

   Ursus gmina, which recorded an average 2.7% of the new housing market during the past six years, is also a candidate for future growth. Land reserves there are relatively big and transport fairly good, Kirejczyk said. “There is a lot of construction going on, and it can come up in the ranking fairly soon,” he said.

   Leading the market

   Compared to other large Polish cities, Warsaw is the leader in terms of housing construction output. But the figures concerning the number of new homes don’t necessarily correspond to sales.

   “The market is changing and the overall economic slowdown is reflected in the construction market,” Kirejczyk said. He added that in Warsaw construction activity was high in the past but so, too, were the prices.

   The inflated prices led to a surplus of apartments. Now that the economy has slowed, Kirejczyk said land prices as well as apartment prices are expected to go down.

   Kirejczyk’s colleague predicted the same. “The period when the sky was the limit is over,” Quigley said. He cited several reasons. First of all, it’s now more difficult to receive financing from banks, especially for large-scale projects. Secondly, as a result of the economic slump, apartment shoppers have a lower disposable income. Thirdly, most of those people buying apartments have already done so.

   It all makes for a vicious cycle, Kirejczyk said. “It (the slowdown in apartment sales) will happen this year and probably will continue over the next year,” he said.

   According to analysts, improved transport lines are essential for resuscitating the bleak housing market in many of Warsaw’s gminas. A second metro line, which would join the Chrzanów district of gmina Bemowo with Targówek, would serve best to stimulate the city’s residential construction sector. Also, improvements to the overall road network and public transportation will also help.

   “It’s important to integrate the transport system with newly constructed neighborhoods,” Kozak said. But he added that improving the transport infrastructure takes a long time, and will not be achieved till at least 2007.