Polish commercial property markets in good health
The first half of 2015 saw high levels of activity within the Polish commercial property market and the outlook for 2015 remains positive with annual figures likely to be better than in 2014 given the volume of transactions closing. More detailed information on the office, retail and industrial sectors is included in the latest report “Marketbeat Poland Autumn 2015” prepared by Cushman & Wakefield. It also presents an overview of the commercial investment market in Poland and an outlook for the Polish commercial property market.
Charles Taylor, Managing Partner of the Polish office of property consultant Cushman & Wakefield, said: “Investor interest in Polish commercial properties remains very strong across all asset classes. Focus in the office sector is shifting to regional cities which in H1 2015 outperformed Warsaw in terms of trading volumes for the first time ever. Krakow is now the top spot for regional office investment.”
The Polish investment market performed well in H1 2015 as the investment volume reached €794 million in 21 transactions, of which the office sector accounted for 47 percent, followed by retail with 34 percent and the industrial sector taking around 19 percent.
Compared with H1 2014, the investment volume fell by 47 percent and the number of deals was down by 16 percent, which was mainly due to the more limited supply of large prime assets for sale.
In H1 2015, total transaction volume reached €374 million on the office market, €271 million on the retail market and €149 million on the industrial market. All these figures are lower than those recorded in H1 2014.
Piotr Kaszyński, Partner, Head of Capital Markets, Cushman & Wakefield, said: US investors accounted for nearly half of the transaction volume recorded in H1 2015, increasing their share of the Polish investment market by 14 percentage points compared with 2014. By contrast, the share of German investors in the deal volume fell by 15 percentage points while Polish investors came third with a stable market share at 9 percent.”
With office supply outstripping absorption on the Warsaw market in H1 2015, the vacancy rate rose gradually thanks to high absorption standing at 30,900 sqm in central locations compared with year-end 2014. Leasing activity in Warsaw is rising as expected. In H1 2015, total take-up reached 385,200 sqm, representing a rise of nearly 50 percent on the same period of 2014, with demand for office space coming largely from banking, financial and insurance companies (78,900 sqm), the IT sector (77,100 sqm) and professional services (49,400 sqm). In H1 2015, modern office supply in Warsaw totalled more than 147,000 sqm, the largest completions being Postępu 14 and Spektrum Tower. The biggest schemes under construction include Warsaw Spire and Q22. Headline rents in Warsaw stand at €11-24.75/sqm/month, depending on scheme location and standard.
In H1 2015, modern office stock in Poland’s six regional cities (Krakow, Wrocław, Tricity, Poznań, Katowice and Łódź) rose to more than 3 million sqm, accounting for 66 percent of Warsaw’s total office space. With 752,000 sqm Krakow remains the second-largest office market after Warsaw. In the first two quarters of 2015 leasing activity on the regional markets amounted to more than 217,200 sqm, accounting for almost 59 percent of 2014’s total take-up. The largest leasing volumes were noted in Krakow and Tricity. The office markets of Szczecin and Lublin continue to grow, offering 175,400 sqm and 154,100 sqm of modern office space, respectively. Headline rents in regional cities are more or less evenly aligned, ranging from €13/sqm/month in Łódź to €15.5/sqm/month in Wrocław.
Richard Aboo, Partner, Head of Office Department, Cushman & Wakefield, said: In Warsaw both office building owners and developers are finding it difficult to keep rents stable due to office supply outstripping absorption. However, leasing activity has already started to pick up in line with the economic cycle, strongly spurred by the expiry of ten-year leases signed in the years 2006-2008 and five-year leases signed in 2011-2013, when take-up was high. Leasing volumes are also rising on the regional markets where, given the strong occupier demand, more than 400,000 sqm is expected to be transacted in 2015. The outlook for Lublin and Szczecin remains positive as these emerging markets benefit from low land prices and low costs of highly-qualified employees.
New retail space supply in H1 2015 totalled 176,800 sqm. This included the openings of seven new retail schemes and extensions of nine existing properties. The largest completion was the Tarasy Zamkowe shopping centre in Lublin providing 38,000 sqm. The development pipeline includes around 800,000 sqm, of which around 439,000 sqm is to come onto the market in 2015, in schemes such as Zielone Arkady (51,000 sqm GLA) in Bydgoszcz and Sukcesja (46,000 sqm GLA) in Łódź. Modern retail supply is expected to total 616,000 sqm, a 30 percent rise on 2014’s figure.
The eight largest Polish cities will account for 38 percent of new retail space to be constructed this year compared with just 9 percent in 2014. Around 67 percent of this year’s total supply will come onto the markets of large cities above 200,000 inhabitants in contrast to 2014, when more than 70 percent of new retail space was delivered in cities below 200,000 inhabitants, including 48 percent in cities below 100,000 inhabitants. Demand for retail space has remained at a healthy level in 2015 with tenants focused on schemes offering high footfall and satisfactory revenues.
The shopping centre density in the fifteen largest conurbations (cities above 200,000 inhabitants) is the highest in Lublin, Wrocław, Kielce and Poznań. The highest rents are in Warsaw’s prime shopping centres at €100-140/sqm/month for a fashion store sized between 100 sqm and 150 sqm. Rents average €35-40/sqm/month in the other seven conurbations and € 20-30/sqm/month in small and medium-sized cities.
The retail park sector continues to grow rapidly in Poland with retail parks being developed mainly in smaller cities, including towns with a population of 15,000 to 30,000. The largest schemes opened this year were Era Park Wieluń and Galeria Głowno, providing 6,000 sqm each. Development activity has also picked up on the Polish outlet centre market. In H1 2015 another retail scheme was added to the market: Outlet Center Białystok. The current development pipeline includes the extensions of Warsaw’s Factory Ursus and Szczecin’s Outlet Park to be provided with an additional 6,000 sqm and 5,000 sqm, respectively. The Polish food sector is currently developing through convenience stores (Żabka and Carrefour) and through upgrades and standardization of existing retail space. Development activity in the DIY hypermarket sector was limited in H1 2015.
Marek Noetzel, Partner, Head of Retail Department, Cushman & Wakefield, said: “E-commerce, including mobile commerce (m-commerce), is gaining an increasing market share and becoming intertwined with traditional retailing. Most brands across all sectors are now strongly focused on omni channel presence by combining in-store experience with online shopping. Most of them have already launched online stores. On the other hand, online retailers are now opening physical pop-up stores or taking up retail space on standard lease terms in traditional shopping centres. Co-existence of various distribution channels and combination of different shopping opportunities are the key features of the modern retail market.”
In H1 2015 the industrial and warehouse market in Poland witnessed further robust growth, both in supply and take-up. More than 450,000 sqm of new industrial space was delivered to the market, representing a 33 percent increase compared to H1 2014. Take-up reached 1,210,000 sqm, which pushed the vacancy rate down from 6.8 percent to 6.2 percent. In 2015 Poland’s new supply is likely to exceed 1,000,000 sqm. Vacancy rates are expected to remain low as take-up is strong and most schemes are either BTS projects or have secured substantial pre-lets.
The Warsaw region remains the largest warehouse market in Poland, but 77 percent of its stock is located in Warsaw’s suburbs. However, improvements in transport infrastructure have spurred development activity in the regional markets such as Upper Silesia, Central Poland, Poznań and Wrocław, whose industrial space accounts for 60 percent of the country’s total compared to Warsaw’s 31 percent market share.
Development also picked up in the smaller markets of Szczecin, Lublin, Krakow, Rzeszów and Tricity, where 167,000 sqm of warehouse space was delivered in H1 2015, a rise of 36 percent on 2014’s total supply of 123,000 sqm. Due to improved road infrastructure, we are witnessing more medium-sized cities with available labour resources being of interest to occupiers. Some developers are growing their portfolio of industrial projects and securing development sites at affordable prices per sqm in these cities and are realizing new developments to accommodate occupier demand and provide modern industrial and logistics space in these under-developed locations.
Rents remained flat or fell slightly in the core warehouse markets in H1 2015. The highest rents were posted in Warsaw’s inner city (€4.2-5.5/sqm/month) while the lowest were in Central Poland (€2.4-3.95/sqm/month) and in Warsaw’s suburbs (€2.4-3.8/sqm/month).
Tom Listowski, Partner, Head of Industrial Department & CEE Corporate Relations, Cushman & Wakefield, said: “Having new developer-led industrial and logistics parks appear in previously inaccessible areas of Poland not only gives occupiers more options to choose from but also gives developers the opportunity to unlock very well located sites for the development of modern facilities, be it for multi-let or BTS buildings. Customers from various sectors including 3PL’s are able to improve their supply chain whereas others can locate, and in some instances, re-locate from antiquated buildings to modern and efficient facilities in cities which are complimentary to their operations, supplier base and have available labour resources.”