November 20, 2017

Occupier market in Poland appearing to stabilize

Occupier market in Poland appearing to stabilize

According to the latest RICS Poland Commercial Property Monitor Q3 2017, investment enquiries once again increased across all areas of the market, led by solid growth across the office and industrial sectors. Similarly, foreign investor demand growth accelerated at the headline level, driven by robust demand for offices.

Occupier demand continue to rise
The Occupier Sentiment Index (a composite measure capturing overall momentum) moved to +6 from -5 in Q2. This was the first positive reading since 2012, but still points to only a marginal improvement in overall occupier market conditions.

Occupier demand continued to rise in Q3, the sector breakdown shows that this was mainly driven by strong growth in the office and industrial sectors, with demand remaining unchanged across the retail sector.

The availability of leasable space continued to increase at a similar pace to that seen in the previous quarter. Notably, the latest results point to a more balanced market, with the reading for occupier demand broadly equivalent to that of supply for a second consecutive report.

Alongside this, development starts continued to rise albeit the pace of growth moderated from the last quarter. Activity increased at a solid rate across the office and industrials sectors but declined in the retail sector.

Even though twelve month all-sector average rent expectations remain slightly negative, the outlook is now marginally positive across prime locations. Within this, respondents appear most upbeat on the prospects for prime retail rents. Although still negative across all secondary sub-sectors, rental projections were not quite as pessimistic as in the previous quarter.

Investment enquiries increase across all areas of the market
The Investment Sentiment Index improved to +12 from a broadly neutral -1 in the previous quarter, consistent with momentum building gently in the investment market.

Investment enquiries once again increased across all areas of the market in Q3, led by solid growth across the office and industrial sectors. Similarly, foreign investor demand growth accelerated at the headline level, driven by robust demand for offices.

The supply of property for investment purposes held broadly steady at the headline level. When broken down, a continued rise (albeit at a diminished pace) in the office sector was offset by a fall in the supply of industrial and retail properties on the market.

Capital value expectations for the year ahead remain modestly positive across all prime sub-sectors. That said, respondents downgraded their projections, relative to Q2, for prime industrial and retail assets. The outlook is now more or less flat for secondary industrial values, while some downward pressure is still expected in the secondary office and retail portions of the market.

Survey contributors are quite divided on the current phase of the property cycle, although the largest share (29 percent) sense that conditions are consistent with the middle stages of an upturn.

Monika A. DÄ™bska-Pastakia FRICS MRTPI, Partner and Chairman of the Board, Knight Frank Poland, commented: “Despite a lower volume of transactions up to the end of Q3 in 2017 when compared with the same period last year there are high expectations of achieving a record level of commercial transactions in Poland at the year end. A bulk of the investment volume is made up by large portfolio transactions currently pending with anticipated completion in December. This clearly shows a significant appetite for property investment products in Poland attracting more global funds. A number of back-to-back transactions are likely to emerge judging from the expectations of returns to be achieved by some of the principal investment players in the market. The office occupier market remained very buoyant with some spectacular deals done by Brexiters albeit a general feeling in the market is that the main wave of the exodus may have already surpassed.”

Poland Commercial Property Monitor Q3 2017 – the key characteristics of the market

Market Valuations - The percentage of respondents sensing that commercial real estate is expensive has risen to 33 percent from 6 percent in the previous quarter. Nevertheless the majority of respondents (67 percent) continue to believe prices are at or below fair value.

Credit Conditions - On balance, credit conditions reportedly improved slightly during Q3, following a marginal deterioration in the previous quarter.

12m Capital Value Expectations - Prime markets are expected to post modest capital value gains in the coming year, meanwhile capital value projections for secondary office and retail sub-sectors remain in negative territory.

12m Rental Expectations - Rental projections for the coming year are positive across the prime areas of the market, however downbeat sentiment across secondary markets continues to weigh on the all-property average.

RICS Global Commercial Property Monitor Q3 2017 - the highlights for Europe

Occupier market momentum remains firmest in Europe and, in particular, across CEE markets. Indeed, Hungary, Czech Republic and Bulgaria (accompanied by Spain and Portugal) recorded the strongest five OSI readings during Q3. This significant rate of improvement is in keeping with robust economic growth across these markets, with each posting an annual rate of GDP growth around, or in excess of, 3 percent. Smartly rising economic output is driving occupier demand higher and supporting elevated rental growth expectations.

With respect to the Investment Sentiment Index, Europe registered the best results, Germany moved to the top of the pile in Q3, with Berlin and Frankfurt both seeing a surge in investment enquiries, while Munich also saw a strong (albeit more modest in comparison) rise in investor demand. Although a majority of respondents in Germany sense conditions are likely close to peaking in the current cycle, strong capital value growth is still anticipated across each of these cities over the next twelve months. Similarly, strong investment demand growth is outstripping that of supply (in net balance terms), producing firmly positive capital value expectations in Budapest, Dublin, Lisbon and Sofia.

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