According to the latest RICS Poland Commercial Property Monitor results, growth in investment enquiries moderated, posting the slowest quarterly growth since early 2013. Furthermore, while the foreign investment demand indicator shows enquiries pick-up modestly in the office and industrial sectors, demand fell for retail properties.
The Q3 2016 Poland Commercial Property Monitor results suggest occupier demand continues to rise at a reasonable pace in both the office and industrial sectors. Conversely, demand from tenants fell in the retail market (the first quarterly decline since 2015).
Alongside this, availability rose sharply once more, with the office sector continuing to see the strongest pick-up in leasable space. The rise in supply pushed landlords to increase the value of incentive packages on offer to prospective tenants.
In this quarter’s survey, contributors were asked if they had seen any evidence of firms looking to relocate away from the UK in response to the Brexit vote. Across Poland, 38 percent of respondents have already seen such enquiries. What’s more, a significant 71 percent of contributors feel there is likely to be an increase in some firms looking to move from the UK over the next two years.
Meanwhile, oversupply is keeping twelve month rental projections subdued, although respondents are not as pessimistic on the outlook as in Q2.
The Occupier Sentiment Index (a composite measure gauging overall momentum in the occupier market) remained marginally negative but did improve to -6 following -9 in Q2.
According to the latest results, growth in investment enquiries moderated, posting the slowest quarterly growth since early 2013. Furthermore, while the foreign investment demand indicator shows enquiries pick-up modestly in the office and industrial sectors, demand fell for retail properties.
The supply of property for investment purposes rose at the sharpest quarterly pace since the series was introduced in 2014.
Respondents expect a broadly flat trend across all-property capital values over the next twelve months. Within this, marginal gains across prime areas of the market are projected to be offset by small declines across secondary assets.
Further out, over the next three years, the prime office sub sector is the only area in which respondents expect capital values to rise.
The Investment Sentiment Index slipped to -1 during Q3 from +4 previously. This is the first time since 2013 that a positive reading has not been posted. Nevertheless, the measure remains consistent with relatively little change in overall investment market dynamics over the quarter.
Market Valuations – In total, 30 percent of respondents sense commercial real estate value are somewhat stretched relative to fundamentals at present. This is broadly unchanged from the 34 percent who were of this opinion in Q2.
Credit Conditions – On balance, credit conditions reportedly deteriorated slightly during Q3, although views were mixed with 48 percent of respondents seeing no noticeable change.
12m Capital Value Expectations – Respondents downgraded their forecasts for capital value growth in the retail sector during Q3. Indeed, a relatively flat trend is now expected in prime locations while projections remain negative across secondary assets.
12m Rental Expectations – Secondary office rental projections remain in negative territory, albeit to a lesser extent than previously, with oversupply continuing to weigh on growth in this sector in particular.
Wojciech Doliński MRICS, real estate expert, commented: “Decreasing demand on the investment market might be a herald of a downturning property cycle. The existing legal uncertainty and potential retail tax introduction already materialized in a number of retail investment decisions put to a halt.
At the same time, investors’ interest has shifted towards office properties, which is visible in record-breaking yields. Despite the fact that office rents are believed to continue their downwards trajectory, the capital values of prime assets are considered to perform well within the next 3-year horizon. Still, a significant demand for industrial properties underpins rental growth sentiment, coupled with further rise of capital values of prime assets within the sector.
Only approximately 10 percent of respondents consider Poland to be close to the peak of the property cycle. However, coupled with the fact that 30 percent of respondents believe that Polish properties are a bit overpriced or very expensive, we might see a correction in the coming year. The first negative Investment Sentiment Index recorded by the RICS Commercial Property Monitor since 2013 seems to confirm this view.”