The Q1 2020 Poland Commercial Property Monitor results predictably show a noticeable weakening in market expectations on the back of the ongoing coronavirus outbreak.
The Occupier Sentiment Index fell to -15 in Q1, down from a reading of +1 in Q4, representing the poorest figure since 2015. Notwithstanding this, tenant demand was reported to have risen in both the industrial and office sectors over the past three months in their entirety, although it is important to note that lockdown measure were scaled up significantly across Europe during the survey collection window.
Forward-looking metrics have been significantly impacted however, with respondents cutting twelve-month rental growth projections across the board. The retail sector is expected to be worst affected, as respondents foresee rents declining by a little over -9 percent across secondary locations and -5.5 percent for prime. Alongside this, secondary office and industrial rents are also seen falling by more than 3 percent, although rents are expected (for now at least) to stagnant rather than decline across prime locations in both instances.
The Investment Sentiment Index came down to -5 in the Q1 results, compared to a reading of +14 in Q4. Again, backward looking indicators capturing investment demand signal a slight pick-up for Q1 in its entirety, although buyer enquiries did decline in the retail sector.
Given the current concerns on the economic impact of the Covid-19 outbreak, it is unsurprising that capital value expectations for the year ahead were downgraded over the quarter. As such, all secondary markets are anticipated to see values fall in the year to come, with secondary retail expectations particularly downbeat. At the other end of the spectrum, prime industrial and office capital value expectations are more resilient, remaining slightly positive for the time being.
“The Polish commercial real estate market has strong foundations, which will certainly help fight the epidemic-related turmoil. The current data for Q1 2020 show that both developers and tenants are very active in many areas.
The situation in the office market in Poland is still at a good level. In the capital city, the amount of space leased was similar to that of the last year, and in the regional cities, it was over 220,000 sq m, which is the second-best quarterly result in the history. Due to the development of the e-commerce sector, the industrial and logistics sector has even gained importance in the current situation. The traditional trade has obviously been mostly affected by the pandemic. Therefore, further development of online services and their importance for the economy should be expected.
Despite the market slowdown, which is expected in the second and third quarters of this year, we anticipate that in the long run, the investors’ interest in Poland will not change,” Daniel Bienias MRICS, Managing Director of CBRE.
“As the markets are preparing for the re-opening of the economy the expectations are for a gradual process of moving to a “new normal”, incorporating many of the imposed Covid-19 restrictions in the months to come.
In the office sector, there are clear signs that occupiers will be moving their staff back to the offices in Q2, taking all relevant precautions. There are market signals that occupiers will be reviewing their space requirements and formats as occupational costs, environmental health and social distancing are becoming the top priorities. A noticeable pressure on rents has recently been observed as office tenants expect rental abatements to cover the period of the pandemic. Demand may, therefore, be subdued for some time with more emphasis put on lease renewals and renegotiations. Nevertheless, new office leasing transactions are still being completed albeit at a lower volume with expectations of tenants’ re-aligning their businesses to a new reality.
The most significantly affected is the retail market as, under the current legislation, tenants in shopping centres exceeding 2,000 sqm in GLA are exempted from paying rents or service charges until the end of the pandemic. This has created a major disparity between the landlords and tenants leading to increased business risks on both sides. The prospects of retail re-opening under the numerous current restrictions are gathering momentum. However, the convalescence period may take a longer time, resulting in a new retail business model that may emerge at the outcome.
The most resilient market segment has been logistics with relatively stable performance and outlook.
Most property investors’ activity has considerably slowed down during the pandemic although some interest is observed in the office and logistics sectors. The general market sentiment is for yield de-compression and corresponding pricing corrections, primarily in the most affected property sectors,” Monika Dębska-Pastakia FRICS MRTPI, Partner, Chairman of the Board Knight Frank, RICS Civil Commercial Mediator.
