Real Estate. Country Facts. Property investors favour Poland. but for how long?

Transcription

1 Real Estate Property investors favour Poland 04 but for how long? 2012

2 Imprint: Publisher and media owner: UniCredit Bank Austria AG Editor: Bank Austria Real Estate Consulting & Investment, Karla Schestauber, Tel. +43 (0) Layout: Dated: 15 March 2012 A joint publication of Bank Austria Real Estate, UniCredit Research and Immobilien Rating GmbH (IRG). Disclaimer: Despite diligent research and the use of reliable sources, UniCredit Bank Austria AG assumes no responsibility or liability regarding the completeness and accuracy of the information herein. This publication is not a proposal or request for proposal and shall not be construed as such. Legal notice please read this important information: This publication is neither a marketing communication nor a financial analysis. It contains information on general economic data and real estate market data and related assessments of real estate market developments. Despite careful research and the use of reliable sources, we cannot assume any responsibility for the completeness, correctness, up-to-dateness and accuracy of information contained in this publication. The publication has not been prepared in compliance with the legal provisions governing the independence of financial analyses, and it is not subject to the ban on trading subsequent to the distribution of financial analyses. This information should not be interpreted as a recommendation to buy or sell financial instruments, or as a solicitation of an offer to buy or sell financial instruments. This publication serves information purposes only and does not replace specific advice taking into account the investor s individual personal circumstances (e.g. risk tolerance, knowledge and experience, investment objectives and financial circumstances). Past performance is not a guide to future performance. Please note that the value of an investment and the return on it may rise and fall, and that every investment involves a degree of risk. The information in this publication contains assessments of short-term market developments. We have obtained value data and other information from sources which we deem reliable. Our information and assessments may change without notice. Disclosure pursuant to Section 25 of the Austrian Media Act: Supervisory Board: Erich Hampel, Chairman of the Supervisory Board; Paolo Fiorentino, Deputy Chairman of the Supervisory Board; Members of the Supervisory Board: Candido Fois, Karl Guha, Jean Pierre Mustier, Roberto Nicastro, Vittorio Ogliengo, Franz Rauch, Karl Samstag, Wolfgang Sprißler, Ernst Theimer. Delegated by the Employees Council: Wolfgang Heinzl, Chairman of the Employees Council; Adolf Lehner, First Deputy Chairman of the Employees Council; Emmerich Perl, Sedond Deputy Chairman of the Employees Council; Barbara Wiedernig, Third Deputy Chairman of the Employees Council; Members of the Employees Council: Josef Reichl, Robert Traunwieser. Management Board: Willibald Cernko, Chairman, Chief Executive Officer (CEO); Gianni Franco Papa, Deputy Chairman (CEE Banking); Members of the Management Board: Massimiliano Fossati (CRO Risk Management), Francesco Giordano (CFO Finance), Rainer Hauser (Family & SME Banking), Dieter Hengl (Corporate & Investment Banking), Doris Tomanek (Human Resources Austria & CEE), Robert Zadrazil (Private Banking). Objective of the medium: Information of the customer 2 Real Estate 04 / 2012

3 Polish economy reaps rewards of EU accession Facts and figures Poland is a parliamentary republic in Central Europe. It borders the Baltic Sea and Russia to the north, Ukraine and Belarus to the east, the Czech Republic and Slovakia to the south, and Germany to the west. The country has an area of 312,685 km 2 and its population of 38 million is the fourth largest in Central and Eastern Europe (CEE) after Russia, Turkey and Ukraine. Poland s gross domestic product (GDP) reached EUR 340 bn in 2011, and GDP per capita was EUR 8,904. It became a member of the European Union on 1 May Latest country ratings Moody s A2 Outlook stable S&P A Outlook stable Fitch A Outlook stable Real GDP (2008=100) Poland Germany Hungary Greece Italy France Poland s entry into the EU in 2004 played a significant role in supporting medium-term economic growth prospects. It brought about rapid growth in trade with the EU countries (exports grew at an average annual rate of about 18 % ), while substantially supporting investment in Poland by increasing foreign direct investment and through the inflow of transfer payments from the EU (in the period average annual investment growth was about 11 %) In 2009, when the European economy experienced a deep recession, Poland as the only EU country managed to sustain economic growth (1.6 %). The next two years brought a revival, during which Poland s GDP growth reached 4.3 % in In our opinion, this year will see a clear slowdown of economic growth in Poland (to around 3 %) following the faltering economic activity of major trading partners (including Germany) and due to the weaker growth of domestic investment. Source: UniCredit Research A rapidly growing negative trade balance in led to a sharp rise in Poland s current account deficit (close to 6 7 % of GDP). Due to the economic slowdown and the sharp depreciation of the zloty in 2009, the deficit in subsequent years narrowed Macroeconomic data and forecasts e 2012f 2013f NGDP (EUR bn) GDP per capita (EUR) 8,129 9,275 8,904 10,203 11,410 Real GDP (%-chg) CPI (avg.%-chg) Unemployment rate (%) Exchange rate EUR / PLN, avg Current account / GDP (%) FDI / GDP (%) General government balance / GDP (%) Public debt / BIP (%) Foreign debt / GDP (%) Source: UniCredit Research / f forecasts / e estimate Real Estate 04 /

4 significantly to below 5 % of GDP. In 2012, weaker economic growth should contribute towards a further narrowing of the current account deficit (according to our estimates to about 3.1 % of GDP from about 4.1 % of GDP in 2011). Current account balance (% GDP) PLN/EUR exchange rate s 2012p 2013p Source: UniCredit Research Source: Datastream Since early 2004 the National Bank of Poland (NBP) has been targeting an inflation rate of 2.5 % with an acceptable fluctuation band of + / 1 percentage point. The NBP maintains interest rates in a range that is consistent with the inflation target by influencing the level of short-term interest rates on the money market. Throughout 2011, CPI inflation remained above the upper limit of the inflation target (3.5 %), but in 2012 we expect it to return to around the NBP target, which will be supported by both the slowdown in domestic demand and the gradual appreciation of the zloty. Since 2000, the zloty has been under a fully floating exchange rate regime and has not been subject to any restrictions for a decade. However, the NBP reserves the right to intervene on the currency market to achieve the inflation target, and in 2011 the central bank intervened on the FX market in order to prevent excessive depreciation of the zloty. One of the main challenges for the Polish economy is the reduction of the excessive fiscal imbalance that has persisted since 2008 (in 2010 the general government deficit reached 7.9 % of GDP). Currently Poland remains under the excessive deficit procedure, imposed by the European Commission in In our opinion, a General Govemment balance (% GDP) 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9, s 2012p 2013p Source: UniCredit Research series of fiscal tightening measures taken so far by the government will probably be sufficient to reduce the general government deficit to around 3 % of GDP in If the government s deficit reduction plan succeeds, general government debt, after reaching approximately 54 % of GDP in 2011, should decrease in subsequent years and there should be no risk of breaching the Maastricht public debt criterion of 60 % of GDP. 4 Real Estate 04 / 2012

5 International investors on the lookout for core real estate Poland was the only country in the EU to achieve economic growth in the 2009 crisis. Real GDP rose by 1.6 %, compared with an average drop of 4.3 % for the European Union as a whole. This attracted the attention of international property investors. In addition the degree of development and depth of the Polish property markets was also an argument in favour of investing in the country. Foreign investment in Poland in 2010 and 2011 was considerable: according to CBRE, investments in commercial property in CEE amounted to EUR 11.2bn last year approximately double the 2010 level with Poland accounting for some 30 % of the total. This made Poland the region s most attractive market for investors in search of secure core investments. In contrast, Russia, which also saw a jump in investment volumes, was mainly the market of choice for opportunistic local investors with a significantly larger appetite for risk. Prime yields down sharply With buyers' interest so high, yields have fallen considerably. Prime yields in the office segment in Warsaw stood at 6.25 % at the end of the fourth quarter of 2011 the lowest level in CEE. The scope for further compression would now appear to have been exhausted. There are wide spreads between yields on core and and non-core properties, and investments in higher yielding, opportunistic real estate could become increasingly attractive if moves to further deescalate the euro zone crisis are successful and the economy begins to pick up again. Although country risk as reflected in five-year credit default swap (CDS) spreads has increased as a result of the euro crisis, the Office segment: prime yields Q % qoq change (bp) Frankfurt Vienna Milan Warsaw Prague Bratislava Budapest Istanbul Bucharest Zagreb Moscow Sofia Belgrade Kiev Source: CBRE picture is still brighter than during the global economic and financial downturn. Poland s CDS spread of around 170 basis points (bp) is higher than those of the Czech Republic (around 120 bp) and Austria (around 160bp), but considerably lower than the spreads of Slovakia and Hungary. Banks scaling back commercial real estate lending in CEE Poland s commercial property market is benefiting from the willingness of most international banks some of which have beaten a retreat from the riskier CEE markets to keep on providing funds. CEE property investment by country 2011 Russia Poland Czech Republic Hungary Slovakia Romania Other CDS spread development (5-year) bp Poland Hungary Slovakia Czech Republic Austria Source: CBRE Source: Datastream Real Estate 04 /

6 The financial sector has been hit hard by a combination of the eurozone debt crisis, the new Basel III framework and the tighter capital requirements introduced by the European Banking Authority (EBA). Banks refinancing costs have increased, while the appetite for risk has dropped. The CDS spreads of European banks are an indicator of the distortion in the market in spite of their recent decline, spreads are still close to the highs of the financial crisis in Although the European Central Bank (ECB) has kept interest rates low and the 3M EURIBOR is below the 1 % mark, rising bank liquidity costs have in some cases pushed up the cost of borrowing. The financing of investments, which can partly be refinanced using mortgage bonds, enjoys an advantage here, but risk and cost factors mean that the chances of securing funds for developments have dropped in general. Poland came a creditable third in a recent Ernst & Young ranking of the attractiveness of European real estate locations in But the point in the real estate cycle at which investors should move into the Polish market is crucial. Experience shows that investors who buy properties immediately after a crisis are more successful than those who make their move at or near the peak of the cycle. Investors in commercial real estate should also bear the indirect exchange rate risks in mind, even though rents in Poland are invoiced in euro. Since it peaked in July 2008, the zloty has lost some 30 % of its value against the euro, slipping by 15 % in the second half of 2011 alone. However, the improvement of euro zone risk which led to a growing appeal of carry trades, have helped to shore up the zloty significantly. Euopean Banks CDS spreads (5-year) bp Theoretical property cycle Strong competition between banks Relative weak position of risk departments High LTVs High investment volumes Plenty of new developments are startetd Strong competition between banks Relative weak position of risk departments High LTVs High investment volumes Plenty of new developments are startetd Rents in EUR /month Banks act more reluctantly Financing conditions get more conservative Allowances for depreciation are increasing Bank financing is easier to get Financing conditions are less conservative time Bank financing is difficult to get Relative strong position of risk departments Low LTVs Distressed properties are coming to the market Investment volumes are low Hardly any new developments Source: Datastream Source: Bank Austria, Real Estate Research Relative attractivenes of European property investment by country 2012 PLN/EUR exchange rate very attractive attractive neutral less attractive no comment Belgium UK Spain Austria France Netherlands Russia Sweden Poland Switzerland Germany 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Ernst & Young Source: Datastream 6 Real Estate 04 / 2012

7 Office property in Poland: hot spot Warsaw, but many interesting alternative locations International investors continue to focus on office property in Warsaw: the market is considered to be stable, and has very low vacancy rates. In 2011 many major deals highlighted the attractiveness of the Warsaw office market. Despite investors strong interest in Warsaw, it should be noted that Poland has numerous other populous cities, also with considerable office property markets. The most significant of these regional centres are Krakow, Wroclaw, Poznan and the Tri-City (Trójmiasto) conurbation consisting of Gdansk, Gdynia and Sopot, as well as Katowice and Lodz. However, the office sector is not developing at the same pace in all these cities, so properties need to be very carefully analysed before any investment decision is reached. While demand for new office space in Warsaw has over the past few years generally remained consistently strong enough to absorb the annual increase, it cannot automatically be assumed that new office space elsewhere will immediately be taken up. These uncertainties have often led international players to see these other markets as too small and uninteresting, with the result that regional office property developers have become predominant outside the Warsaw area. They are better able to gauge the level of demand accurately, and to adapt their projects to local requirements. Warsaw office property market Million m Source: CBRE / IRG (f) According to an IRG survey, Warsaw currently has just under 3.6 million m² of modern office space. Over one-third of Warsaw s existing office space is located in the city centre, while the majority of the office developments are outside the central area. The most important location for offices outside the city centre is in the Mokotow district. When comparing office space per capita, Warsaw is more or less on a par with Prague and slightly ahead of Budapest, but still lags Western European cities by a considerable margin. Office space per capita (2011) m² per capita Zürich Geneva Frankfurt Munich Milan 9.14 Vienna 6.10 Bratislava 3.36 Prague 2.23 Warsaw 2.09 Budapest 1.82 Bucharest 1.26 Sofia 1.16 Moscow 1.12 Zagreb 0.82 Belgrade 0.32 Istanbul 0.22 Source: IRG Over the past few years the amount of new office construction in Warsaw was relatively high, but in 2011 the figure fell back to approximately 120,000 m² of additional offices. For 2012 the forecasts predict between 250,000 and 300,000 m² of new office space again. And there are still more than enough projects in the pipeline numerous speculative projects got underway last year. New lettings of office space reached impressive heights in Nearly 575,000 m² of office space were let in Warsaw by the end of the year, which is the highest amount recorded to date. Approximately one third of the space let represented lease extensions and renegotiated rental agreements. Because of continuing high demand for office space, the vacancy rate in Warsaw was once again very low in At 6.7 %, Warsaw Real Estate 04 /

8 Office space scheduled for completion in 2012 or later (selection) Office project Total usable space (m²) Status City PLAC UNII 41,000 under construction Warsaw Mokotow Nova 40,000 completed Warsaw Libra BC 30,000 under construction Warsaw Green Corner 26,000 under construction Warsaw Senator 25,000 under construction Warsaw Nimbus 20,000 under construction Warsaw Ambassador 16,000 under construction Warsaw Oliva Point / Tower 24,000 under construction Gdansk Katowickie Centrum Biznesu 18,000 being completed Katowice Centrum Metropol 13,000 planning stage Wroclaw Aurus 10,000 under construction Lodz Source: IRG New construction and take-up CEE Million m Source: CBRE / IRG New construction Take-up CEE vancancy rate (excl. EE) Vacancy rate (%) Office vacancy rate in Europe (%) Q Dublin Budapest Amsterdam Bucharest Kiev Moscow Prague Lissabon Brussels Istanbul Madrid Stockholm Berlin Rom Copenhagen Oslo Warsaw Vienna London West End Paris Source: IRG prices have fallen significantly. At the end of 2011 top office rents in Warsaw were around EUR 25 / m² per month. In general, price levels are lower outside Poland s capital. Top office rents in Krakow, Wroclaw, Poznan and Tri-City are about EUR / m² per month, and in Katowice and Lodz slightly lower, at approximately EUR 14 / m² per month. Prime office rents: Warsaw EUR/m²/month had one of the lowest vacancy rates for office space in Europe. The vacancy rates in the other Polish cities vary widely. The office markets in Wroclaw and Tri-City show similarly low vacancy rates in Krakow and Poznan the vacancy rate was slightly higher, while the markets in Katowice and Lodz showed significantly higher vacancy rates. Prime segment booming The financial and economic crisis led to a downward correction of office rents in Poland as well. In 2007, before the crisis, top rents in Warsaw were in excess of EUR 30 / m² per month; since then rental Source: IRG 8 Real Estate 04 / 2012

9 Retail properties also on the radar of international investors The relatively crisis-proof Polish economy has helped to stabilise wage levels, which in turn has kept private consumption buoyant. With 38 million inhabitants, the country has the largest population of any of the eastern European EU member states. Around 1.7 million people live in the capital Warsaw, and there are a number of cities with populations of over 200,000. In addition to these major centres, investors have been focusing on smaller towns for some time now. New shopping centres are springing up around the country, and several first-generation developments now require renovation and modernisation in order to hold their own in an increasingly competitive market. At 225 m² per 1,000 inhabitants, the density of retail space in Poland is below the western European average. According to MB Research, in 2011 the Poles per capita purchasing power of EUR 6,077 was also significantly lower than the European average of EUR 11,577. Retail space density vs. purchasing power Purchasing power in 2011 (EUR per capita) 10,500 10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500 Upper Silesia 6, Retail space per 1,000 inhabitants Source: BulwienGesa, MB Research Warsaw Tri-City Kraków Figures from Jones Lang LaSalle show that Poland has a stock of some 7.6 million m² of shopping centre space and around 1 million m² of retail park space. In 2011, 550,000 m² of retail space was added. About 700,000 m² of retail space is currently under construction. The growing popularity of smaller towns and cities with investors is reflected in the fact that close to two-thirds of that space is being built in locations with less than 200,000 inhabitants. As more and more small-town retail developments are completed, investors will find it increasingly difficult to identify locations with an undersupply of retail space. Łódź Szczecin Poznań Wrocław Ten largest retail centres in Poland Name Lettable area (m²) Opened City Arkadia shopping centre 103, Warsaw IKEA Port Lodz retail park 96, Lodz Manufaktura shopping centre 90, Lodz Bonarka City shopping centre 90, Krakow Silesia City Center 86, Katowice Park Handlowy Tar-gowek 80, Warsaw Matarnia Retail Park 78, Tri-City Galeria Mokotow 74, Warsaw Wola Park shopping centre 73, Warsaw Galeria Echo 70, Kielce Source: BulwienGesa, operator information Although construction is under way on several large shopping centres and retail parks, almost three-quarters of the space due to be added in 2012 is accounted for by small and medium-sized developments with lettable space of under 40,000 m². Due to the limited catchment areas of the minor towns and cities, these smallscale retail properties serve as neighbourhood shopping outlets and are better suited to consumers needs. The country s demographic and economic development is making Poland an attractive market for international retail chains. Big name luxury brands are thin on the ground on the premium shopping streets in Poland s major cities, and numerous international retailers as yet unrepresented in the country are planning to establish outlets. The limited amount of space in the main shopping boulevards means that many such retailers are turning to shopping centre locations. However, most of the established centres now have long waiting lists, a point which has frustrated the expansion strategies of many companies. International chains such as GAP, Desigual, Toy R Us, Foot Locker, LC Waikiki and Jula have recently opened their first outlets in Poland. Eastern Europe s early movers were quick to gain a foothold in Warsaw s retail market, so the focal point for new retail developments soon enlarged to other large cities. Poland s largest retail locations are situated in Warsaw and seven other major urban conurbations. Warsaw Warsaw is Poland s biggest retail centre. Its 1.7 million inhabitants have an annual per capita purchasing power of EUR 9, % higher than the national average. Around 2.5 million people live in the greater Warsaw area. The city has some 1.1 million m² of shopping centre space, as well as about 350,000 m² of retail park space. Real Estate 04 /

10 Warsaw s largest retail outlets in terms of lettable space are the 103,000 m² Arkadia shopping centre (Poland s biggest); Park Handlowy Targowek retail park (80,700 m²); Galeria Mokotow shopping centre (74,500 m²); Wola Park shopping centre (73,000 m²); Centrum Krakowska retail park (66,400 m²); and Zlote Tarasy (63,500 m²). In 2011, only 10,000 m² of new space was added with the opening of the VitkAc shopping centre (also known as Wolf Bracka), which offers high-end brands such as Gucci, Bottega Venata and Lanvin. The lack of suitable development sites and the high plot prices have put the brakes on large-scale retail projects in central Warsaw. The 44,000 m² Auchan shopping centre in Lomianki is scheduled for completion this year, and the 14,000 m² Annopol factory outlet centre is also due to open its doors in Plac Unii, a mixed-use office and shopping centre complex is currently under construction, and 15,500 m² of lettable space in the location s City Gallery will come onto the market in The Galeria Tesco Kabaty shopping centre, with around 45,000 m² of lettable space, is still in the planning phase. Expansions to the Promenada and Wola Park shopping centres, each with 20,000 m² of space, are also planned, although these projects are not due to be completed before Vacancy rates at most of Warsaw s shopping centres are around the 1 % mark. The limited amount of space available means that many shopping centres have waiting lists for prospective tenants. Monthly shopping centre rents in the Polish capital are currently in the EUR / m² range, depending on the size and location of the shop. Prime yields are around %. Since the demand for modern retail space has remained steady, we do not expect any significant changes in rents or vacancy rates in the near future. Warsaw s leading high streets are Nowy Swiat and the area around Plac Trzech Krzyzy. The city offers Europe s most reasonably priced retail property locations, with prime rents of about EUR 90 / m². Prime yields are currently about 7.5 %. Upper Silesia This is one of Poland s main industrial centres, and purchasing power is relatively high. The region includes the cities of Katowice, Gliwice, Sosnowiec, Zabrze and Bytom. According to BulwienGesa, the regional population of 2.8 million has access to some 875,000 m² of retail space. Upper Silesia s largest shopping centres are Silesia City Centre in Katowice (86,000 m² of lettable space); M1 in Czeladz (55,000 m²); M1 in Zabrze (48,000 m²); Forum Gliwice (43,000 m²); Arena Gliwice (41,000m²); and 3 Stawy Katowice (40,000 m²). In 2011 some 20,000 m² was added to the Silesia City Centre, and M1 in Zabrze was extended by around 14,000 m². Europa Centralna Retail Park, a 67,000 m² mixed-use shopping centre and retail park, is currently being built in Gliwice, and is due for completion in autumn of this year. The Galeria Katowicka shopping centre, with around 50,000 m² of lettable space, is also under development. Completion is scheduled for Prime monthly rents in Upper Silesia s shopping centres are around EUR 55 / m². Krakow Krakow is the capital of Malopolska Voivodeship, and a key business and university town with a strong international reputation. It is Poland s second-biggest city, with a population of around 756,000, and a total of 3 million people live within 100 km of the city. The region s consumers have access to some 540,000 m² of retail space spread across 16 shopping centres and four retail parks. The largest shopping centres are the 90,000 m² Bonarka City Center, Galeria Krakowska with 60,000 m², and the Zakopianka shopping centre, which offers some 59,000 m² of lettable space. The opening of the Futura Park outlet centre and retail park in 2011 saw the addition of 44,000 m² of retail space. Construction of the new Auchan Bronowice shopping centre kicked off at the start of this year, and the 46,000 m² development is scheduled for completion in The Serenada shopping centre, with around 40,000 m² of lettable space, is still at the planning stage. Krakow s most popular high streets are Florianska and Grodzka. Prime rents for smaller outlets in the city s shopping centres are around EUR 50 / m² / month, compared with EUR 75 in the high streets. Tri-City (Trójmiasto) This region covers the three neighbouring cities of Gdansk, Gdynia and Sopot in northern Poland, and has a total of around 746,000 inhabitants. The three cities have a stock of approximately 450,000 m² of shopping centre and 210,000 m² of retail park space. The largest regional retail properties are the 78,000 m² Matarnia Retail Park in Gdansk, the Galeria Baltycka shopping centre, also in Gdansk (around 46,000 m²), the 42,000 m² Auchan Port Rumia shopping centre in Gdynia, and the Auchan Gdansk shopping centre with some 40,000 m² of lettable space. The initial phase of the Morski Retail Park development in Gdansk was opened in 2011, adding 23,000 m² of lettable space. Construction work is now in progress on the expansion projects at the Wzgorze shopping centre (45,500 m² of additional lettable space scheduled for completion in 2013) and the Galeria Szperk retail park (around 23,000 m²). The opening is planned for Spring 2012 will see the start of building work at Gdansk s Galeria Neptun, a 25,000 m² shopping centre due to open in early The 10 Real Estate 04 / 2012

11 second phase of construction at the Morski Retail Park, a development of about 33,000 m², is also scheduled to begin this year. Average vacancy rates at the region s shopping centres are around 3 %, although some locations are being hit by stiff competition while others report occupancy levels of 100 %. The prime rents for small shopping centre outlets in the greater Tri-City area are around EUR 45 / m² / month. As large-scale, state-of-the-art shopping centres have opened, international investors have turned their backs on shopping streets such as Dlugi Targ in Gdansk and Swietojanska in Gdynia. Lodz With around 740,000 inhabitants, Lodz is another key retail location. It lies in central Poland, only about two hours drive from Warsaw. The city offers 540,000 m² of retail space, with shopping centres accounting for 360,000 m² and retail parks around 180,000 m². The density of retail space is 576 m² per 1,000 inhabitants. The largest retail centres are the 96,000 m² IKEA Port Lodz retail park, the Manufaktura shopping centre (around 90,000 m²), the Galeria Lodzka shopping centre (around 40,000 m²), the 38,000 m² M1 retail park, and the Tulipan (33,000 m²) and the Pasaz Lodzki (32,000m²) shopping centres. No large shopping centres are under construction in the city at present, although work on the Sukcesja shopping centre with a lettable area of around 37,000 m² is due to start this year. Prime rents in Lodz are around EUR 40 / m² / month. The city boasts one of the world s longest shopping streets Piotrkowska ulica. It is also one of the most reasonably priced highstreet locations in any of Poland s major cities, with prime rents of EUR 30 / m² / month. Wroclaw Situated on the banks of the River Oder, Wroclaw has a population of some 630,000. It is a major business location, with a low unemployment rate. Greater Wroclaw is home to around 1.2 million people, and the region has over 580,000 m² of retail space. No new space was added in 2011, but the city still has the highest density of retail space in the country 765 m² for every 1,000 inhabitants. The Magnolia Park shopping centre is the largest retail property, with 74,000 m² of space, followed by the Auchan Bielany retail park (56,000 m²) and the Pasaz Grunwaldzki shopping centre (50,000 m²). Although the stock of retail space is large, further developments are under construction. Work has begun on the mixed-use Sky Tower, which includes around 24,000 m² of shopping centre space and is scheduled for completion in late The 11,000 m² expansion at Magnolia Park is set to be completed by the end of New space is also being added at Pasaz Grundwaldzki, where a 12,500 m² development should be in place by this autumn. Top rents in Wroclaw s shopping centres range from around EUR / m² / month. Poznan Poznan is the capital of Wielkopolska Voivodeship, and a key traffic hub between Berlin and Warsaw. It is a university city of some 553,000 people, and a vital industrial, retail and services centre. Poznan is also one of the Polish host cities for this summer s EURO 2012 football championships. Investors took a keen interest in the city shortly after the fall of the Iron Curtain, so the majority of shopping centre space was built before Poznan currently has a stock of 470,000 m² of lettable shopping centre space, with a further 125,000 m² accounted for by retail parks. The city s density of retail space is second only to that of Wroclaw, at 749 m² per 1,000 inhabitants. The largest shopping centre in Poznan, the 53,000 m² Galeria Malta, opened for business in Other major retail locations include the M1 and the King Cross Marcelin shopping centres, and the Centrum Franowa retail park, each with about 46,000 m² of lettable space. The 53,000 m² Galeria Malta was the most recent large-scale shopping centre to open in Poznan, in No new retail space came onto the market in 2010 or 2011, and a number of major developments were put on hold or cancelled. The 14,000 m² Galeria MM shopping centre in the heart of Poznan is due to open in Construction work on Glowny City Center, a 58,000 m² development, started recently. This new shopping centre is scheduled for completion by the end of Planning for Lacina Poznan s largest shopping centre, with some 98,000 m² of space is still ongoing, but construction could begin in the course of this year. The development is scheduled to open in The Metropolis shopping centre project, with around 50,000 m² of lettable space, has been put on hold, although building work could start some time this year. Rents for smaller shopping centre outlets in Poznan are between EUR / m² / month. Demand for retail space remains strong, and international retailers such as Toys R Us a relative newcomer to the market are on the lookout for suitable locations. Due to the limited availability of space until completion of Glowny City Center, and steady demand, rents and vacancy rates in the city are likely to remain stable. Some international brand retailers have lost interest in the ul. Swiety Marcin high street as the stock of shopping centre space has grown. Real Estate 04 /

12 Szczecin Szczecin is the smallest of Poland s eight metropolitan regions, with 407,000 inhabitants. It is situated in the northwest of the country, on the German border. The city offers about 365,000 m² of retail space, including some 295,000 m² of shopping centre space. The largest shopping centres are the Galaxy and the Galeria Kaskada, both with around 42,000 m² of lettable space. The latter opened in autumn Only a small number of international brands have a presence in Szczecin, although German shopping tourists are an important source of income for the city. As a result, several foreign retailers are currently looking for suitable properties. Planning for the 38,000 m² Aleja Slonca shopping centre is currently in progress. Sczeczin s high streets are 3 Maja, Aleja Niepodleglosci and Aleja Wyzwolenia. Prime monthly shopping centre rents are EUR 45 / m². Smaller Polish towns and cities Around 60 % of the retail space currently under construction is located in towns and cities with fewer than 200,000 inhabitants. The largest such development is the 75,000 m² Atrium Felicity in Lublin, which is due for completion in However, identifying the needs of local markets is a difficult task for foreign investors. Developers need to bear a variety of factors in mind when assessing potential sites, such as infrastructure, socioeconomic aspects, and whether a location falls within the catchment area of a larger city. The demographic structure and purchasing power of smaller cities mean that retail parks and smaller local shopping centres are proving to be a successful option for retailers. Rents at retail parks are relatively cheap, which mainly attracts low to mid-price retailers. Poland still an attractive target for expansion by international retailers Poland remains an attractive destination for international retailers looking to expand. The strong demand for premium retail space has not flagged, and discounters and clothing retailers are thought to be looking closely at the possibility of expanding. As consumers become more price-conscious, discount retailers look set to enjoy further success. The Polish market is well served with shopping centres. However, the acute need to revitalise some older properties is posing challenges for the operators around a third of all shopping centre space is more than ten years old. A number of first- and secondgeneration shopping centres are in need of reconstruction and upgrade. Refurbishments are also not uncommon at more recently developed properties, as the operators look to gain ground in the face of stiffening competition. As international brand retailers continue their search for suitable outlets, rents may rise in cities where only limited growth in the stock of retail space is expected in the next year or two. Less successful shopping centres in locations where the availability of space is increasing more rapidly will start to feel the pinch. This is especially true for smaller towns and cities where a large amount of space will soon come onto the market. Prime yields on shopping centres outside Warsaw range from % and are likely to remain stable in the short term. Selected retail developments at planning stage / under construction Lettable Scheduled Project area m² Status Opening City Lacina shopping centre approx. planning 98,000 stage 2014 Poznan Atrium Felicity approx. under con- 74,000 struction 2013 Lublin Europa Centralna shopping approx. under concentre / retail park 67,000 struction 2012 Gliwice Poznan Glowny approx. under con- City Center 58,000 struction 2013 Poznan Trzy Korony shopping centre approx. under con- 57,000 struction 2012 Nowy Sacz Galeria Katowicka approx. under con- 50,000 struction 2013 Katowice Auchan Bronowice approx. under con- 46,000 struction 2013 Krakow Galeria Narew approx. under con- 46,000 struction 2013 Lomza Wzgorze shopping centre approx. under con- Tri-City (extension) 45,500 struction 2013 (Gdynia) Galeria Tesco Kabaty approx. planning 45,000 stage 2013 Warsaw Auchan Lomianki approx. under con- Lomianki / 44,000 struction 2012 Warsaw Serenada approx. planning 40,000 stage 2013 Krakow Siodemka shopping centre approx. planning 40,000 stage 2013 Elblag Galeria Korona approx. under con- 39,000 struction 2012 Kielce Aleja Slonca shopping centre approx. planning 38,000 stage 2013 Szczecin Sukcesja shopping centre approx. planning 35,000 stage 2013 Lodz Morski Retail Park (extension) approx. planning 33,000 stage n / a Gdansk NoVa Park approx. under con- Gorzow 32,400 struction 2012 Wielkopolski Galeria Ostrovia approx. under con- Ostrow shopping centre 36,000 struction 2012 Wielkopolski Sky Tower approx. under con- 24,000 struction 2012 Wroclaw Source: BulwienGesa, Jones Lang LaSalle, operator information 12 Real Estate 04 / 2012

13 Logistics market: developers remain hesitant despite strong domestic economy The logistics market in Poland benefits both from the country s position as a hub for both Western and Eastern Europe, and from the country s large geographical size. Unlike in other Eastern European countries, the logistics market is not concentrated exclusively in and around the capital city. Many regional centres have logistic agglomerations as well. They are mainly in Central Poland (Lodz, Poznan), in Silesia (Wroclaw, Katowice) and in the greater metropolitan area of Gdansk, Gdynia and Sopot (Tri-City). At the end of 2011 Poland had roughly 6.6 million m² of warehouse and logistics space, of which approximately 40 % was in the greater Warsaw area and the rest in regional centres. High vacancy rates in some areas Despite the increase in demand for warehouse and logistics space last year, at the end of 2011 vacancy rates remained comparatively high, particularly in and around Warsaw: in some areas they were as high as 19 %, and for the Warsaw region as a whole the average was 16.5 %. The lowest vacancy rates in the logistics sector were in Poznan and Katowice. In 2011 developers remained cautious about new projects; most of the completed properties were built to suit. Consequently, very few speculative properties came onto the market. Rental prices stable at low level Compared with other CEE countries, rental prices for storage and logistics space in Poland are at the lower end of the spectrum. At the end of 2011 the average rental prices for storage and logistics space in the greater Warsaw area were around EUR 2.75 / m² per month. Since the beginning of the global financial and economic crisis, rents have steadily fallen. As demand is predicted to remain stable in 2012 and projects scheduled for completion, although slightly higher than last year, are mainly for own use, rents should largely be stable, too. Poland s strong retail sector is one of the most important customers for storage and logistics space, and provided retailing continues to thrive, this will also have beneficial effects on the logistics market. Equally important is economic development in the eurozone, in particular in Germany, Poland s most important trade partner. This year s European Football Championship will be a definite boon to the Polish logistics market. As a host, Poland has significantly developed its infrastructure, including the motorway system, in preparation for the tournament. Warehouse and logistics vacancy rates: Warsaw in % 20 Average warehouse and logistics rents: Warsaw EUR/m²/month Source: IRG Source: IRG Real Estate 04 /

14 Residential property prices ease The EU accession boom Poland s accession to the European Union in 2004 triggered a genuine boom in housing prices. Taking Warsaw as an example, the cost of an apartment increased by roughly 23 % in 2005, 28 % in 2006, 45 % in 2007 and 13 % in In 2009 the international financial crisis hit the Polish market, putting the brakes on property price madness. By the end of the year substantial price corrections were already in evidence, disguised as more generous discounts, or in the form of additional fixtures and fittings. Because the Polish economy proved relatively resilient in the face of the crisis, the 13 % fall in housing prices in the period was considerably more moderate than elsewhere. According to central statistical office, Poland s housing stock at 31 December 2011 amounted to some 13.4 million dwellings with total usable space of around million m². Approximately twothirds of the housing stock is in towns and cities. Compared with the EU average of 54 %, a very high proportion of housing 63 % consists of multi-family residential blocks. The 39% accounted for by high-rise apartments is also considerably above the EU average. In spite of the privatisation of much social housing in the 1990s, home ownership is about 76 % below the level in most other CEE countries. Supply, demand and prices Some 120,000 new housing units were completed in Poland in 2011, a 3.1 % decline compared with For the first time since the boom year of 2007, construction permits showed an increase of 3.7 % to around 182,000 housing units. For the sake of simplicity, the information and analysis that follows is restricted to the six largest housing markets in Poland: Warsaw, Krakow, Wroclaw, Tri-City, Poznan and Lodz. According to real estate agents REAS, the number of units sold in these cities in 2011 rose by 5 % compared with The only fly in the ointment was that the number of apartments still available for sale increased even more. Housing prices fell. The price of residential property in Warsaw is currently somewhere between EUR 1,300 and EUR 2,300 / m², with the average around EUR 2,025 / m². The second-highest average of EUR 1,675 / m² is for Krakow, Poland s southernmost city. Wroclaw and Tri-City have much the same prices, while the cheapest housing is in Lodz, with an average price of EUR 930 / m². The lending climate deteriorated steadily in 2011, with young families finding it especially hard to borrow. Foreign currency loans are to all intents and purposes no longer being made, and rising inflation combined with the banks prevailing shortage of capital has pushed up borrowing costs in zloty. As a result of the now more Completions, construction starts and permits ,000 Completion Construction starts Permits New housing prices 2011 Average price (EUR/m²) Change on 2010 (%) 2,500 2,000 Number of dwellings 200, , ,000 50,000 1,500 1, Warsaw Krakow Wrocław Tri-City Poznań Łódź Source: GUS, IRG Source: REAS, IRG 14 Real Estate 04 / 2012

15 onerous conditions of the Family on its Own Programme 1, our Polish colleagues are expecting a % reduction in new loans. The final draft of the Clients Protection Act 2, now awaiting passage, will also bring changes on the supply side. Apartment sales/apartments on offer: ,000 On offer Sales In 2011 around 37,500 new apartments were put on the market in Poland s six largest cities. This was an increase of 21 % on 2010, and only in the boom year of 2007 was this number exceeded. It is worth noting that new projects are again increasingly concentrated on the major cities, with smaller markets showing only very limited activities. Selected large-scale housing projects Project Number of Price EUR / m² Completion City dwellings Osiedle Zielona Italia 864 1,380 1, Warsaw Osiedle Przy Lesi 370 1,380 1, Warsaw Osiedle Goclawska 323 1,360 1, Warsaw Osiedle Mieszczanskie II 245 1, Wroclaw Osiedle Harmonia 290 1,380 1, Warsaw Zielony Zoliborz II 274 n.a Warsaw Centrum Poludniowe 256 1,300 2, Wroclaw Osiedle Rodzinne 260 1,030 1, Krakow Nowe Winogrady 240 1,300 1, Poznan Osiedle Eskadra 240 n.a Warsaw City Zen II 357 n.a Warsaw Source: PMR, IRG Despite the large number of apartments sold, the total number of apartments on offer at the end of 2011 rose by 25 %, to a record of around 48,000 units. Of these, 77 % were apartments that will only be completed and available in 2012 or later. Units completed before 2011 and still unsold represented roughly 11 %. Given the low level of building activity in 2009, however, the increasing volume of new property on offer should not lead to a glut in the medium term. In the course of 2011, about 29,700 units were sold in the six largest cities together. In the last quarter the number of transactions fell back slightly, possibly as a result of the changes in the Family on its Own Programme. Overall sales in 2011 were still 1) The state provides first-time home buyers with a subsidy of 50 % of the interest cost in the first eight years, but under the revised terms and conditions the eligible age and maximum purchase price have both been lowered. The programme will be completely phased out by the end of ) Developers will be required to provide background information, including details of competing projects in the neighbourhood, when the apartments are put on the market. The regulations also strengthen tenants rights. Apartments 17,500 15,000 12,500 10,000 7,500 5,000 2,500 0 Source: REAS Warsaw Krakow Wrocław 7 % higher than in 2010, and were again moving in the direction of the 2007 record. It should be noted that current purchases are generally more for own use than for the purposes of investment. The mix of apartments for sale over the course of 2011 revealed a change in market sentiment: healthy sales in the first half of the year encouraged many developers to raise prices slightly and offer slightly more upmarket properties for sale, while stiffer competition in the second half brought lower prices and numerous sweeteners, such as free parking spaces and fitted kitchens. Dreams and realities Real estate portal Nowy Adres cooperated with Millward Brown SMG / KRC in a survey of 1,500 households with a potential interest in buying their own apartment: in 2011 only 6 % of those surveyed had found their ideal home. Roughly 28 % had postponed any purchase indefinitely, principally because of high prices, tighter lending policies or excessively high interest payments. Of the remainder, many had been forced to accept more or less serious reductions in their original expectations: 42 % acquired the space they wanted, but had to settle for less attractive neighbourhoods or economise on furnishings; 24 % bought smaller apartments, or ones with fewer rooms. One of the crucial factors in deciding which property to buy is bank lending policies: the current trend favours smaller, more economical apartments. More than half the buyers (about 52 %) were looking for apartments costing less than EUR 70,000, while 23 % wanted something cheaper than EUR 45,000. Roughly a third wanted apartments in the EUR 70, ,000 range, 12 % were prepared to pay up to EUR 230,000 for a new home, and only 3 % would accept prices higher than that. Tri-City Poznań Łódź Real Estate 04 /

16 Luxury properties The market for luxury apartments in Poland developed in the late 1990s. The first projects were luxury apartment blocks in the capital, Warsaw, closely followed by other cities such as Krakow, Wroclaw, Gdynia and well-known holiday resorts such as Sopot, Jurata, Miedzyzdroje and Zakopane. Potential purchaser price categories (EUR 000) Source: Novy Adres / Millword Brown SMG / KMC >230 3% % % % % <45 23% Poland s luxury apartment market is a niche segment, representing only 2.5 % of the entire residential property market. Warsaw leads the way in this market, and roughly 26.2 % of all Polish properties in this category are located in the capital. Krakow has the second largest share, with 23.4 %, followed by 14.8 % in Wroclaw and 8.2% in the Tri-City Region including Gdynia. The current price in the capital is between EUR 2,800 and EUR 9,500 per square metre. In the Tri-City Region (Gdansk-Sopot- Gdynia), Wroclaw and Krakow, prices start at around EUR 2,300 / m² and go up to EUR 7,000 / m². In Poznan and Lodz, on the other hand, prices have stabilised at under EUR 2,300 / m² as a result of the weakness of demand. Outlook for 2012: supply may again outstrip demand The number of residential properties on the market will increase before the Client Protection Act comes into force in Delaying tactics on the part of purchasers in the hope of further price reductions, and the more rigorous restrictions on the subsidies provided by the government s Family on its Own Programme may put a damper on demand. If the number of new properties coming onto the market grows as rapidly in 2012 as it did in 2011, there is a danger that the oversupply will persist. 16 Real Estate 04 / 2012