Contents. Chapter 1 Introduction 5. Chapter 2 Executive Summary 6. Chapter 3 Geography and Population 7. Chapter 4 Major Cities of Poland 8

Transcription

1 Poland

2 THE POLISH COMMERCIAL PROPERTY MARKET 2007

3 2 Poland

4 Warsaw

5 Contents Chapter 1 Introduction 5 Chapter 2 Executive Summary 6 Chapter 3 Geography and Population 7 Chapter 4 Major Cities of Poland 8 Chapter 5 Economic Overview 10 Chapter 6 Office Market 15 Chapter 7 Retail Market 18 Chapter 8 Warehouse/Industrial Market 22 Chapter 9 Hotel Market 24 Chapter 10 Investment Market 26 Chapter 11 SWOT Analysis of the Current Commercial Property Market 28 Chapter 12 KOBA Market Expectations 29 Chapter 13 Legal Environment 30 Chapter 14 Taxation of Real Estate 38 KOBA Company Profile 45 Domański Zakrzewski Palinka Company Profile 46 Ernst & Young Company Profile 47 4

6 Chapter 1 Introduction The purpose of this report is to provide an overview of the current commercial property market in Poland. We concentrate our attention on capital city Warsaw s commercial property market, as it features the country s major developments and is of most interest to local and international real estate market players. The information has been prepared using external data obtained from official Polish institutions, the opinions of market participants, internal information from real estate company KOBA, advisory services company Ernst & Young, and law firm Domański Zakrzewski Palinka. The information provided in the report is correct to the best of our knowledge as of 1 January The development of Poland s commercial property market continues to be in a dynamic phase and professional advice should always be sought when investment decisions are being taken about Polish real estate. The report is divided into 14 chapters, each of which can be read independently. Chapter 2 describes the general market situation. Chapter 3 provides an overview of Poland s geography and demography. Chapter 4 presents information about Poland s major cities. Chapter 5 describes Poland s economic achievements and trends. Chapters 6 9 give an overview of the office, retail, warehouse/logistics and hotel markets. Chapter 10 describes the investment market situation and trends. Chapter 11 presents the strengths, weaknesses, opportunities and threats to the Warsaw commercial property market. Chapter 12 presents KOBA s expectations for the different commercial property market segments. Chapter 13 presents an overview of the legal environment impact for the commercial property market. Chapter 14 is an overview of taxation affecting the real estate business. The Polish Commercial Property Market 2007 has been prepared by KOBA, Ernst & Young, and Domański Zakrzewski Palinka, primarily for professional investors, leaseholders and developers taking an interest in the Polish commercial property market. NB! Limitation of liability The information contained in this overview is intended solely for general information purposes and shall not be treated as professional advice or legal opinion. Any copying, distribution or reprinting is allowed only with the express written permission of real estate company KOBA, advisory services firm Ernst& Young, and law firm Domański Zakrzewski Palinka. Copyright 2007 KOBA

7 Chapter 2 Executive Summary The Polish Commercial Property Market 2007 depicts a vibrant property market in an economically stable democratic country. Poland may be characterised by its political, economic and regulatory stability. The macroeconomic environment is sound and the investment climate is favourable. Poland is a large country with an open economy. By now, the Warsaw commercial property market has become a typical mature market, which faces increasing requirements from active market players in terms of demand for office, retail and industrial space, attractive investment products, etc. All segments of the Polish commercial property market are seeing active development and interest from market participants is high. The Warsaw office market comprises around 2 million sq. m, with an evident cluster of skyscrapers in the central part of the city. Being the financial and economic centre of the country, Warsaw hosts thousands of companies headquarters, also all the major state and governmental institutions are located here. Rapid development of modern office space is being undertaken in both the city centre and outer-city regional centres. Warsaw s retail market characteristics correspond to all those of a mature market stable rents and vacancy levels, tough competition on the part of tenants and high interest from investors being the major ones. All retail market segments shopping centres, super/hypermarkets, retail parks and retail streets are well developed in Poland s capital city and we do not expect any significant numbers of new retail schemes. The development of industrial premises, especially warehouses and logistics parks, is closely related to general economic growth, and today developments can be divided into two clear directions modern logistics centres and offices are being developed close to the city and the major highways, whereas large industrial and warehouse facilities are being constructed further from the city centre, close to the country s major highways. Interest from market participants tenants, developers, owners and investors is growing, and has a direct impact on both quality levels and investment yields. More and more business people and tourists are coming to the capital of Poland. An insufficient number of high-standard and luxury hotels in Warsaw indicates the existence of considerable market potential which has attracted the attention of world-renowned hotel operators who are either not yet present in Poland, or own only a few facilities. The investment market in Warsaw is maturing, however, both international and local investors continue to be very active. Some of them have already started to transfer their investment to Poland s secondary cities which are very promising in terms of demand for quality shopping space, modern offices and logistics facilities. With their slightly higher yield levels, secondary cities are definitely becoming a competitor for the capital Warsaw. 6

8 Chapter 3 Geography and Population 3.1. Geography Poland with its total land area of 312,685 sq. km and 8,700 sq. km of territorial sea is one of the ten largest countries in Europe. It is situated to the north of Central Europe, with Germany to the west, the Czech Republic to the south-west, Slovakia to the south and the Russian Federation enclave of Kaliningrad on the Baltic coast to the north. There is a short border with Lithuania to the north-east; Belarus lies beyond the northern part of the eastern border and Ukraine the southern. Poland has a 520 km coastline along the Baltic Sea to the north-west. The total length of the European Union s external border on Polish territory amounts to 1,163 kilometres, made up of the borders with Belarus (418 km), the Russian-controlled Kaliningrad area (210 km) and Ukraine (535 km). Internal EU borders total 1,902 km, comprising the borders with Slovakia (541 km), the Czech Republic (790 km), Germany (467 km) and Lithuania (104 km) Population The population of Poland is over 38 million (2006). About 97% of the population is Polish, the other 3% being Germans (0.4%), Belarusians (0.1%), Ukrainians (0.1%) and others. The official state language is Polish. Most of the younger people also speak English and German. The major religion in Poland is Roman Catholicism (95%), with Eastern Orthodox, Protestant and other religions making up the remaining 5%.

9 Chapter 4 Major Cities of Poland There are five major cities in Poland: Warsaw (the capital), Lodz, Krakow, Wroclaw and Poznan. Katowice, Szczecin, Bydgoszcz, Lublin and Gdansk are the next five. Warsaw Warsaw is the capital of Poland. With a population of almost 1.69 million (2.5 million including outer suburbs), it is not only the country s largest city, but also the most important economic, political, industrial and cultural centre in Poland. Since the collapse of the Eastern Bloc, Warsaw has been the focus of Poland s economic restructuring with most major Polish companies and international investors choosing to locate there. Warsaw s economy is largely based on the service sector, which employs more than 70% of the workforce. One of the most significant developments in this sector has been in banking and finance. Lodz With a population of over 770 thousand, Lodz is the second largest city in Poland. It lies in the centre of the country and serves as the capital of the Lodz Voivodship (province). As a result of the inflow of foreign investment and the creation of a highly qualified labour market, today s Lodz is seeing rapid development of new technology industries, food-processing plants, printing works and tourist services. The Lodz conurbation is also an important academic centre. Nearly 100 thousand students study at 20 colleges and universities, including 6 state universities. This puts the Lodz region at the forefront of cities with high intellectual potential. Krakow Krakow, with a population of 757 thousand, is the third largest city in Poland. It is the capital of the Małopolska Voivodship. Until the 16th century, Krakow was the capital of Poland, which was subsequently moved to Warsaw. The city is located at the intersection of major trade routes, near the Silesian conurbation and the southern border of Poland. The city, which until not long ago was dominated by heavy industry, is now becoming the main headquarters for many companies specialising in the development of new technologies. Moreover, its geographical situation and important strategic location in terms of communication and transportation give Krakow the opportunities and incentive to become one of the country s principle economic centres. 8

10 Wroclaw With a population of over 600 thousand, Wroclaw is a well-known industrial city. Traditionally, the major industries were the manufacturing of railway carriages and electronics, the machinery and transport industries, metallurgical works and food-processing plants. Sectors which are currently undergoing accelerated development include advanced technologies in the fields of electronics, IT and telecommunications. Several major east-west and north-south routes intersect in Wroclaw, what makes this city very attractive as a logistics centre. The city is an important railway hub with direct connections to all the capitals and major cities of Europe. Efficient goods transportation has been assured by the expansion of the city s rail cargo terminal. Poznan With a population of 570 thousand, Poznan is the capital and the largest city of the Wielkopolska province and is situated on the Warta River in west-central Poland. Poznan is also one of Poland s largest industrial and commercial centres. Its industries include metallurgical works, chemical and furniture factories, textile mills, and food-processing plants. In recent times, it has become Poland s second financial centre, after Warsaw, with more than ten international banking and financial institutions based there. Poznan is also a famous educational centre with nine state universities, more than ten private higher education institutions and several research centres. As a result, the city has more than 50 thousand students, a significant number with a lively influence.

11 Chapter 5 Economic Overview 5.1. GDP The Polish economy has made significant progress during the last 17 years - it had to make a transition through the introduction of economic liberalisation and the development of the private business sector, as well as establishing stable financial markets and reforming the health care and pension systems, education and administration, to its present status as a modern global economy under the flag of the European Union. Poland joined the EU in May 2004, and surging exports to the EU contributed to Poland s strong growth in 2004, though its competitiveness could be threatened by the appreciation of the national currency, the zloty. The improvement of the business environment caused a decrease in investment risk, which resulted in bigger volumes of domestic and foreign investment. In 2004, the Polish economy grew at the highest rate in seven years, with the GDP growth rate reaching 5.4%. High levels of private consumption, significant growth in net exports, the boom in domestic trade and a 16% boost in foreign direct investment were the most important determinants of the GDP increase in In 2005, the level of GDP growth rate was 3.4%. The slowdown in economic growth was related to lower national demand, insignificant increases in domestic consumption, the lack of salary increases in real terms and a less dynamic inflow of foreign direct investment. Nevertheless, the Polish economy developed much faster than the Euro Zone s (1.3% in 2005) and than the average of all 25 EU members (1.5% in 2005) Real GDP Growth Rate (%, F) F EU-25 EU-15 Hungary Czech Republic Poland Lithuania Source: Eurostat, In the year 2006, dynamics of the business was maintained through increased investment and growing consumption. Economic growth amounted to an impressive 5.8%. However, although it is virtually impossible for the Polish economy to sustain growth at the very rapid pace seen in 2006, it is more than likely that in 2007 GDP will reach a level between 4.6%- 5.5% for the complete year. The major trigger for growth is most likely to be significant increases in investment Inflation Inflation rates in the second and third quarter of 2006 amounted to 0.8% and 1.4% respectively. Lower inflation rates, starting from third quarter of 2005, were the result of fading out of the price effects connected with Poland s EU accession in 2004, the monetary policy pursued a few quarters earlier, appreciation of the zloty in 2005, the rising contribution of imports from low production-cost countries and intensified competition from producers from these countries. These factors complemented the short-term effects, such as continuing food price decreases in annual terms. 10

12 CPI, YoY Change (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: National Bank of Poland, 2006 Consumer Price Index (%) F CPI CPI at year-end Source: Central Statistical Office, 2006 The annual inflation figure for 2006 has positively surprised both economists and bank analysts. In December, prices were increasing much slower than expected, mostly due to oil price decreases and insignificant growth of consumer prices. This brought the increase in CPI to an impressive 1.0% level. Projections for 2007 oscillate between 2.0% and 2.5%. However, they are not free from all sources of uncertainty, such as the impact of globalization on inflation, the global growth of the workforce, the effect of drought in Poland on food prices, economic policy in the coming years (increasing wage pressure on public finance in Poland) and the exchange rate developments Unemployment The most worrying sector of the Polish economy continues to be the labour market. However, since 2004 the number of unemployed people in Poland has decreased. The employment rate increased by some 1.3% points in 2005 (comparison period: September 2004 September 2005) and 2.0% in 2006 (comparison period: September 2005 September 2006). Although during the next few years it is expected to stay on an upward trend, it still remains the lowest in the EU. The most important triggers for labour market trends to continue improving are: growth of the economy; increasing demand for labour; continuing development of the services sector; large number of investment prospects. In September 2006, there were 22 unemployed people for every job offer in Poland. The equivalent figure for September 2005 was 30, and 39 a year before that. In September 2006, the lowest unemployment figures among Poland s seven largest cities were registered in Warsaw (4.9%), Poznan (5.3%) and Krakow (5.8%). The highest were in Szczecin (12.5%) and Lodz (12.9%).

13 Unemployment Rate (Registered Unemployment) 25% 20% 15% 10% 5% 0% Source: Central Statistical Office, 2006 The unemployment rate decline can be also partially explained by a falling participation rate, reflecting the extension of early retirement rights and rapid growth in the number of students. Moreover, noticeable labour emigration to the EU countries has been observed Wages and Salaries The average gross monthly salary in Poland s enterprice sector was PLN 2, in the third quarter of 2006, which means it increased by 5.5% compared to the same quarter of Statistics show that average gross monthly salary in the enterprice sector reached PLN 2, in November Average Gross Monthly Salary in Poland (PLN) IQ 2005 II Q 2005 III Q 2005 IV Q 2005 I Q 2006 II Q 2006 III Q 2006 Nov 2006 Salary 2, , , , , , , , Source: Central Statistical Office, 2006 The highest salaries are in mining sector, financial services, utilities sector and in public administration. The lowest salaries are in hotel and restaurant sector, furniture manufacturing, textiles and leather sectors (average PLN 1,900). It should also be noted that the competitiveness of the Polish labour force has increased significantly during the last couple of years, from both a cost and qualifications perspective. Recently more and more well-educated young people have taken on responsible roles in large multinational companies FDI Recent years have seen consistent amounts of foreign direct investment (FDI), which confirms the increasing appeal of the Polish market to foreign capital. Investment decisions are closely linked to the size of the Polish market, the prospects for economic growth and the human resources available in the region. According to Polish Information and Foreign Investment Agency (PAIiIZ) data, FDI in Poland in 2005 remained stable at the level of USD 7.86 billion. The dynamic growth of FDI in 2006 has been achieved mostly 12

14 through many companies deciding to reinvest their profits. There is a strong indication that the advantageous investment climate will continue in Poland for some years. FDI Inflow to Poland (bln USD) Source: Polish Information and Foreign Investment Agency, 2006 The following sectors have been identified as offering particularly good investment and export opportunities: IT and electronics, telecommunication, energy, environmental products and services, food and food processing, financial services, transport and distribution, the security sector, leisure and lifestyle. Investors rate Poland favourably in terms of the availability of land for investment and real estate costs. According to the UNCTAD World Investment Report 2005, Poland is one of the most attractive global business locations, placed in eighth position after China, USA, India, Brazil, Russia, the United Kingdom and Germany. Cumulative FDI in Poland (mln USD) 120, ,000 80,000 60,000 49,392 56,834 65,115 72,705 84,477 92, ,200 40,000 20, Source: Polish Information and Foreign Investment Agency, Retail Trade Retail sales amounted to PLN 437,4 billion in This number increased by 1% compared to the previous year. The volume of retail sales increased significantly in comparison to the results from The Polish retail market has a unique characteristic: in 2005, small shops with an area of less than 100 sq. m accounted for approximately 83.6% of the market. Retail sales increased by 13.3% in October 2006 compared to the same month in Sales of motor vehicles rose by 27.7% comparing the same months. Retail sales in the furniture, household electric appliances, radio and TV goods sector experienced an astonishing 26.2% growth and those in non-specialist shops rose by 19.9%.

15 440 Retail Sales Value in Poland (Current Prices, bln PLN) 433,2 437, ,3 400, Source: Central Statistical Office, National Currency Poland s national currency is the zloty (PLN). The exchange rate is not pegged. The average EUR/PLN exchange rate amounted to The Polish zloty gained strength throughout 2006 as the result of the relatively stable political situation, the weaker position of the dollar in the European market, increasing demand for European currency, significant GDP growth and the low inflation rate. 14

16 Chapter 6 Office Market With a population of almost 1.69 million (2.5 million including the outer suburbs), Warsaw is not only the country s largest city, but the most important economic, political, industrial and cultural centre in Poland. As well as being home to many national institutions and government agencies, Warsaw also hosts a huge number of both local and international companies. The Warsaw office market can be described as large, dynamic and rapidly developing. The centre of the city is full of older and modern glass-covered skyscrapers, mostly located in the vicinity of the Palace of Culture and Science. Since 2000, the office market has grown considerably. Each year has seen a number of new office buildings brought on to the market. Initially, the majority of office developments were in the city centre, however, later, mostly because of the lack of suitable land, new areas were opened up by the developers and users of office premises. Therefore, today, in terms of location, the Warsaw office market can be divided into two major parts. In general terms, we can classify offices as being located in the city centre or outside it: The Warsaw Central Business District (WCBD) covers the area bounded by Solidarnosc Avenue, Towarowa Street, Lazienkowska Route and the Vistula River. The best-known office buildings in the WCBD are Rondo I, Warsaw Finance Centre, Warsaw Trade Tower and Metropolitan. Numerous buildings in the city centre were built some decades ago and many of these are currently undergoing reconstruction and remodelling in line with the current needs of tenants. This area is the epicentre of commercial activity in Warsaw, with numerous office buildings, modern hotels and where the capital s most important arteries converge. The majority of tenants are business consultancy, law and real estate companies and other service providers. However, rents are higher in the city centre and this has had an impact on the decision of some tenants to move to the other part of the Warsaw office market outside the city centre. Out-of-city offices include those in areas of the Mokotow district, where significant development has been taking place since The Mokotow district is very close to the city centre and also to residential areas; therefore, this is a very popular location to have an office. Another area of offices is in Ochota, along Jerozolimskie Avenue, where the Ochota Office Park and other office buildings and shopping centres are located. Telecommunications, IT, and pharmacy companies are the major tenants of these offices. The total stock of modern office space in Warsaw is around 2 million sq. m, some of the major office buildings are listed below. Major Office Buildings in Warsaw Source: KOBA, 2007 Name of Business Centre Address Total Area, sq. m (approx.) Rondo 1 Rondo ONZ 56,000 Warsaw Financial Centre Emilii Plater Street 49,000 Warsaw Trade Tower Towarowa Street 44,300 Metropolitan Pilsudskiego Square 38,200 Trinity Park I Domaniewska Street 18,000 Solid international and local companies, working in consultancy, pharmaceuticals, telecommunications, financial services or the IT business require a certain degree of flexibility in terms of the size of their premises, bearing in mind their potential for future expansion. Most often, they require premises in the range of 150 to 300 sq. m. However, newly built office buildings and projects under construction are not flexible enough in terms of such expansion options for potential tenants in the future. One of the limiting factors is the size of the buildings which means that the only way companies would be able to expand is by vacating their existing premises. Larger companies, requiring more than 1,000-2,000 sq. m, tend to have their premises purpose-built.

17 In general, the highest current demand is for medium-sized (up to 200 sq. m) premises in the central part of the city or in the Mokotow district. Accessibility to the centre is important, but is partly solved by a reasonable public transport system (trams, buses and underground lines). The majority of the offices have their own parking facilities where a certain number of spaces is allocated to tenants. The price for a public parking place ranges from EUR 50 to 300 per month for a single space, which is not necessarily located near the entrance of the office building. Rents Rental levels are quite stable now and vary mainly with location, quality of the office building and premises, office size, lease period, etc. Office Rents in Warsaw (EUR/sq. m/month) Source: KOBA, 2007 Office Location and Ttype Rent (EUR/sq. m/month) Prime offices in the CBD Secondary offices in the CBD Prime offices outside the city centre Secondary offices outside the city centre Rents payable are usually net amounts. The tenant is additionally obliged to pay 22% VAT and service charges which, for prime offices in the CBD, are EUR 4-5/sq. m/month and for offices outside the CBD, average EUR 3-4/sq. m/month. The lease period for office space in Warsaw is usually 3-10 years. Rents are paid monthly in advance. General practice is to pay the rent in the same amount for the office area and for the common areas of the building, calculated on the base of the add-on factor. The security deposit is usually the equivalent of 3 months rent, together with service charges, all subject to 22% VAT Average Rent in Warsaw, EUR/sq. m/month F CBD Non-central Source: KOBA, 2007 Vacancies Overall, the Warsaw office market is maturing, and vacancy levels have remained relatively stable. Vacancy levels in the central part of the city are close to 8-9 %, but those for out-of-city offices are even lower, reaching 7%. Vacancy levels are expected to continue to fall in the future, but at a slower pace. 16

18 Pipeline Projects The future supply for 2007/2008 is estimated to be around 250,000 sq. m and should continue to grow, but a slowing down trend is emerging as a result of the lack of suitable land. Most new schemes are planned for construction outside the city centre. Demand is expected to remain stable or increase slightly, mostly for small- and medium-sized offices, which are within the scope of newly established companies as a starting point for future expansion. This however may have an influence on rental rates, causing them to remain more or less at the same level. Major Office Projects in the Pipeline ( ) Source: KOBA, 2007 Office Project Name Location Total Area, sq. m Zlote Tarasy LUMEN & Tower Zlota Street 45,000 Prosta Office Centre I & II Prosta Street 34,000 International Business Centre II Armii Ludowej Avenue 20,000 Universale International Świetokrzyska Street 12,750 Grzybowska Park Grzybowska Street 10,000 Aeropark Okecie 17,800 Equator Office Jerozolimskie Avenue 17,000 Office building (designed by P-BPA) n.a. 60,000 Tulipan House Domaniewska 18,000 Mokotow Point Domaniewska/Wielicka 8,000 Total 242,550

19 Chapter 7 Retail Market Since the beginning of the transition from a centrally planned to a market economy, Poland has developed into one of the most active emerging markets, increasingly attracting the attention of foreign investors placing their capital in the retail segment. The large size of the market, growing disposable income, membership in the EU and continuing economic growth make it a desirable country for both local and international retailers. The Largest Foreign Investors in Poland s Retail Sector Company Metro Group AG Tesco Plc Carrefour Casino Auchan IKEA Reitangruppen Julius Meinl International AG Jeronimo Martins Holding Country of Origin Germany United Kingdom France France France Sweden Norway Austria Portugal Source: The Polish Information and Foreign Investment Agency, 2005 The country s growing economy, decreasing unemployment and growing income of residents have had a direct effect on the increasing interest in retail space from both customers and retailers. The increasing purchasing power of Polish people has lead to growing demand for both basic necessities and luxuries. Today, Poland has the most developed retail market in the region, with more than 220 shopping centres, occupying more than 5 million sq. m in total, most of them anchored by hypermarkets. Shopping centres can now be found in all 16 Polish provinces ( voivodships ). Mazowieckie has by far the highest number, followed by Pomorskie (Pomerania, which includes the Tri-City area), Wielkopolskie, Slaskie, and Lodzkie. Being not only the capital of Poland, but also the country s largest city, Warsaw is the most interesting location for retailers to establish a shop on the high street or in a shopping centre. Therefore, this report concentrates on the Warsaw retail market. In general, retail market may be broadly divided into three major segments high-street shops in the central parts of cities, super/hypermarkets and shopping centres. Every segment has its particularities, and below we will review the major ones of the Warsaw retail market. High Streets in Warsaw Despite the rapid development of the shopping-centre segment, retail high streets are still considered to be prestigious locations by both international and local retailers. Warsaw has several streets that can be classified as high streets. The prime one is Chmielna Street, which runs from one of the major thoroughfares Marszalkowska and ends in Nowy Swiat Street. However, its mix of boutiques and second-hand corners shows that the street is still missing a unified concept for it to really establish itself as the city s leading high street location. Other important streets are Jerozolimskie and Al. Jana Pawla II; both are subject to heavy flows of car, tram and pedestrian traffic. These are Warsaw s main thoroughfares, and both feature attractive retail destinations, mostly situated on the ground floors of office, hotel or residential buildings. A very popular shopping centre, Galleria Centrum (with international tenants such as H&M, C&A, etc.), is located on Marszalkowska. 18

20 Nevertheless, rents in traditional high-profile street locations are higher than those in modern shopping centres, depending on the visibility of the unit, its standard and size, the period of the lease and branch of the lessee. Rents on Warsaw s main shopping streets (Nowy Świat, Chmielna and Marszałkowska) are the highest in Poland. They dropped by 10-15% compared to the previous two years to an average EUR 55/sq. m/month with the highest prices for the best locations reaching EUR 75/sq. m/month. Vacancy levels in Warsaw s high streets are generally low, with those in the most prestigious areas being close to zero. However, more and more people are tending to choose modern shopping centres as their main shopping destination, mainly because of the more extensive variety of shops and brands (the opportunity to do all one s shopping under one roof ), and more convenient parking. Therefore high streets are slowly becoming restaurant, bar and cafeteria-oriented locations rather than traditional retail areas. Super/hypermarkets When the retail market began developing in the early 1990s, several international chains entered the Polish market. The first ones, Auchan, Carrefour and Leclerc (France), came in by opening their own shopping centres. Later, Royal Ahold (the Netherlands), Tesco (UK) and Géant (France) arrived in a similar fashion. At present, the major hypermarkets are Carrefour, Géant, Real (Metro), Leclerc, Auchan and Tesco. The major supermarkets are Globi, Billa, Albert, Robert, Piotr&Pawel, Alma, Minimal, Champion and Elea. Currently Poland s major retailers are Metro AG, Auchan Polska, Jeronimo Martins Dystrybucja, IKEA, Carrefour Polska, Tesco Polska, E.Leclerc and ITM. Biedronka, Lidl and Plus Discount are amongst the most popular discount chains. The leading fashion brands are C&A, Reserved, Cropptown, Olsen, Cubus, KappAhl, Deni Cler, Benneton, Esprit, River Island, Wallis, H&M, and Zara. The fastest growing chains among specialty stores and DIY-chains are Obi, IKEA, TTW Opex, Castorama, Conforama, Praktiker, Leroy Merlin and Bricomarche. The major local chain is Komfort (with about 100 outlets). The Largest Retail Chains in Poland Name Metro Group Carrefour Grupa Cassino Jeronimo Martins Holding Auchan Tesco Group Brands Real, Makro Cash and Carry, Extra, Media Markt, Saturn, Galeria Kaufhof Carrefour, Globi, Champion, Albert, Hypernova Géant, Leader Price Biedronka Auchan, Schiever Tesco, Sevia Source: KOBA, 2007 Shopping Centres Warsaw was the first city in Poland to experience the development of modern retail space. In the late 1990s, shopping centres Reduta and Targowek started their operations. The first full-scale shopping centres, combining an entertainment and leisure element with retail space, appeared at the beginning of the new century, when Galeria Mokotow, Promenada, Klif and Sadyba Best Mall were opened. At the end of 2006, the total modern retail accommodation in Warsaw was around 1.2 million sq. m.

21 Main Shopping Centres in Warsaw Name Location Area (sq. m) Owner Arkadia Srodmiescie, Jana Pawla II Avenue 110,000 Cefic/BEG Galeria Mokotow Mokotow, Woloska Street 59,000 Globe Trade Centre (GTC) /Rodamco Europe Wola Park Wola, Gorczewska Street 73,000 Central European Retail Property Fund Blue City Ochota, Jerozolimskie Avenue 82,000 Singspiel Targowek Glebocka Street 60,000 Mainl European Land Group Holding Reduta Jerozolimskie Avenue 60,000 Mainl European Land Group Holding Klif Okopowa 25,500 PBW Real Estate Fund NV Promenada Praga Poludnie, Ostrobramska Street 66,000 Dawnay Day Carpathian Zlote Tarasy Srodmiescie, Zlota Street 65,000 ING Real Estate / Rodamco Europe Source: KOBA, 2007 The most popular shopping galleries in the capital city are Galeria Mokotow and Arkadia. Appropriate locations close to central Warsaw (Galeria Mokotow is located in the Mokotov district, where many offices and residential buildings are situated, Arcadia is located on the opposite side of the city), ease of access and excellent planning in terms of layout and mix of tenants have made these centres very popular with different consumer groups. New concepts such as factory outlets (located in Ursus and Piaseczno) selling discounted branded clothes and shoes, mixed wholesale and retail schemes (the Maximus Centre in Nadarzyn), and retail parks (in Janki and Targowek) offering electronic goods, furniture and domestic appliances, have become very well-established types of retail schemes in Poland. Rental levels in factory outlets are usually 30-40% lower than those in traditional shopping centres. Rents Rental rates vary in line with typical factors: location, size of the premises, period of the lease, etc. In most shopping centres, in addition to basic rental costs, tenants are liable for service charges, some marketing costs and sometimes a percentage of overall turnover. An additional 22% VAT is levied on top of rents and service charges. The rent for a prime, in-line shopping centre unit of 100 sq. m is currently in the range of EUR/sq. m/month. Service charges are currently EUR/sq. m/month. The average rents for 100 sq. m units range around EUR/sq. m/month, with larger anchor units (where a shopping centre is anchored by a hypermarket) costing around 8-12 EUR/sq. m/month. Rents are usually increased by service charges of around EUR/sq. m/month. Rents in Modern Shopping Centres Source: KOBA, 2007 Warsaw Rent (EUR/sq. m/month) Major City Rent (EUR/sq. m/month) Large retail unit (1,000 sq. m and more) Medium retail unit (200 1,000 sq. m) Small retail unit (30 40 sq. m) Retail unit in a food court (up to 200 sq. m) Max. 85 Max. 55 Retail parks rents are the lowest at 7-9 EUR/sq. m/month with an additional 2-3 EUR/sq. m/month for service charges. 20

22 Average rents in factory outlets vary from 8 to 16 EUR/sq. m/month. The highest rents are seen in the new project in Warsaw - Zlote Tarasy, even reaching double the amount of average current prime rents in contemporary Warsaw shopping centres, what may be the prognosis of the rent levels in the new generation shopping centres of which Zlote Tarasy is the first example. The typical length of a lease period for a retail space in a modern Warsaw shopping centre ranges from 5 to 10 years. Anchor tenants usually prefer 10-year lease agreements with extension options, typically for an additional 5 or 10-year period Average Retail Rents in Polish Cities (EUR/sq. m/month) Warsaw Krakow Poznan Wroclaw Lodz Kotavice High-street Small (100 sq. m) unit in shopping centre large/anchor stores in shopping centre Source: KOBA, 2007 Vacancies Growing internal consumption has increased the demand for modern retail space, as a result, vacancies in the popular shopping centres are almost non-existent.

23 Chapter 8 Warehouse/Industrial Market Strong economic growth and increasing retail turnover are directly related to the increasing demand for warehouse and logistics premises. Because of the transfer of production to lower-cost labour countries or the modernisation of technological processes, some industrial premises have already been converted for logistics use, which had a positive effect on vacancy levels of industrial premises. Warehouse facilities, matching modern requirements, first appeared in the market in the early 1990s. In the beginning, some older construction premises were renovated (warehouses close to Warsaw along the Gdanska route) and adopted to current needs of tenants, later new and large modern complexes started being built. The first new development in Warsaw was Warsaw Distribution Centre and Warsaw Industrial Centre built in 1995 on Szyszkowa Street. Subsequently, other projects located around Warsaw have been brought on to the market: Centrum Biznesu Ozarow close to the Poznan route, Platan Park on Pulawska Street, Diamond Business Park and Centrum Magazynowe Omar in Piaseczno, Europa Park close to the Katowicka route, Centrum Biznesu Stolica close to the Krakowska route and in Warsaw s Praga Polnoc district: Zeran Park, Sanpro Centre and City Point. In general, Warsaw s warehouse market can be divided into two major types: warehouses located close to the city or within the city boundaries (these premises are usually combined with quantity of modern office space); logistics complexes located close to major highways and situated further from the capital city, at a distance between 20 to 100 km. Nationally, the warehouse market can be divided into three types: Warsaw and its vicinity; The central part of Poland: Blonie, Teresin, Mszczonow and Nadarzyn; Other cities: Lodz, Poznan, Katowice and Piotrkow Trybunalski. New warehouse centres are planned for Wroclaw and Tri-City. The highest demand is for prime property situated in the central part of Poland, followed by Poznan, Lodz and Katowice. Currently, there is a noticeable increase in smaller companies taking up warehouse tenancies. Major projects include AIG Linkoln s Diamond Business Park in Janki (approx. 32,000 sq. m), Diamond Business Park in Piaseczno (58,000 sq. m), Apollo Rida s Zeran Park (50,000 sq. m), Prologis Park in Warsaw (37,000 sq. m), Prologis Park in Teresin (150,000 sq. m), Alliance Logistic Centre (125,000 sq. m), Slaskie Centrum Logistyczne (65,000 sq.m), Logis in Rawa Mazowiecka (38,000 sq.m). Common features of the warehouse market include: new developments always require the purchase of land of the appropriate size and location, location choice is tightly limited by the quality and proximity of roads, highways, transit routes, railways and airports, the warehouse is always just one part of the logistics process, warehouse use depends on the distribution system. In most warehouse parks small-scale production is also carried out, and often the warehouses are adapted to the needs of manufacturers. Warehouse usage includes storage and cold-storage facilities, the warehousing of chemicals and hazardous 22

24 goods, FMCG, medicines, spare parts or high-turnover merchandise. Each usage type requires different modifications and technical specifications. For warehousing and production premises, the need to comply with environmental protection rules and to avoid hazards to the local community should always be borne in mind. Today, we are seeing strong demand for modern, efficient warehouse and logistics facilities with good accessibility for transport. The majority of tenants have quite specific requirements and search for appropriate premises themselves. This is encouraging developers to consider new projects. The major warehouse and logistics premises developers are Prologis (USA), AIG Lincoln (USA), Parkridge (UK) and Appolo-Rida (USA), Ghelamco Group, Frans Maas Polska, Platan Group, Schrader Internationale Logistic, Kuehne + Nagel, Emerson Sp. z o.o. and Slough Estates. Rents Rental levels vary mainly depending on the quality of the premises and location of the warehouse or logistics facility, with the size of the premises and the lease period being significant factors. In general, rents vary between EUR 4.5 to 5.5/sq. m/month for premises located in Warsaw, and from EUR 2.5 to 3.5/sq. m/month for premises located outside Warsaw, at a distance of km from the city. Premises are usually rented for periods between 3 and 7 years with annual indexation and additional charges for property management, maintenance, etc., with 22%VAT being applicable to all of those. Vacancies Even though the new projects are delivered to the market, vacancy levels are not increasing. In this segment, most projects are developed as purpose-built, usually for tenants with very specific requirements, therefore, it is not as easy to rent vacant premises out as for example, in the office segment. Projects developed speculatively are usually rented out more quickly. Vacancy rates decreased sharply from 14% in 2005 to 7% in the first quarter of Pipeline Projects Logistics City in Piotrkow Trybunalski, with a total area of 450,000 sq. m on 115 ha of land developer: Emerson Sp. z o.o. (opening of the first phase of the complex was planned for 2006); Tulipan Park in Stryków, with a total area of 100,000 sq. m on 61 ha of land developer: Slough Estates (opening in August 2007). Market Trends The main trend becoming apparent in the market is the increasing sophistication of tenants requirements. The new logistics parks are being developed with advanced technologies that enable the construction of large-area, smooth surfaces with high pressure resistance to allow very high storage capacity (up to 8-12 meters). Large manoeuvring spaces and hydraulic docks are also seen as an advantage. Tenants also have increasing requirements for fire alarm and security systems. Other important features are top-level telecommunications systems and wireless internet access enabling truck drivers to connect without leaving their truck. During the last year vacancy rates have decreased, however supply will increase in the nearest future. These trends may result in the stabilisation of demand in Poland s warehouse market. In 2006, a small reduction in rental levels was noticed, a trend which may continue in 2007.

25 Chapter 9 Hotel Market According to the Polish Central Statistical Office, during the first half of 2006 Poland s hotel and guesthouse businesses accommodated million guests, or 3.5% more than during the same period in the previous year. The number of tourists visiting Poland annually increased from 13.7 million in 2003 to 15.2 million in Predictions for the next four years estimate annual increases of 4.5%, which means that the total should reach 19 million by the end of In 2005, there were 1,231 hotels in Poland of which only 16 were five-star hotels and 66 four-star. Number of Hotels in Poland ( ) * * * * * without category Total ,071 1,155 1,202 1,231 Source: Central Statistical Office, 2006 Occupancy rates, both in Warsaw and nationally have been increasing since 2003, and in 2005 the occupancy rates of Warsaw hotels averaged 50.9% (rising from 48.5% in 2004). National Occupancy Rate (%, ) Source: Central Statistical Office, * * * * * The Central Statistical Office suggests that most people visit Poland for business purposes (28%) and holidays (23%). The majority of international visitors in 2005 came from Germany (37%), the CIS Countries (31%), the Baltic States (8%) and the rest of the European Union (13%). Occupancy Rate in Warsaw (%, ) Source: Central Statistical Office, * * * * *

26 Number of Hotels in Warsaw ( ) * * * * * without category Total Source: Central Statistical Office, 2006 The insufficient number of high-standard and luxury hotels in Warsaw points to the existence of sizeable market potential, which has attracted the attention of world-renowned hotel operators who either are not yet present in Poland, or own only a few facilities. The construction of a new five-star Hilton hotel and the 79-room Les Palais hotel in Warsaw can be viewed as good examples of this type of investment. Poland s Major Hotel Operators Operator Brands Number of Hotels (under construction) Orbis/Accor (France) Sofitel, Mercure, Novotel, Orbis, Ibis, Etap 64 (2) Gromada Gromada 17 E-hotel/Salvator Hotel System 3 (5) JW Construction Hotel Hotele Gołębiewski Gołębiewski 3 (1) Starwood Hotels (USA) Sheraton, Westin, Le Royal Meridien 5 (1) Qubus Qubus 11 (1) InterContinental Hotels (Great Britain) Holiday Inn, Express by Holiday Inn, Inter- Continental Marriott International (USA) Marriott, Courtyard 2 Source: Rzeczpospolita, December 2006 Hyatt (USA) Hyatt 1 Hilton (USA) Hilton (1) 6 Prices for three star hotel accommodation vary according to location, the additional facilities available, the hotel operator and the time of week. During weekends, Warsaw room prices are lower by 30-35%. Average Hotel Room Rates in Warsaw in 2006 (EUR/night) Source: KOBA, 2007 Room category 5* 4* Single Double Suite

27 Chapter10 Investment Market Since the late 1990s, Poland has been one of the most successful commercial property markets of all Europe s emerging nations. Together with Hungary and the Czech Republic, it shares over 80% of all the international investment made into property markets in the Central and Eastern European region. It is estimated that in 2006 this region s real estate sector could have easily attracted investment totalling more than EUR 10 billion. Nearly half of this was invested in Poland. In the period from 2004 to 2006, a significant amount of investment transactions was made in Poland, most of the properties involved being located in Warsaw. The retail sector attracted the greatest interest from investors. Major Transactions of Retail Schemes Project Date of Transaction Seller Buyer Arkadia 2005 Peabody Ivanhoe Cambridge Wola Park 2005 CERPF Ivanhoe Cambridge Targówek and Reduta in Warsaw 2005 Foras Meinl European Land 7 shopping centres (Warsaw, Kraków, Poznań, Ruda Śląska, projects: Rybnik, Sosnowiec, Lublin) 2005 Plaża Centres Klepierre Galeria Kazimierz 2005 GTC Quinlan Sadyba Best Mall 2005 Plaza Centres Klepierre Hypernova (13 supermarkets in Radom, Elbląg, Bielsko-Biala, Szczecin, Tychy, Tamów. Jelenia Góra, Piotrków Trybunalski, Katowice, Łódź x2, Poznań x2) Source: KOBA, Ahold Carrefour Despite the impressive number and scope of transactions effected in , 2006 was also a very active year. One of the most visible transactions made in 2006 was the sale of Klif Portfolio by Monsun BV to PBW Real Estate fund NV for around EUR 150 million and the sale of Okęcie Park by Caelum Development to Towarzystwo Funduszy Inwestycyjnych BPH for EUR 77 million. Major Transactions in 2006 Sector Building Purchaser Yield Price (EUR million) Retail Casino Porfolio GE Real Estate <6.0% 555 Retail Promenada Dawnay Day Carpathian <7.5% 127 Retail Alfa Olsztyn JWK Invest 6.25% 49 Office Rondo 1 London & Regional Properties 5.3% 260 Office Metropolitan DEGI 5.7% 169 Office Raiffeisen Business Centre Invesco n.a. 60 Office Renaissance Spanish Investor 5.49% 25 Retail Galeria Gniezno AAIM Europe 7.0% 21 Source: KOBA, 2007 Major Market Players When looking at players of the Polish real estate market, investors from the USA, Austria, Germany, the UK and Spain were the most active last year. The largest investment funds investing into real estate are Apollo Rida, GE Capital Real Estate/Heitman Central Europe Property Partners, Akron Investment, Rodamco, Meinl European Land Limited, Europolis and Dawnay Day Carpathian. Investment Yield High yields are the magic words that attract all types of investors. In general, yields directly reflect risks related to the market and the investment property, and are becoming lower in Poland. The Polish investment market is dominated by international investors mostly interested in compiling property portfolios 26