Editor comment
Lech Kaczanowski
06.07.2011
Cushman & Wakefield looking back on two decades on property market
 |
| Editor, news2biz POLAND |
|
|
This year marks two decades since news2biz started its coverage of the Polish market. It has also been twenty years since the global commercial real estate advisory firm Cushman & Wakefield launched its Polish operations.
Anniversaries provide a rare opportunity to look back at the immense transformation Poland's property market has undergone since the fall of communism. With the help of Cushman & Wakefield experts Paulina Misiak (Partner, Office Department, Katarzyna Michnikowska (Senior Analyst, Valuation & Advisory), and Joanna Sinkiewicz (Negotiator, Industrial Department) we look back at the past, present and future of the country's real estate sector.
Office market
The beginnings of the modern commercial space market in Poland date back to the 1990s, which were a time of major political and economic transformations. The developing free market economy kindled an increased interest in the Polish market among foreign investors. In the early 1990s there were only a handful of modern office buildings, including Intraco (built in the 1970s), the Elektrim building and the Silver Tower.
"Rental rates at those buildings were exorbitant and reached USD 54 per sq.m at schemes such as Intraco, for instance," says Paulina Misiak. "Typical offices were located largely in administration buildings or tenement houses. They were small rooms on each side of a long corridor. The president's office was the company's executive suite."
However, in the 1990s, Warsaw was slowly becoming a large construction site, with a number of major office buildings reaching completion during that period (by date of completion): Kolmex, Warsaw Corporate Center, IPC Business Center, Aktyn Business Center, Fim Tower (now Orco Tower), the Atrium complex, Prima Court, Ilmet, Alma, Holland Park, Kaskada, Nautilus, Norway House, Sienna Center, Warsaw Financial Center, BTA Office Center, Wolf Zielna, Puławska Financial Center, Millennium Plaza, Saski Point, Warsaw Towers and Warsaw Trade Tower.
Two decades later the picture is much different, with investors perceiving Warsaw as one of the most attractive European locations for the future expansion, according to the European Cities Monitor. The Polish capital scores high in terms of low employment costs, supply and low costs of office space and business-friendly environment created by the Polish government.
"Compared to 1991, the supply of modern office space in Warsaw has increased by 1,400% from 250,000 sq.m to 3.5m sq.m. There are over 375 modern office buildings in Warsaw," says Paulina Misiak. "The office space delivered in the last ten years is among the most modern of its kind in Europe both in terms of its standard and technical solutions. Separate offices and endless corridors have been replaced by open space and the reception desk instead of the office of the company's president is now the company's symbol."
The market now offers a wide choice of space and average rental rates have fallen more than twofold compared to the former period. Headline rental rates in prime downtown locations reach EUR 24-27 sq.m/month, while in non-central locations they fall within the range of EUR 15.5-16.5 sq.m/month. A strong market trend is the development of business parks which are attractive mainly due to lower lease costs and expansion possibilities for tenants. Warsaw continues to be the main office market in Poland. As for regional cities, the key office destinations are Krakow, Wroclaw, Tricity, Katowice, Poznan, and Lodz, with a combined stock of slightly more than 1.9m sq.m. Headline rental rates in these cities fall within the range of EUR 12-16 sq.m/month.
As far as future prospects are concerned, the ongoing technological advancement and expansion of mobile communications technologies is expected to affect employers' approach to work environment. Offices will continue to be places of meetings, presentations and the so-called quiet work, while telecommuting and mobile telework are set to grow in importance. Other future trends will include a stronger emphasis on green concepts and environmentally friendly initiatives as well as expansion of regional cities.
Retail market
The 1990s saw a dramatic surge in private entrepreneurship with small businesses mushrooming literally at every corner. Ubiquitous tables, camp beds and street stalls were a symbol of the free market taking shape. The largest retail locations in Warsaw included the open-air markets at Stadion Dziesięciolecia and Plac Defilad. The former was considered to be one the largest marketplaces in Europe with over 5,000 retailers.
Official trade took place in department stores such as Domy Towarowe Centrum (Wars, Sawa and Junior) and Dom Towarowy Smyk, which continue to operate to this day with a different format and character. The first modern shopping centre was Panorama, which was opened in 1993. Other shopping centres quickly followed, including Promenada (phase one in 1996, phase two in 1999 and phase three in 2005), Targówek (1998 & 2001), Land (1999), Reduta (1999 & 2003), Galeria Mokotów (2000, 2002 & 2006), Wola Park (2002), Blue City (2004), Arkadia (2004) and Złote Tarasy (2007). The share of large retail schemes in the retail structure continued to rise in line with the global trends. Schemes of the first, second and third generation were built over a short time span.
"The opening of the first IKEA store in Poland was a true sensation. The highlights in the food sector included the entry of Billa supermarkets onto the Polish market and the dynamic development of the Polish supermarket chain MarcPol," says Katarzyna Michnikowska, Senior Analyst, Valuation & Advisory, Cushman & Wakefield. "At that time rental rates for retail space reached astronomical highs of USD 60-80 sq.m/month."
Although some street vendors can still be found in downtown Warsaw, the Polish retail market has grown mature and attractive to institutional investors, developers, as well as retail chains and customers.
In Poland, there are currently over 370 shopping centres with the total floor space of 7.2m sq.m. As much as 56.5% of this space is located in the main urban agglomerations. The largest shopping centres such as Arkadia in Warsaw, Manufaktura and Port Lodz in Lodz offer over 100,000 sq.m of space each.
"Currently, shopping centres are also under construction in smaller towns with 50,000-100,000 inhabitants. Both international and Polish professional developers and investors operate on the retail market. Retail space tenants include well-known Polish and foreign retail chains," says Katarzyna Michnikowska.
Indeed, the food retailers are foreign-owned Biedronka, Tesco, Carrefour, Real and Auchan. The DIY sector is represented by Castorama, OBI, Leroy Merlin and Praktiker. The highest rental rates for space in downtown shopping centres are recorded in Warsaw, where they stand at EUR 75-80 sq.m/month.
With changes in lifestyle and the rapid growth of e-commerce, the function of shopping malls is likely to change, with a growing emphasis on catering and entertainment facilities, and a shrinking importance of food and multimedia stores.
"The next twenty years will witness a return of retail to the city centre core, including in the form of department stores, with an increasing share of foreign luxury brands in the retail market," argues Katarzyna Michnikowska. "Plac Defilad in Warsaw [the area surrounding the landmark Palace of Culture] as well as many other attractive areas in the centres of many Polish cities will finally be developed."
Industrial property market
The economic changes in the 1990s opened new opportunities also for the development of Poland's industrial and warehouse sector. The growing supply of goods and services, expansion of the consumer market, development of IT and telecoms technologies, and manufacturing investments created demand for modern warehousing and logistics services.
"The first modern warehouse was established in 1995," says Joanna Sinkiewicz from Cushman & Wakefield. "At that time it was called Warsaw Industrial Center, later to be renamed ProLogis Park Warsaw. Back then, rental rates amounted to USD 12 sq.m/month."
Currently, the modern warehouse space stock in Poland amounts to 6,5m sq.m. Most of this space was completed between 2004 and 2008. The years 2006-2008 were a boom period for the warehouse market as the demand for space exceeded the rate of new developments and warehouses were leased before their construction was completed.
"Speculative construction ground to an almost complete halt due to difficulties with obtaining financing. Since 2009 tenants have become increasingly interested in built-to-suit schemes which, apart from the possibility of tailoring the technical specifications to individual requirements, can also be constructed in locations selected by the tenant. Such projects will unquestionably contribute to the development of the warehouse space market in new locations," explains the C&W expert.
The ongoing development of Poland's motorway network is bound to strengthen this trend, bringing developers to entirely new locations, for instance Szczecin, Rzeszow, and Torun, which are beginning to emerge as new markets. Headline rental rates vary, depending on the region, and fall within the range of EUR 3-6 sq.m/month.
"The current trend is to construct specialized warehouse complexes," says Joanna Sinkiewicz. "Fully automated and very high standard warehouse centres close to manufacturing plants will gain in importance in the future, while the warehouse centres will turn into warehouse towns with full infrastructure and the just-in-time service system. It will become possible to arrange modules freely and the size of such modules will be tailored to the individual needs of tenants leasing 50 sq.m or 5,000 sq.m."
We have talked to:
Paulina Misiak paulina.misiak [at] eur.cushwake.com
Tel: + 48 603 060 148 (mobile)
Katarzyna Michnikowska katarzyna.michnikowska [at] eur.cushwake.com
Tel: +48 22 820 20 20 (office)
Joanna Sinkiewicz joanna.sinkiewicz [at] eur.cushwake.com
Tel: +48 722 202 011