BNP Paribas Real Estate Poland Sp. z o .o.

Promising prospects for the domestic real estate market

Originally Published in March 2020

LIMITED new supply on the market, a very low level of unemployment resulting in a limited access to human resources, difficulties in keeping up with the huge interest of tenants or the lack of available investment product – these are only some of the challenges and barriers to the development that the domestic real estate market has been facing recently.

Remodelling and extending the offer are a recipe for success The previous year confirmed what all experts have been talking about for a long time – the modern retail market has reached maturity. The greatest opportunities for development, although still very limited, can be found in the largest agglomerations, which still generate new locations for retail and services. The potential for growth is also visible in small towns, where so far the modern commercial offer has been very limited, which results in the creation of small retail parks and convenience centres. Increasingly often, owners of small, local assets, seeing their development potential, decide to expand them. In the case of older retail schemes it is fashionable to redevelop or modernise them – not only to protect the asset from losing customers, but actually to reach new groups of consumers.

“A similar phenomenon has been observed for several years in buildings managed by us. Refreshing the offer or extending the tenant mix with new retail brands, service providers or entertainment elements, allows for increasing the prestige of a particular asset. Mixeduse schemes have also been appearing on the market, which take advantage of their flexibility, functional variability and ability to quickly adapt to changes taking place in the market and attract new brands looking for a unique place to début,” says Erik Drukker.

“At the end of 2019, the total stock of modern warehouse space in the country was more than twice as big as five years ago”

Regional office markets are stepping on Warsaw’s heels For many years Warsaw has been the leading office market in Poland. In the past two years the demand for Warsaw’s office buildings has significantly exceeded the new supply, to such extent that developers have not kept up with the huge interest on the part of tenants, which has resulted in a significant reduction in the share of vacant space. However, the good economic situation in this sector continues for a long time not only in Warsaw. Regional markets have become its beneficiaries as well; they have already equaled Warsaw in terms of the aggregate size of modern office space. Co-working spaces, an extensive foodservice offer and outdoor public spaces – all this results from the changing trends among the residents of the largest cities in Poland. Today, office buildings are more than just workplaces. They have become a lifestyle, a destination that serves more than just employees. Mixed-use buildings, which also include office space, are becoming increasingly popular. Additionally, not only more is being built in regional cities, but the size of the projects is also increasing,” Erik Drukker adds.

The industrial market is growing at a two-digit rate The industrial and logistics market is the fastest developing real estate sector in Poland. The unflagging investors’ interest in warehouse and logistics real estate is the result of a very favorable economic situation in this sector, fueled by the rapid development of the Polish economy. In the first half of 2019, this sector was responsible for approx. 15% of the total investment volume realized in the country. At the end of 2019, the total stock of modern warehouse space in the country was more than twice as big as five years ago. The record-high level of new supply and the huge volume of projects under construction clearly indicate that the market is accelerating and has no intention of slowing down. Of course, provided that it can cope with the greatest challenge, which is the diminishing access to the workforce. Developers and occupiers, being aware of this, are looking for alternatives to the currently most desirable locations. Additionally, forward purchase transactions are becoming more and more popular due to the limited availability of a built and leased product that meets the standard investment criteria of real estate funds. At the same time, as the CEO of BNP Paribas Real Estate, CEE emphasizes, a developed transport infrastructure remains crucial for the industry.

“This is why “opening” of new destinations through the development of expressways and motorways has been observed recently. The flagship example confirming this trend is the logistics centre owned by Zalando, located near Olsztyn, in the immediate vicinity of the recently completed fragment of the S7 route.

“Polish GDP is constantly growing and thus attracts more corporations to the country”

This is a region which until recently was not generally associated with such investments”. Investors from the East are looking at the Polish market Recent years have undoubtedly been a period of prosperity for the real estate investment market. Last year the investment volume amounted to more than EUR 7.65 billion, which is more than in the record-breaking 2018, generated by about 170 transactions. Interestingly, more than half of the transaction value was generated by the office sector with the all-time record purchase of Warsaw Spire A by Immofinanz for EUR 386 million. It is also worth noting that the total investment volume also includes projects in the extremely prospective and rapidly developing alternative real estate sectors, which include luxury apartments for rent in prestigious buildings, modern student houses, hotels and retirement homes.

Erik Drukker predicts a bright future for this form of investment: “Polish GDP is constantly growing and thus attracts more corporations to the country, which in turn demand office space, while their employees need places to live. The great potential for growth of this market is evidenced by the fact that less than two months after the launch of the Residential Capital Markets business line in Poland BNP Paribas Real Estate Poland managed to finalize an agreement worth EUR 2 million. This form of investing should enjoy a growing popularity among foreign funds.” Apart from the office sector, the retail sector is doing well with the investment volume, lower than in the record-breaking 2018, but definitely higher than the expectations of experts.

As far as the warehouse segment is concerned, the greatest demand could be attributed to investors from South-East Asia, who in 2019 accounted for 30% of all transactions. “For a long time now, we have noticed their growing interest and increased activity in the CEE market. Last year BNP Paribas Real Estate Poland concluded the transaction between Vestas and a Korean investment fund, worth more than EUR 130 million,” Erik Drukker adds.

In the CEO’s opinion, capital from the East will come to Poland in waves, as investors have appetites for even more products available on the Polish market.