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The Record-Breaking Era of the Polish Real Estate Sector

The Record-Breaking Era of the Polish Real Estate Sector

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The commercial real estate market in Poland continues to be on a growth path. In 2017, the market recorded high demand in all major asset classes, breaking records in the hotel and warehouse sectors. The total value of transactions is growing consistently, and in 2017 it reached EUR 5.1 billion – the highest level in the history of the Polish market.

This figure can be attributed to several factors. The relatively high absorption of this market and the relatively high rates of return on investments in commercial real estate in Poland seem to be the most important. Analysis shows that in most cases there is an increase in demand calculated on a year-on-year basis. This provides a significant incentive for developer activity. Indeed, the rate of return yielded from investments in commercial real estate in Poland is higher than in Western Europe, making it especially attractive to international investors.

In addition, investments in real estate are still an attractive way of investing capital in macroeconomic terms, in light of the stable and relatively high growth rate of the Polish economy. Poland seems to be perceived as a recognized real estate market, gradually reaching the status of a mature market, due to the increasing liquidity and diversity of investment products and the growing number of investors.

In terms of sectors, the greatest activity is happening in the office and warehouse markets. Currently, there are over 1.8 million square meters of modern office space under construction in Poland. Most projects are being implemented in Warsaw, and among regional cities, the construction boom is most visible in Krakow and Wroclaw. At the end of December last year, over 1.3 million square meters of warehouse space were under construction in Poland, providing a record supply of 2.3 million square meters of modern warehouse space. In both the office and warehouse markets, 2017 was also record-breaking in terms of space leased. As a result, the vacancy rate fell to an almost unnoticeable level. This trend is also visible in the hotel market.

Developers are not slowing down, which leads to record-breaking demand for land in Warsaw and regional cities. Some developers have secured land banks that allow them to take advantage of the market boom, but others are facing a significant increase in land prices, especially in relation to land intended for housing development. Available land which is well-prepared in technical and legal terms and is in a good location is rare. In the office market, the alternative is to look for land in places typical of B class office buildings, as well as investments in dynamically growing regional markets, even in such promising new locations as Lodz and Szczecin.

The role of the BPO/SSC external services market should be noted as an important factor stimulating office investments, and the BPO/SSC sector will continue to be one of the key sectors affecting the situation in the office real estate market in Poland. Attention should also be drawn to the growing importance of the co-working services sector. It seems that the market is confident that such offers are an attractive and developing product for entities from other sectors of the economy. As such, the providers of co-working services fill the gap between the expectations of the traditional commercial real estate market and the pressure on flexibility on other lines of business. 

Significantly, among the factors stimulating growth on the commercial real estate market, the legal environment is not mentioned. On the contrary, the instability of the law on business practices and the increase of new regulations operate as a brake on the development of this market, as business expects durable solutions in the field of spatial planning and the construction process. As persistent ills, there are also ownership issues resulting from the lack of uniform rules for the re-privatization of land. Thus, there are many challenges for the legislator and for legal practitioners seeking to contribute to the development of the commercial real estate sector in Poland.

By Mateusz Grabiec, Partner, Baker McKenzie

This Article was originally published in Issue 5.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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