A bit of macroeconomic data

Poland was the only state in the European Union to avoid the recession in 2009; according to the Central Statistical Office, Poland listed GDP growth by 1,7% and inflation decrease from 4,2% (in 2008) to 3,5%. Forecasts for 2010 are also optimistic; it is estimated that the growth of the economy will increase by 3.4% and the inflation will decrease to the level of 2.7%.

The National Bank of Poland (NBP) and the Polish Agency for Information & Foreign Investments (PAIiIZ) announced that in 2009 the influx of Foreign Direct Investments (BIZ) to Poland amounted to EUR 8.4 billion, i.e. was lower by 23% YoY. The Polish government has prepared an additional incentive in the form of long-standing financial assistance programmes to attract new foreign investments. Now the next move, which would stimulate economic growth, belongs to the banking sector – tempering the conditions of providing with investment credits would considerably contribute to the increase in investment.

Given a wide range of factors contributing to Wrocław business attractiveness i.e location, good communication network, educated employees with acquaintance of foreign languages, investment aura made by the municipal council, and per capita income, further development in commercial property market is expected after a short slowdown last year. This upward trend is reflected by the gradual increase in demand in all sectors of the commercial market, especially since the beginning of 2010.

Office real estates

In 2009 there were about 380 k sq. metres of modern office space in Wrocław, placing the capital of the Lower Silesia at the third place just behind Warsaw and Cracow. Obviously, Warsaw remains the unrivalled leader with its resources at the level of approximately 3.25 million sq. metres. (King Sturge’s statistics, March 2010).

It is worth emphasising that these results concern developers’ commitment from 2006 to 2007. Last year it was fairly easy to notice wait-and-see attitude of developers; developers either monitored the market trends before taking any particular decisions or faced difficulties in being granted loans. The launch of several earlier-planned buildings was stopped. Banks significantly raised standards for commercial market developers; banks granted a loan only after prior signing of a pre-rental agreements amounting to a minimum of 50% office space, a very difficult requirement to meet in 2009 on account of an oversupply and a general slow down in the business sector.

Last year's slow down in the economy translated into about 40% decrease in the demand of office space. According to King Sturge’s report it also led to the increase of empty unused buildings rate from 5,4% to about 8%. This fact notwithstanding there were certain positive effects - tenants benefited from lowering of rent rates from EUR 14.5 - 18 / sq. metre to EUR 10 - 16 / sq. metre in 2008. Property owners are more willing to negotiate and give discounts, especially, as far as large format facilities are concerned. The largest number of business deals concerned spaces of 50- 350 sq. metres last year. In the total number of transactions there was a minor increase in the percentage of tenancy of offices with a possibility of adopting to tenant’s needs in exchange of deduction of rent installment.

The current 2010 brought a slight recovery. The decrease in rent prices and the possibility of negotiating have restored the interest in office premises of high standard.

Investment plots

Notwithstanding the slow down in the commercial real estate market, there were also certain positive effects; the decrease in the demand has lowered the real estate prices, which became exorbitant during the upturn in the economy.

The most spectacular decrease in prices could be observed at the market of plots planned for investments. In Wrocław in 2008 and the first half of 2009 falls of transaction prices reached the level of 60%, in the second half year falls were lower at the level of 15 - 40% as offer prices were also verified. Oversupply of selling offers to buying offers still stands in the ratio of 18 to 1. Thus, it may be now profitable to negotiate prices and make investments.

In spite of lower demand in general terms, areas with favourable price and location for a particular function: as office, hotel, service and industrial plots have still attracted interest. It is commonly known that investors are not interested in lands at overstated prices; they are aware of their actual market value and capitalization level. Investing at any cost has been at its end, therefore, property owners are prone to negotiating prices. In the market there appeared 'bargain hunters.' And bargains come up, when sellers are forced to a sudden transaction in order to maintain the liquidity of their business activity.

In Wrocław, there is a greater interest in the southern and south-western regions of the city (the exit to the highway) and the northern and north-eastern regions (the exit in the direction of Warsaw and Poznań), the latter being of interest especially after the western sections of the highway beltway started to be under construction. There is an increase in the demand of building lands for hotels and office buildings in the vicinity of the airport and the future stadium planned for the Euro 2012.

The prices of building plots are very diversified and conditioned by such parameters as: location, dimensions, location within the area covered by local spatial development plan (with drawn-up land management study for the plan), regular shapes, direct access, infrastructure network close to the boundaries of the city.

Warehouse real estates

Polish warehouse market has been developed in two directions: as large area logistics centres built by international corporations such as ProLogis, Panattoni or SEGRO, and as smaller centres and warehouse facilities constructed by local developers and individual investors.

The resources of modern warehouse area in Wrocław amounts to approximately 550 k sq. metres which gives it the fifth position nationwide just behind the Warsaw Area, Upper Silesia, central Poland and Poznań (Colliers Int. data). In 2009 there was a slowdown of demand and it consequently resulted in restricting new investments. The trend of building in the BTS (built to suit) system to suit individual requirements of any particular investor became established. This system has been successfully used by minor individual investors for several years.

Currently, costs of renting high standard warehouse space in Wrocław amount to EUR 2.80 - 3.70 / sq. metre / month.

Małgorzata Battek

Source:  Property Journal  4-5/2010