A summary for The market for investment land in Poland

Transcription

1 A summary for 2014 The market for investment land in Poland

2 Office real estate 01

3 Introduction 2014 saw a revival in the residential market in Poland. The continuing high demand on the primary residential market and interest from developers in purchasing new investment land were a result of a government program called Accommodation for the young and low interest rates, which encouraged the holders of sizeable deposits in banks to withdraw their funds and invest in real estate. Another factor that has influenced the decisions of the purchasers of new apartments was the fact that 2014 was last opportunity to take out a loan for up to 95% of the price of a property. Moreover, the rules and mechanisms aimed at protecting the buyers of new properties introduced by the Developer Act also stimulated the growing number of transactions on the primary residential market. The provisions of the Act are of significant importance, in particular for those buyers who purchase the apartments at a very early stage of the development process. Analysis conducted by JLL after the first quarter of 2014 showed the very good condition of the residential market and the willingness of its main players to spend more than PLN 1,5 billion on land acquisition. Since the rising demand for residential land properties did not go hand-in-hand with increasing supply, the most attractive land available was sold very quickly. As a result, some investors were unable to execute their acquisition strategies before the end of In the longer timeframe, this situation may lead to a situation in which some investors will be forced to revise the investment strategy they have adopted. Despite the significant domination of transactions concerning land designated for residential development, in 2014 we saw a strong presence of transactions concluded in the market for land for offices. This may be explained by the good condition of the local office markets, especially in Warsaw. It is worth noting that the ageing of office buildings, with technical conditions and appearances differing from the new standards of the modern green offices, is becoming a more and more visible problem in large agglomerations, especially in Warsaw. Tenants are migrating to new office schemes and the refreshing of the office stock is taking place through the sale of land with old office buildings located thereon which subsequently can be renovated, redeveloped or demolished and replaced by larger, new buildings. The number of this type of properties is growing. Moreover, according to experts from JLL, the exodus of tenants from old office buildings to new schemes will improve the situation on the office market in 2017 to 2020 by reducing the vacancy rate in new office projects. The hotel market, though much less dynamic, has a chance to experience a revival in 2015, which will continue beyond this year. Based on our market analysis, we at JLL estimate that within the next three to five years some 10 to 15 new hotel facilities will be introduced to the market. Among those will be both well-known chained-brand hotels, already present in Poland and new hotel chains which are currently considering entering this market. On the back of the excellent condition of the Polish market, as well as the long-term growth prospects, we observe growing interest in investing in Poland. This is reflected by the fact that not only European but also international companies are expressing interest in the Polish market. Land market investment opportunities, mainly in Warsaw, are being analysed by companies from places as diverse as the Republic of South Africa, India, China and the Arabian Peninsula. 3 The market for investment land in Poland

4 Office real estate market Summary High levels of activity on the office leasing market in the largest Polish agglomerations, at the same time as a rising supply of new office space, accompanied by increasing vacancy levels these are the dominant trends in the office real estate market in New office space was wanted mainly by international companies consolidating their branches, extending their area of activities to the national level or entering the Polish market. Additionally, more and more often Polish public institutions are joining the tenants of modern office spaces, with examples including the National Agricultural Agency (in Gdański Business Center), the General Inspectorate of Road Transport (in Equator), the Polish Gas Company (in Bolero Office Point) and the Civil Aviation Authority (an extension of a lease in Flanders Business Park). Attracting tenants to lease space in the new office developments was not an easy task in 2014, but it was not impossible. After convenient location, environmentally friendly technical solutions, eye-catching architecture, appealing fit-out and arrangement of the common space (both inside and outside the building), together with an attractive bonus package at the start, were the minimum expectations of potential tenants. According to experts at JLL, in spite of the extensive range on new office projects available on the market, the wide choice of bonuses offered to tenants and their strong activity in 2014, the vacancy rate will not fall in 2015, due to the growing supply of new office developments; in fact, in some Polish cities the amount of vacant space will get even larger. 2 The market for investment land in Poland

5 Land for office developments Trends The land market versus the lease market The high level of supply of new office space in 2014 affected the activity of investors interested in the acquisition of land designated for such developments. As a result, these investors acted more carefully when it came to analysis of potential return on investment and thoroughly considered the start of each new project. It is worth noting that, although influenced by the office market, the land market is not a mirror reflection of that market. Therefore, whenever we see a growing number of new office projects and increased vacancy rates, the prices of land designated for office development usually tends to fall. This may lead to the conclusion of new land acquisitions, with the prospect of the office building development process being started in three to five years time. The dilemma of ageing office buildings One of the new trends that can be seen on the Polish market is the revitalisation, redevelopment or demolition of the office buildings which are a decade or a few decades old, with the aim of replacing them with new, in most cases higher, office developments. A growing percentage of the land properties put on sale in large agglomerations are plots developed with office or mixed-use complexes which are operational or which tenants have left recently. They are often situated in very attractive locations and offered for sale by means of public tender by public sector entities, which are increasingly eager to consolidate their branches and move to the new buildings. The owners of the plots on which old buildings are located, or investors considering the purchase of such a plot, often make efforts to secure favourable provisions in the local Master Plan allowing for the demolition of the existing buildings and construction of new, higher structures. Average prices of land in 2014 Area Warsaw CBD* Warsaw CBD fringe * Warsaw other Cities of more than 400,000 inhabitants *CBD Central Business District **PUB Office Usable Area Price (PLN / m 2 PUB**) 2,000 4,000 PLN 1,650 2,200 PLN 600 1,300 PLN 400 1,100 PLN 3 The market for investment land in Poland

6 Retail real estate 02

7 Retail real estate market Summary 2014 was marked by the increasing saturation of the market with modern retail space and, as a consequence, pressure on reducing rents and difficulties with the commercialisation of large schemes (to an extent required by the banks providing the funding for such). Therefore, investors leaned towards the development of retail projects of a smaller scale or the modernisation of existing schemes, located mainly in large cities. As a result, we saw a growing number of smaller retail formats, such as discounts, retail parks, outlets, and convenience centers. They were built both in the underdeveloped regions of Poland and in agglomerations, in the latter case often as a retail component of a large residential estate. It is worth noting that the increasing popularity of e-commerce is changing the way in which consumers perceive shops and shopping centers. These are no longer seen exclusively as places where people go to purchase goods. This particularly involves clothing stores, which more and more often serve as showrooms where goods are presented to potential buyers but they are not the place where sale-purchase transactions are concluded. Pop-up stores represent another trend that could be seen on the retail market in The concept comes down to the introduction to shopping malls, for only a short time, of new small-size boutiques. The main point of this strategy is to enrich the retail scheme s product range and also to increase the visibility and popularity of products offered by small producers and designers. 4 The market for investment land in Poland

8 Land for retail developments Trends Towards minimalism The popularity of small retail formats has directly translated into a growing number of inquiries for medium-size plots of land designated for retail development. Investors are attracted not only by plots located in the biggest agglomerations, but also by those situated in cities with fewer than 100,000 inhabitants. Plots of land located in cities with more than 50,000 inhabitants and designated for retail developments of 2,000 m 2 to m 2 usable area are particularly popularity with investors. The factors which increase interest in smaller retail projects include not only the saturation of retail space on the market but also the growing pressure on reducing rents and difficulties with the commercialisation of large schemes to the extent required by the banks providing the funding for those. It is worth noting that the plots of land offered on the Polish market are often not sufficiently prepared for the projected development of large-format retail schemes, especially with respect to utilities and road infrastructure. As a result, a new investment implies for the investor the necessity of bearing high additional costs, which will affect the profit margin. Retail in public facility buildings Projects combining retail schemes with public facility buildings, such as bus and train, gained popularity in An immediate effect of this trend is the high level of interest from investors in public tenders organised by Polish State Railways or the Polish Post Office. Average prices of land in 2014 Area Warsaw land designated for largescale shopping malls Warsaw land designated for retail parks and stand-alone stores Cities of more than 400,000 inhabitants *PUU Retail Usable Area Price (PLN / m 2 PUU*) 2,000 5,000 PLN 1,500 2,000 PLN 400 1,200 PLN 5 The market for investment land in Poland

9 Residential real estate 03

10 Residential real estate market Summary The record sales on the primary residential market in Poland were driven by low interest rates, the government program called Accommodation for the young and the Developer Act, as well as relatively easy availability of loans and the fact that 2014 was last opportunity to take out a loan for 95% of the price of real estate. Encouraged by the good sales results, the developers were eagerly starting new investment projects by using the land properties gathered in their land banks. In 2014, we saw a growing proportion of people who, viewing real estate as the best available deposit for funds, decided to buy an apartment for investment purposes. As part of this trend both condo-hotels and condo-apartments drew increased interest. In order to convince hesitant potential buyers of apartments, developers have been offering a wide choice of attractive and original promotional offers. Apart from discounts on prices, the most popular offers were cash bonuses for finishing the interiors of apartments, full fit-out of one room, complimentary design consultations with architects and interior designers, and discounts stemming from recommending a given development to friends and thus bringing in new clients. Everything seems to indicate that both the rising supply and demand on the primary residential market are set to continue in The market for investment land in Poland

11 Land for residential developments Trends Growth in the residential primary market The exceptionally good sale results of apartments offered on the primary market in 2014 resulted in faster than expected disposal of available stock. Many developers therefore decided to look for land which allowed a rapid start of new residential developments. This generated demand for plots covered by master plans or with a binding WZ (a decision on site development conditions), and which preferably also had a valid building permit and architectural plan, on the condition that the average size of the planned units does not differ substantially from current market standards. Average prices of land in 2014 Area Price (PLN / m 2 PUM*) Warsaw city center 1,800 4,000 PLN Warsaw other districts 400 2,500 PLN Cities of more than 400,000 inhabitants 550 1,300 PLN *PUM Residential Usable Area The top development companies initially launched new residential projects on sites from their land banks. However, demand for plots of land designated for residential development remained high, since smaller development companies were applying a bolder approach with regard to land acquisition and were taking into consideration not only plots situated on the outskirts of cities, but also those located much closer to the centres of the main Polish agglomerations. Rising popularity of joint venture projects The good economic performance of the residential market in 2014 gave rise to a large number of sales of plots of land for residential projects. It also made the owners of real estate and investors more likely to co-operate in joint-venture projects. One of the jointventure investment models assumes that the developer will not engage its own financial resources in land acquisition. Instead the developer agrees to share the future return from the investment with the owner of the land. From the perspective of the owner of the land, this solution offers the possibility of benefitting from the developer s experience and well-known name; however it implies a longer time of waiting for remuneration and involves the assuming of risk associated with the development. Investment strategy turnover The increasing demand for new apartments led to interest from investors commonly known for office projects, which in 2014 openly expressed their interest in acquisition of land for residential projects and were considering the remodeling of their investment strategies. 7 The market for investment land in Poland

12 Hotel facilities 04

13 Hotel market Summary Euro2012, which had driven the development of this sector, is now a thing of the past. Nevertheless, the tourism market in Poland is not showing any signs of stagnation: conference and congress infrastructure is continuing to develop dynamically. As a result, Poland is increasingly more often chosen as a business tourism destination. Moreover, the national business meetings market is also undergoing a significant revival. In addition to new hotels, new multifunctional, conferenceexhibition centers are being developed, offering modern space and highly qualified staff. It should be noted that growth of the business tourism market is dependent on the national economic situation, the flow of foreign capital and new investments, the dynamics of development, and increasing competitiveness. It blooms along with economic prosperity, which, in fact, is the current situation in Poland. The main strength of business tourism is that the best results are recorded during the off-peak periods (i.e. the times outside of holiday periods). Therefore, business tourism provides a development opportunity particularly for those cities and regions where the length of tourist period is relatively short, provided that they are able to provide the highest level of customer service. The growing popularity of medical tourism in Poland presents considerable development potential, due to the availability of qualified professionals, modern medical equipment and the excellent health-resort price/quality ratios of some Polish regions. 8 The market for investment land in Poland

14 Land for hotel developments Trends New players on the market Unsurprisingly, hotel operators who are looking for new land investment opportunities are mostly interested in plots located in such cities as Warsaw, Wrocław, Kraków and the Tri-city. As with investors operating on the office market, hotel operators want well-connected sites located relatively close to the city center. In Warsaw the most attractive plots are those located along the second metro line, while in other large cities it is those not far from the main train and bus stations or the main road arteries. We at JLL expect, based on available date, to see within the next three to five years around ten to fifteen new hotel facilities being introduced to the market, half of which will be budget hotels. In addition to well-known hotel brands already here, new ones are expected to enter the Polish market and, according to experts at JLL, are currently analysing the opportunities here. 9 The market for investment land in Poland

15 Agricultural land 05

16 Agricultural property Summary In 2014, the agricultural market drew strong interest from potential purchasers. In 2013, the National Agricultural Agency sold the largest number of plots of land since 2003 and expects that a similar sales level was achieved in May 2016 is the date on which the market for agricultural land will be opened to certain foreigners, i.e. nationals of the European Economic Zone and Switzerland. This means that they will be entitled to purchase plots of agricultural land on the same conditions as Polish citizens; it gives a reason to believe that interest in agricultural land in Poland is not going to decrease and that the demand will be reinforced by foreign investors. Moreover, it is worth noting that, despite the upward trend in prices, agricultural land in Poland is a half or even a third of the average prices in other EU countries. Moreover, Western Europe often lacks a wide choice of such type of properties. As a result, investors operating on the agricultural market are already striving to book the most attractive arable areas by signing lease agreements and thus avoiding the necessity of obtaining the approval of the Ministry of the Interior to purchase such properties. It is also a way for them to guarantee the price of such properties in The market for investment land in Poland

17 Agricultural land Trends Organic farming on top According to experts from JLL, changing the status of farm land to allow residential projects is not as popular nowadays as land cultivation. As a country with a relatively low level of use of aggressive chemical agents in farming, Poland can be perceived as an attractive location to develop organic food production. Moreover, Polish agricultural products, including poultry and cattle, have already won recognition inside Europe and outside, which also attracts potential investors. As a result, a large number of the entities contacting JLL and expressing an interest in purchasing farm land are not developers, but instead farmers and breeders from all over the world. Depending on the acreage which they are looking to purchase, they can be classified into one of three main groups. The first group covers those who want agricultural land of a total area between 50 and 200 ha, preferably forming a coherent whole, of the highest possible soil classification score. The second group consists of investors interested in larger pieces of land, or even a few neighboring farms of a total surface up to 1,000 ha. The third group is formed by investors who have the resources allowing them to buy more than 1,000 ha of agricultural land. The following conditions affect the attractiveness of agricultural properties: soil bonitation, climate, shape of the surface, property size, distance between the individual plots composing the property, and the accessibility of the plots. In the case of animal breeding, such factors as the proximity of other farms and residential properties also play an important role. Moreover, potential buyers pay attention to developed irrigation networks and soil contamination (visible on the surface of the ground and present in the soil layer). Rocketing prices The soaring demand for the agricultural land in Poland has resulted in the price expectations of farm owners rocketing. Therefore, asking prices often significantly exceed the average transaction prices published quarterly by Poland s Main Statistical Office. 11 The market for investment land in Poland

18 Forecast 06

19 The forecast for 2015 Supply According to experts at JLL, 2015 will see growth in the segment of office development, due to, inter alia, a more careful approach from investors towards new office investment projects and changes in their investment strategies. With regard to land for residential developments, we do not expect any sudden growth of supply; the reason for this is that developers are not interested in selling the properties collected in their land banks. Most of them, encouraged by the good sale results on the primary market in 2014, plan to start, or have already started, new developments using their own land resources. Demand Experts from JLL are of the opinion that in 2015 we will continue to see increasing demand for plots of land designated for residential development, including the less attractive investment plots suitable for lower-class residential buildings where potential buyers will be able to be buy apartments by taking advantage of the funding provided by the government s Accommodation for the young program. Moreover, we expect to see a further increase of demand for agricultural land. Prices The prices of land for offices, retail projects and hotels will remain stable. With regard to the residential land segment, we expect a continuation of the 2014 trend and increases of prices both in Warsaw and other Polish agglomerations. The upward trend will also apply to the prices of agricultural land. Forecast of supply, demand and prices in 2015 Indicator Land for office projects Land for retail projects Land for residential projects Land for hotel projects Agricultural land Supply Demand Prices 12 The market for investment land in Poland

20 Examples of plots of land offered on the market Warsaw Location Use Development potential Marywilska street residential 70,000 m 2 PUM* Prosta street mixed use 50,000 m 2 PUM* / PUB** / PUU*** Jerozolimskie avenues office 25,000 m 2 PUB** Beethovena street mixed use 20,000 m 2 PUM* / PUB** / PUU*** Rydygiera street office 24,000 m 2 PUB** Emilii Plater street office 70,000 m 2 PUB* Żwirki i Wigury street mixed use 300,000 m 2 PUU*** Okrzei street residential 12,000 m 2 PUM* Chełmska street mixed use 92,000 m 2 PUM* / PUB** / PUU*** Wrocław Location Use Development potential Powstańców Śląskich street mixed use 137, 000 m 2 PUM* / PUB** / PUU*** Piłsudskiego street mixed use 24,000 m 2 PUM* / PUB** / PUU*** Kraków Location Use Development potential Prandoty street residential 60,000 m 2 PUM* / PUB** / PUU*** Konopnickiej street commercial 17,000 m 2 PUB** / PUU*** Gdańsk Location Use Development potential Krynicka street residential 1, 000 m 2 PUM* Kołobrzeska street commercial 17,500 m 2 PUU*** Jana z Kolna street mixed-use 200,000 m 2 PUU*** *PUM **PUB ***PUU residential usable area office usable area retail usable area 13 The market for investment land in Poland

21 JLL Daniel Puchalski National Director Land Advisory Services Mateusz Dembiński Senior Consultant Land Advisory Services Joanna Kieszczyńska Consultant Land Advisory Services jll.pl COPYRIGHT JONES LANG LASALLE IP, INC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.