24 (119) 2016
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British Investment

How Poland’s real estate market matured

by Paulina Krasnopolska, director of communications, JLL
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1989 in Poland marked the beginning of the expansion of numerous international companies – including investors, manufacturers and other businesses from the UK.

The largest global players usually launched their Central European operations in Prague in the Czech Republic, followed by Budapest and  Warsaw.

The entry of foreign capital to the Polish real estate market and the Polish economy was an important event. However, the inflow of funds from abroad was not the only benefit. Poland saw the arrival of specialists willing to share their technological and strategic knowledge. This was particularly visible in the real estate sector. When JLL (known as Jones Lang Wootton at the time) launched its business in Poland in 1994, its core team of specialists consisted of four Britons and one American. As a result, young Polish employees joining the firm were able to learn about business culture and ethics – as well as how to draw up documents in accordance with international standards; offers, agreements, valuations, investment memoranda and press releases. The inflow of such know-how encouraged the rapid development of the real estate market in Poland and education of Polish employees working in the sector. Today, we still use numerous Anglicisms at work, as appropriate Polish equivalents have not yet been created.

How did the commercial real estate market look like 25 years ago?

One of the first commercial enterprises was the development of Centrum LIM, known mainly for the Marriott Hotel. However, it also provided leasable office and retail space. The 1990s were dramatically different to what we see today Then, rents were expressed in US dollars and could be even up to $50-70/m²/month. Such levels were mainly a result of an insufficient supply of available office space. However, numerous new office buildings were soon launched as a response to growing demand among tenants. The first office projects included Blue Tower at Plac Bankowy, a building for Pekao  SA on  Grzybowska Street, FIM Tower (today's Central Tower) or  the Ilmet building on Rondo ONZ. The first buildings of the Atrium complex on Jana Pawła II Av. as well as Kaskada office building were also developed in the ‘90s. The second half of the ‘90s saw the beginning of the Polish skyscraper era. In 1998, the Warsaw Financial Center located on Emilii Plater Street was opened, followed by the Warsaw Trade Tower developed on Chłodna Street. Regional markets developed at a much slower pace with developer activity lagging well behind that of Warsaw. Interestingly, back in 2000, the Tri-City was the second largest Polish office market after Warsaw. However, a significant increase in developer activity on the biggest office markets outside Poland's capital began in 2004-2005 (before that, new buildings were predominantly developed for banks and big local companies). The main driver of the regional markets' development was the massive increase of projects from the shared services/business process outsourcing sector after Poland entered the EU.

The development of the Polish retail market has been significant since the beginning of ‘90s as Poland saw the launch of hypermarket brands such as Hit, Metro, Auchan and E. Leclerc. Centrum Panorama, the first shopping centre in Warsaw, was developed in the early ‘90s. In the second half of the decade, numerous first-generation centres were developed, where hypermarkets occupied up to 70% of the retail space. The launch of DIY stores  followed. Poles positively received the evolution of the retail market and within 10 years, the shopping centre had established itself as an integral part of the Polish consumer's shopping experience. This was bolstered even more by the continued development of the centres' fashion and service propositions as well as the introduction of numerous amenities for the customer.

Soon, the market witnessed the entrance of second-generation schemes where hypermarkets occupied around 30% of space, while fashion and service propositions occupied the remaining 70%. Third generation schemes – modern shopping galleries with an extensive range of food, and fashion units, services, restaurants, entertainment venues and sports amenities – started to emerge in the late 90’s with the flagship retail schemes entering the market in 00’s. These became 'destination centres', serving not only as shopping locations but also social meeting points.

The industrial market was the last sector to develop. In 2004, the first modern warehouse parks were developed and consisted of complexes built either in or on the outskirts of cities and included projects such as Alliance Logistics Center and Żerań Park in Warsaw, Diamond Business Park Łódź, Prologis Park in Błonie and Teresin. In addition, the commencement of the Europa Park complex in Mszczonów was of great importance to the market.

The real estate investment market developed slowly, mainly due to a lack of available products. The first investment transaction involving JLL was the purchase of 50% of the Bank Handlowy building on  Chałubińskiego Street (currently Oxford Tower) in 2001.
Poland’s EU accession was a major boost to foreign investment. Joining the EU’s structures confirmed the market’s transparency and provided a guarantee of, or at the very least a hope for, high standards and compliance with procedures. Most of all, it gave a feeling of legal security which was crucial for many transaction market players who were less willing to take risks. Poland’s accession to the EU resulted in the emergence of institutional investment capital in Poland, also from the UK.

The investment boom can be seen in the numbers. In 2006, the volume of investment transactions across all commercial real estate sectors in Poland was a record €5 billion with the office segment accounting for €2.2 billion. In 2015, the volume of investment transactions totalled €4.1 billion, the best performance since 2006.

In Poland, there are  13 million m² of modern retail space, nearly 10 million m² of warehouse space and 8 million m² of office space (as of Q4 2015). Last year was record-breaking in terms of leased office space, as demand totalled over 1.5 million m².

Poland is also one of the most active markets in the CEE region in terms of investor activity as well as sale and acquisitions volumes. This results partly from the market’s size and from its maturity and investor comfort regarding both product and tenant quality. The stability and strength of the Polish economy are also key elements. These factors are of paramount importance for investors and, therefore, I hope that Poland's economic growth will be maintained over the next few years. The real estate market will remain an important location on the map for UK and global investors.

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