Polish office market has reached the moment when the demand starts gradually to recover, but the new supply still lags behind. Numerous projects have been suspended as a beginning of construction depends on large pre-let transactions to be secured. While in the Western markets build-to-suit agreements in offices are quite common, in Poland pre-construction transactions are scarce, even if the pre-let take-up share has been claimed to be high.
The global economic downturn and changing economic environment have created a challenging time for the Prague office market. Because of the downturn, key market indicators changed direction in 2009, with the vacancy rate increasing, prime rental levels decreasing, and lease incentives reaching levels previously unseen. The overall market moved from favouring landlords to strongly favouring tenants.
The majority of economic indicators show that Poland turned out to be remarkably resilient to the effect of the global financial crunch. The Polish economy is perceived as one of the most stable and developing economies in the CEE region and was the only one with economic growth the last year. The GDP growth for 2009 reached 1.7% with an increasing trend for 2010. Interest rates were cut to a record low level of 3.5%, inflation remained low and the growth of unemployment rate was restrained (12%). However the commercial property market did not cope with the crisis as well as the rest of the Polish economy, limiting its rapid development in terms of both supply and demand.
Poland has proven to be considerably resilient to the current economic downturn. Poland outperforms several Euro zone countries in terms of international ratings and is the only European Union country that avoided GDP decline in any of 2009 quarters. Domestic market remains poised for further growth, but Polish economy as a 'host country' relies heavily on the Western European sources of investment and financing as well as their markets for export. Therefore further performance of the neighbouring economies, especially Germany's, remains crucial to the long term economic prosperity.
Investment activity picked up in H2 2009, albeit from a very depressed level, bringing total annual turnover to only ca. $18 million (€12.5 million)
While direct turnover was meager compared to previous years, the market has seen a proliferation of other activities, most notably that of debt settlements by non-cash trading of distressed projects
As in H1 2009, cross-border investors’ appetite for local real estate remained diminished and the market was driven almost entirely by small local parties acquiring non-prime properties for opportunistic rather than strategic reasons
Economic recovery has surfaced towards the end of 2009, but remains feeble and primarily driven by baseperiod effects
Election-induced political uncertainties are expected to remain in place for an extended period of time, as even in case of smooth transition of power, the next president will be tempted to call for early Parliamentary elections to consolidate his position
Financial services industry continued to lose jobs in H2, shedding some 20,000 payrolls since the crisis began, but business confidence turned positive towards the end of the year for the first time in twelve months.
The majority of occupiers have by now processed the effects of the economic crisis on their operations, but demand for space remains heavily weighted in favor of upgrades rather than expansions.
Total competitive stock barely exceeded 1 million sq m on the back of 90,000 sq m of total annual development completions. Previous milestone of 500,000 sq m was reached in 2006.
Rents and vacancy have both stabilized in Q4 but whereas vacancy could rise further over 2010 on account of new deliveries and sluggish demand, rents will most probably stay unchanged, subject to a stable exchange rate.
The credit crunch and subsequent economic downturn have combined to reduce significantly the confirmed office development pipeline in Central and Eastern Europe (CEE) since year-end 2008. The current outlook for delivery of new office space in 2011 is far below recent years and, surprisingly, even below deliveries back in 2000 and 2001.
Considerable negative sentiment has surrounded CEE as a region since fall 2008. While this sentiment has probably been justified with regard to certain parts of the region, other parts of CEE have been unfairly swept up by it. It has become clear that certain CEE property markets will have to go through a phase of restructuring before resuming sustainable growth.
The intensifying impact that the financial crisis is having on real economies across CEE began to negatively affect retail sales after strong growth in recent years.
Prime rents are going down in some markets, expecially for samller units (80-100 sq m), and retailers are asking for more flexibility from landlords. On the other hand, aveeragerents in prime shopping centres in markets as Poland an Czech Republic, have remained resilient thus far.
Investment in retail properties was slow in H1 2009, down by 92 % on H2 2008 and 94 % on H1 2008 levels. Yields moved out somewhat for shopping centres in Q2 2009, but were generally more stable than in recent quarters giving some hope that yields will bottom out later this year.
The volume of direct property investment in H1 2009 was extremely small with most deals occurring across highly discounted and readily available work-in-progress assets, such as project on various stages of construction, land holdings, etc.
Banks’ unwillingness to foreclose remains one of the major impediments to capital movement, as forced sales of be completed before the distressed properties have not yet occurred on the level necessary to revitalize the market.
The majority of modern office buildings are located on the fringe of the historical city centre, concentrated mainly along Glogowska and Roosevelta streets and in close proximity to the Old Town market. Many modern office schemes can be also found in the western district of Grunwald and in Winogrady, a non - central area of the Stare Miasto district.
Wroclaw’s increasing economic role as a capital of the province guarantees stable future growth in the service sector. It is now the second most attractive city, after Krakow, in terms of the number of BPO’s. Companies such as Siemens, Hewlett – Packard, Credit Suisse and Google have already chosen Wroclaw.
According to estimates of the Statistical Office of the Republic of Serbia, total annual GDP in 2008 grew by 5.4 percent when compared to 2007.
Industrial production contracted by 19,7 % y-o-y in February 2009. Manufacturing output has dropped even more (23% y-o-y) as global trade and demand for steel and chemicals, Serbian key exports, have fallen.
Around € 85 million was invested in institutional property in CEE in May 2009.
The outlook for the CEE investment market has diverged by segment. Investors continue to express interest in prime office properties in core CE markets and strong regional shopping centres with large catchment areas, but are largely avoiding the industrial market as weaker market fundamentals and short lease security create uncertain pricing.
Thanks to an excellent central northern location, Poland is well predisposed to be one of Europe’s key business regions. The Polish economy remains poised for further growth, but it relies heavily on the Western European economies as markets for both its exports and for investment and financing. As a consequence, Poland’s economy can be viewed as very vulnerable and if the economic climate in Western Europe continues to deteriorate the situation may prove to be very challenging for Poland.
At the beginning of the year in Poland there was around 4.7 million sq m of
modern office cities located in Warsaw and seven major regional cities. The
largest and the most established market is Warsaw. However, when comparing
with other European capitals, Warsaw is still behind the mature markets. Office
density in Warsaw is currently around 1.7 sq m per capita, while the average for Europe is estimated at 6 sq m.
The more challenging economic environment across CEE caused prime office rents to fall in many CEE cities in Q1 2009.
Prime office yields continued to move out across CEE causing the spread with the EU-15 weighted average prime yield to increase. Significant differences in prime office yields now exist by CEE sub-region.
Prime office capital values across the region fell due to the comined effect of lower prime rents in many cities and continued yield decompression.
The investments volume in 2008 was of € 1,020 million, with 64% lower than in 2007, but with 420% higher than the volume of 2005.
65% of the investments volume was realized by closing 3 purchases, thus confirming the fact that there is a small number of investors present on the market, but very active and with a strong buying power.
As an overview, Bucharest continues to have the highest ADR (average daily rate) from Romania and remains the most attractive city for the international investors with around 64% of the total influx of foreign direct investments (FDI) in 2008.
Bucharest hotel market grew with 30% in 2008, the biggest room supply increase after 1989.
Ukraine Property Investment Market View full year 2008
A total of $413 million worth of investment transactions were completed in Ukraine in 2008. Although quite high historically, the volume is 28% down from 2007 results.
With developers halting active construction due to curtailed financing, the stock of distressed assets has grown substantially, potentially creating opportunities for entrepreneurial investors with a longterm perspective.
CEE office markets continued to perform strongly in 2008 despite worsening economic conditions.
Demand remained strong, with CEE establishing a record for take-up in 2008. Despite this, CEE markets could not completely absorb a record amount of development completions across CEE, leading to higher vacancy rates in many markets.
How CEE office markets perform in the near term will depend to a large extent on individual markets’ positioning in terms of continued economic growth, vacancy rate and size of pipeline.
The total investment volume in H2 2008 reached EUR 257 million which is 80% higher than in H1. The total annual investment was EUR 410 million representing an 80% drop on previous year, and means a volume comparable with the level in the first years of the Hungarian commercial property market.
The National Statistical Office announced year-on-year (y-o-y) GDP growth of 7.6% in Q2 2008. This is in line with consistent GDP growth in the last few years, which has resulted in Slovakia having one of the highest GDP growth rates in Europe. GDP growth has been, in part, supported by increased spending, while increases to wages have slightly outstripped increases in production output, and further decreasing unemployment has also facilitated this.
The third quarter of 2008 brought a lot of uncertainty in terms of the further development of Polish property market. The global financial crisis, by no means, is expected to harm to some extend, the Polish economy and as a consequence, the development of new warehouse and logistic projects.
Total take-up for 2008 reached 264,896 sq m in Q3 2008. This means that take-up has now surpassed total take-up for the whole of 2007 (253,000 sqm) and has surpassed take-up in the same three quarters of last year by 37%.
Total modern office stock within Prague comprises of 69.3% new build and 30.7% refurbished stock. The majority of office space in the pipeline is new built, therefore, its share of the total stock will continuously increase in the future.
CEE weighted capital values retained their positive year-on-year (y-o-y) growth, but the growth rate declined from 35.1% in q2 2008 to 5.6% in q3 2008. The q3 results marked the second consecutive quarterly decline this year.