Developer profits still rocketing

The aggregate net profit of the 30 largest commercial property developers in Poland hit an all-time high of PLN 985 mln (EUR 230 mln) in 2018, which translated into a net profit margin of 25 pct. The latest data from the investment transaction market and property developers’ interim financial statements suggest that 2019 could be as good a year as 2018 was for the industry in terms of profitability. The aggregate net profit margin of the 30 leading office, retail and warehouse developers operating in Poland ranged between 17 pct and 26 pct from 2012 to 2018, which represents an average annual margin of 21 pct.

One major factor is the solid volume of property investment transactions in Poland, which has been consistently high in recent years and has had a stabilising effect on commercial property developers’ hefty profit margins. The property investment transaction volume topped the PLN 30 bln-mark (EUR 7 bln) for the first time on record in 2018. What is important is that as well as office and retail properties, investment transactions increasingly involve warehouse buildings, which currently have the highest yields. And the developers of warehouse properties turned out to be the biggest contributors to the record-high profits reported by the 30 largest commercial developers in Poland in 2018.

The fact that commercial developers show high and stable profitability is encouraging some residential property developers to venture our into new business areas. For instance, Atal is building its first office building, Krakowska 35, in Wroclaw. The company decided to develop commercial to optimally use its land bank, and considers them to be an additional activity to its core business of residential development. For similar reasons, and also in Wroclaw, i2 Development has launched a mixed-use project. Armii Krajowej 7 is one of the developer’s largest projects ever. The centre will consist of hotel rooms, business premises, office space and apartments.

Finnish-based YIT, which used to focus on the Warsaw residential market, also intends to launch its first Polish mixed-use project. The company has a successful track-record of commercial projects in other countries, and now plans to expand throughout Poland. YIT’s first mixed-use project will be based in Gdańsk. The developer intends to create sustainable urban environments which also feature office space.