A fine spring lies ahead

The positive signals generated by the commercial property market are evidence of continued good economic health which might even improve in the oncoming months. Data for Q1 of 2006 was prepared for Eurobuild by DTZ

The office market: a promising start

According to Warsaw Research Forum data, tenant activity in the first three months of the year, in terms of new tenancy contracts, the extension of existing contracts, and the pre–lease and occupancy of offices for their own needs, amounted to 82,000 sqm in which new contracts accounted for 80 pct of the total space rented in Warsaw. The largest transactions were for Fortis Bank in the Trinity Park II building (5,200 sqm), Volkswagen Bank Polska in Rondo 1 (3,500 sqm), Cisco Systems in Topaz (2,500 sqm) and Gide Loyrette Nouel in the Metropolitan (2,200 sqm).

The beginning of 2006 brought no changes in the locations preferred by tenants, most of whom are still interested in addresses in the city centre or in Mokotów (respectively 32.7 pct and 25 pct of rented space).

The total supply of modern office space in Warsaw at the end of Q1 2006 amounted to 2.46 mln sqm. Almost 100,000 sqm was delivered between January and March, mainly due to the opening of the Rondo 1 office building (56,000 sqm) in the city centre and Trinity Park I, the Topaz building and Domaniewska Office Park Alpha in Mokotów, with the total space adding up to 34,800 sqm. It is worth mentioning that more than 90 pct of the latter three projects were rented before construction was completed.

The vacancy rate for the whole of Warsaw at the end of Q1 was 8.7 pct, slightly above that of the previous quarter (8.2 pct). The figure for the city centre was 12.6 pct (12.2 pct at the end of 2005) and 6 pct (5.4 pct at the end of 2005) in total for the remaining locations, with Żoliborz, Wola and Mokotów hitting the lowest levels – respectively 2.0, 2.5 and 3.5 pct. Increased tenant activity and the relatively low unoccupied space coefficient for Warsaw as a whole translated into the stabilization of headline rents for the best office buildings, which stand at EUR 20–22 per sqm per month. Mokotów is an exception – headline rents for the best projects under construction rose by EUR 1 and presently stand at around EUR 16–16.5 per sqm monthly.

A further 80,000 to 100,000 sqm of office space will come on to the Warsaw market by the end of the year. Despite the planned increase of supply (around 200,000 sqm) compared to 2005 when 120,000 sqm was delivered, the demand in the next few months should be just as large as in the past quarter and offset the pool of new space. Apart from the large number of medium–sized contracts between 500 and 2,000 sqm, several substantial transactions of between 4,000 and 6,000 sqm are expected.

 The warehouse market: optimistic developers

The Polish warehouse market continues to make rapid progress: in the first quarter of the present year almost 170,000 sqm was let, with contracts in the Warsaw region accounting for 14 pct (zone I – 8 pct, II – 3 pct, III – 3 pct), the Lower and Upper Silesia regions – 21 pct, Poznań – 38 pct and for central Poland – 27 pct.

The most spectacular transactions involved H&M (60,000 sqm in the Panattoni industrial park in Poznań) and Corning (43,000 sqm in phase I of the Tulipan Park Stryków complex). Should demand remain at a similar level, the expected absorption of space by the end of 2006 would amount to around 600,000 sqm.

No new warehouse complex came on to the market over the first three months, which means the total supply of modern warehouse space had not changed from that of December 2005, and amounted to 1.97 mln sqm. But around 520,000 sqm will appear on the market by the year’s end, most of which is in speculative constructions. The number of projects done under this system proves that developers are convinced that present trends on the tenancy market will remain unchanged with demand balancing the planned supply.

The average vacancy rate in modern warehouse buildings amounted to 9.9 pct at the end of March 2006. Unoccupied space was 9.9 pct in the Warsaw region (zone I – 7 pct, II – 9.3 pct and III – 13 pct), 17.8 pct in Lower and Upper Silesia, 3.1 pct in the Poznań region and 2.6 pct in central Poland.

Headline rents in modern warehouse complexes in Q1 of 2006 remained unchanged and amounted to around EUR 5.7 per sqm monthly as in the closing months of 2005 for the best locations in the Warsaw region and EUR 3 per sqm monthly in other regions of Poland. According to DTZ forecasts, rents will probably remain unchanged over the next several months.

To judge by developers’ plans, it is more than possible that 520,000 sqm will be delivered by the end of the year, most of which will come from speculative projects.

 Shopping space market: non–stop demand

The total supply of modern shopping space in Poland at the end of the first three months of 2006 exceeded 5.8 mln sqm, 23 pct of which is situated in Mazowsze province, with 14 pct in Silesia. DTZ’s data reveals that there were 221 shopping facilities with space exceeding 10,000 sqm operating in Poland – 43 of which could be found in Warsaw.

Developers are planning to deliver more than 790,000 sqm in 2006 including, among others, in Złote Tarasy (Warsaw), Manufaktura (Łódź), Galeria Krakowska (Kraków), Forum (Gliwice), Pasaż Grunwaldzki (Wrocław), as well as Carrefour shopping centres (Rybnik, Gliwice) and Plaza (Lublin, Rybnik).

The demand for shopping space shows no sign of abating and reflects excellent national economic forecasts and the steady growth of the clothing market (8–10 pct annually). Several new shopping chains appeared on the market last year including Aldo, Bershka, Burberry, French Connection, Gin Tonic, the first outlet of the Merlin internet bookshop, Murphy & Nye, Tara Jarmon, This & That, Timari, Visionlab, and Electric World. This year, retail outlets will be opened by Boss, Cherokee, Dzinsu Centras, Espace Culturel, Fabrikant, Koh–i–Nor, Mandarina Duck, Petit Patapon and Steilman. Such international giants as Wal–Mart, Costco and Aldi are also preparing to enter the Polish market, while Empik & Media Fashion – the owner of several brands – has announced further expansion plans (40 to 50 new outlets).

The rent for shopping space in the largest cities has remained stable. A retail outlet of less than 100 sqm space in a profit–generating centre in Warsaw will pay rent of around EUR 55–60 per sqm monthly, which exceeds that of Kraków and Wrocław (around EUR 40–50 per sqm monthly). Rent for space on city high streets stands at between EUR 60–75 sqm per month. In Warsaw and Kraków, rents are still greater than this in shopping centres, mainly because the supply of good outlets is so small and the interest of retailers is so strong.

The investment market: a new record on the cards

A continuing interest in Polish properties on the part of institutional investors was still evident at the beginning of the year. Initial estimates suggest that around EUR 780 mln were spent on commercial properties in Q1 of the current year. That the market remains attractive is evident from such events as the sale of the Rondo 1 office building in Warsaw for the third time in the space of 12 months.

It is now already clear that the next few months will be just as hectic, with a number of portfolio transactions in the pipeline. Adding fuel to the fire are the large number of players hunting for investment products, so it seems very probable that 2006 will witness the breaking of the record set in 2005 when investors spent EUR 3.8 bln on Polish real estate.

The products which are still the most looked for are offices and shopping centres, though warehousing is increasingly arousing the interest of investors. Their contribution to the total value of transactions is still insignificant due to the lower value of this type of property and the smaller number of finalized transactions. The office sector attracted 71.5 pct of capital in Q1 of 2006, with the shopping sector accounting for 21.2 pct and warehouses a mere 7.5 pct.

Investors ceased limiting their search for suitable real estate exclusively to Warsaw a long time ago. Several contracts were concluded in the last three months in the cities of Elbląg, Kraków, Piotrków Trybunalski and Wrocław.

Demand will continue to influence the slump of capitalization rates, which dropped 0.25 to 0.5 points in Q1, depending on the sector, and presently amount to 5.5 pct for the best office buildings, 5.6 to 5.8 pct for shopping centres and 7 pct for warehouses.    

 Magda Konstantynowicz