Going absolutely rental

“In Poland, there is currently slightly short of 6,000 multi-family apartment assets for rent in the hands of institutional investors,” reveals Maximilian Mendel, the head of residential investment at JLL in Poland. As he goes on to relate, according to the ‘Polish Living Sector 2.0’ report published at the end of May by JLL, TPA Poland and Baker Tilly Legal Poland, the number of announced projects in this sector currently has a volume three times greater than that. Institutional investors will soon hold 24,000 apartments and, judging from the current investor demand, the rate at which this figure is growing is set to rise even more. “Since 24,000 apartments is barely 0.1 pct of all the apartments in Poland and an estimated 2–4 pct of the entire private rental sector, it’s clear that there is room for huge growth,” he concludes. According to JLL’s figures, in the early years of the Polish PRS market (2015–2018), the annual transaction volume for large apartment portfolios was between EUR 115 mln and EUR 145 mln, but for 2019 the figure jumped to EUR 325 mln. Last year, the investment in Poland for this sector fell to EUR 260 mln (with rented homes accounting for 72 pct of the figure and student accommodation 28 pct). “It’s not difficult to imagine that had it not been for the outbreak of the pandemic this figure would have been far higher,” suggests Maximilian Mendel. Prompted by the pandemic, global capital during the first lockdown (March–April 2020) began taking a much closer look at investment in such apartments. This was accompanied by developers looking to work more closely with investors. As a result, some of the developments intended for sales became apartments for rent. However, it took more time for this to become an established trend and it was only at the end of 2020 that the number of transactions started increasing significantly. By early 2021, volumes had again grown to a high level and investment was accelerating. In the first quarter of this year, such investment was already outstripping the annual totals for 2015–2018: with more than EUR 150 mln invested, the figure for the first three months of the year came to 50 pct of the total for 2020 and almost half that of 2019, the highest year so far.

Mobility and flexibility

However, it’s the current societal and demographic changes that are driving the growth of the sector in Poland. By 2030, 58 pct of the population will live in cities. The number of young professionals in large metropolises continues to grow, with the number of individual households set to rise to 15.4 mln by 2030. Additionally, this generational shift is bringing about changes in the way we view residential property. “Young people prefer mobility and flexibility – and this is what is mainly driving their activity in the rental market,” insists Maximilian Mendel. And then there’s the issue of actually being able to buy a home – for many people the barrier is the money they have to raise themselves in order to take out a mortgage, while some are not even prepared to consider taking on such a long term commitment. “What we are seeing is a steady increase in the demand for rental apartments and particularly for those that are owned by institutional funds. You will only find such apartments in new buildings with attractive interiors and furnishings, and they all have convenient locations in the city. These are mainly made up of the most popular types of apartment, which are studios and small two-room flats. It’s therefore unsurprising that they are attracting tenants and are a viable option for many Poles. The popularity and low vacancy rates of the projects that are already in use – even during the lockdown and the disruption to the market that caused – show that the demand for the product in this segment is both significant and stable,” claims Paweł Sztejter, the residential director of JLL.

Don’t forget the fit-out

With the market continuing to grow but with the demand during the pandemic being unstable, landlords are being forced to find new ways of attracting tenants. As a result, interior decorators and fit-out firms are suddenly in huge demand. Although the developments in the institutional rental market so far vary widely in their architecture, location and finishing, we have already arrived at a kind of standard apartment. A rental apartment is now functional and simple with a modern design that appeals to the widest range of clients. “For some projects we design two styles of apartment: one is more modern and simple and the other more ‘classical’. This gives the tenant more of a choice in terms of their individual preferences and allows the investor to reach out to a larger range of potential tenants,” insists Hanna Ruszkowska-Świąder, a senior architect at Tétris. Rajmund Węgrzynek, the managing director of the same company for Poland and the CEE region, adds: “Investors are always looking to reduce their costs and are very careful when it comes to budgeting for fit-outs. But the point should be made that it’s really not worth scrimping on the quality of materials. The more durable the solutions used before the building is handed over, the longer the investor will have before having to think about the costs of renovations.” It’s also important from an investor’s point of view for the dimensions to be ideal, to have the right furnishings, and for there to be ways of reducing the running costs. All of these factors have an impact on how quickly and easily an apartment can be rented out as well as on the stability of the agreements signed. “Tenants want their apartments not only to be comfortable and practical, but also to have interiors that are easy to modify to give them that personal character that suits their own tastes,” explains Rajmund Węgrzynek. In his opinion it’s best to start work on the fit-out design as soon as possible for rental apartments, even as early as the shell stage of the development.

The cherry on the cake

But it’s not only crucial to have good spatial design and high quality materials. Investors are beginning to turn to home staging, which is defined by the Oxford Dictionary as: “The activity or practice of styling and furnishing a property for sale in such a way as to enhance its attractiveness to potential buyers.” This is an approach that is already-known in the West, but is only just taking its first steps here in Poland and is now taking on greater importance due to how the pandemic has transformed the home rental market. As Agata Palec, the owner of Agata Palec Home Staging & Design, explains: “The closure of universities and colleges and everyone being sent to work from home en masse has resulted in many tenants walking away from their leases, and as a result the market has been swamped with apartments at attractive prices. A growing number of apartment owners, including institutional investors, have therefore decided to employ a design studio or professional home stager.” She argues that even the most well-designed apartments need to be prepared for a photo session that normally takes place before they are put on the market. “With such a flood of flats being put on offer, home staging is the cherry on the cake that might entice a potential tenant to say yes to a particular apartment. With the current over-supply it’s important to showcase every square metre, even the most humdrum corner, in the most flattering way possible. A good example of this is the balcony, which when properly decked out can be turned into the greatest selling point of a property,” she adds. In her opinion, such an approach also works for institutional investors. The most important factor to consider is the target group. Apartments have to be prepared in different ways for young students or working singles with no children than for those with families. Bearing this in mind, a home stager will not only pay attention to how the interiors look and the tenant’s comfort, but will also try to keep costs down by applying practical solutions, as well as leaving space available for an individual’s possessions and for them to express their personal style,” emphasises Agata Palec.