Enter the renter?
The Expert EyeResidential developers in Poland were unusually active over the first three quarters of 2021, launching the construction of 128,000 apartments for sale or rent. This was 36 pct more than in the same period of 2020 and more than in the first three quarters of each year up to the record year of 2018. That was a record-breaking year overall, but the record is now set to be broken when you consider the number of building permits, which has increased by 37 pct in comparison to the first three quarters of 2020.
Nevertheless, an element of uncertainty still lingers over the market due to the rising cost of building materials and the potential supply chain issues that could exacerbate the difficulties the construction market is facing. High inflation also poses a risk, which could even force some contractors into bankruptcy. Considering the large number of permits and project launches, records are also certain to be broken in terms of the number of handovers over the coming months and years.
Are there enough homes to go round?
The level of supply is high but it is still not enough to meet the current demand from those wanting to invest through home purchases. Rather worryingly, the number of apartments available on the new-build market has shrunk to record low levels. Over the next few months, we will be able to see if the interest rate rises curb the demand from those buying with mortgages; but with the current high inflation rate, this might not by itself be able to blunt the appetite of those buying homes as an investment.
Individual buyers are responsible for the record-high demand, including both those who take out mortgages and those who buy as an investment. It is estimated that around 30 pct of homes are currently being purchased for investment purposes. Investors most often buy as a hedge against inflation and when there are few other attractive options for where to invest their capital. Over the last year, Polish people have withdrawn PLN 100 bln from high-interest accounts – in February 2020, just before the Covid-19 restrictions came into force, savings worth PLN 294 bln were held by the banks, but a year later that figure had shrunk to PLN 194 bln and by June this year it was down to PLN 172 bln. The demand structure has also changed a little. Among investors, so-called ‘flippers’ and short-term investors have largely disappeared and have been replaced by those looking for long-term investments.
Over the last few years, mortgage holders have, above all, benefitted from the very cheap loans that have been available, while the relatively stable job market and rising wages (especially in the big cities) was always going to have a huge impact on the purchasing decisions of Polish people. According to Statistics Poland, between 2004 and 2020, salaries in Warsaw rose by 106 pct, up from a monthly average of PLN 3,465 to PLN 7,147, while across Poland they increased from PLN 2,409 to PLN 5,523.
The shrinking supply of newly-built apartments combined with the rapid growth in prices also influences the decisions of both groups of buyers, since if we don’t buy today, tomorrow it will be more expensive. All of this means that despite their rising prices, homes are set to continue to sell like hot cakes. Additionally, the number of completed apartments on the market is at a record low, since in many projects they tend to sell out during the construction stage. Even some large residential developers currently do not have a single completed apartment on sale.
The growing PRS market
The rental market is recovering – rents are slowly recovering again after the huge slump induced by the pandemic. This is due to the increased demand both from students returning to college and from employees returning to the office (even if only for two to three days a week). The majority of rental apartments in Poland are owned by private individuals, since institutional investors have not yet built up their portfolios. Currently, institutional investors own around 6,000 apartments, accounting for just a tiny proportion of the total stock across the country. Investment funds have announced that they plan to build 25,000 rental apartments over the next few years – and this number is expected to grow. Last year also saw record levels of PRS transactions, which shows the interest such companies have in Poland and the potential they are seeing. The growth of the PRS sector has been having a very positive effect on the rental market in Poland. All the investment funds are now improving it, including the home-grown Fundusz Mieszkań na Wynajem fund, as well as foreign companies that are bringing in their standards and normalising the market. Even more importantly, they are making rental safer for the tenant. As well as a sense of security, it is also important for tenants to have clear established rules, properly structured contracts with clear termination procedures, and clear rules for repairs and renovations.
During such an apartment gold rush, as apartment prices and mortgage costs soar, rentals appear to be both a safer and more interesting option, especially when there are not enough apartments to satisfy the demand (according to some sources, the shortfall could be as much as 2 mln). According to Statistics Poland, for every 1,000 people in Poland, there are only around 393 apartments and many of them are overcrowded – the average useable apartment area per person is just over 29 sqm, whereas the average across the European Union is 42.6 sqm. Poland has the fifth lowest average, behind Romania, Latvia, Bulgaria and Croatia (source: Eurostat).
When compared to the rest of Europe, in Poland the dominant form of apartment use is by their owners. The rental market here is very much fragmented. No official statistics exist for the number of rented apartments, apart from ministry of finance data on the number of tax declarations that include income from renting – and these are only figures for those who pay a flat tax rate and do not represent the total number of rental apartments. It cannot be ascertained from these figures whether an individual has bought more than one apartment for rent. Neither do the figures include the entire market, since they do not include landlords who choose to pay their taxes in a different way. According to Eurostat, only 4 pct of people in Poland live in rented accommodation.
Why so much activity?
Earlier this year, Cushman & Wakefield commissioned a survey from a market research company to find out what tenants actually want. The survey was conducted during the spring on a representative sample of apartment tenants in Poland’s six largest cities. A total of 3,078 Poles took part over March and April, of which 18 pct stated that they lived in rented accommodation.
Further questions were asked of the 1,031 people who stated that they rented their apartments or were intending to start renting soon as well as the group that stated that they were undecided whether to buy or rent over the coming year. Of those who rent either houses or apartments, 37 pct are couples without children, while 21 pct are couples with children or singles. Those with flatmates account for 13 pct, while 8 pct are single parents with one or more children. By far the largest group is that of young adults and young professionals under the age of 34 who make up 56 pct of current tenants. People of this age generally rent studio apartments as well as three to four-room apartment or larger, which they share with other tenants.
What turned out to be the most popular rental option are high standard two-room apartments with a balcony, terrace or garden not far from a green area, which was the answer given by over half of those who were then asked further questions. Around 56 pct of this group already lives in a two-room apartment and the vast majority regard this to be of the right size for them. Around 36 pct believe the apartment they currently rent is too small. Of those looking for a new place to rent, 42 pct are looking for a two-room apartment while 38 pct are looking for three rooms. Only a small number (6 pct) are looking for a studio flat.
The price must be right
High rents can undoubtedly be a barrier to renting an apartment. For 91 pct of those surveyed, this was the most important factor in renting. At the time of the survey, 80 pct were looking to pay no more than PLN 2,000 per month for an apartment, not including utilities and other expenses. Of course, rapidly rising apartment prices and the price of mortgages could throw cold water on these expectations and force tenants to raise their rent budgets, particularly when they cannot buy their own homes.
It was the high prices for buying apartments that almost half of those surveyed declared was the reason why they preferred to rent over the coming year. On the other hand, the 30 pct who intend to live elsewhere over the coming year stated that they did not wish to buy due to the necessity of taking on a long-term commitment. It is clear to see that with interest rates rising that figure could now be much higher. This phenomenon could also be seen as a change in mentality between generations. Younger people are a lot more keen on flexibility and independence, and are thus less attracted to the idea of buying their own homes, especially if this means taking out a 30-year loan.
According to our survey, after the price (91 pct) and the standard of the apartment (87 pct), the next most important factors for tenants are the access to public transport (85 pct) and being close to work or college (74 pct). For half of those surveyed an apartment is more attractive for being in the city centre or close to it. When it comes to the local neighbourhood, stores and restaurants were important for 82 pct, while forests, parks and other green areas were important for 78 pct.
At the same time, only 36 pct of those surveyed stated that a playground was important and only 42 pct wanted a school, a kindergarten or a nursery. One interesting point is that 60 pct wanted the landlord’s permission to keep a pet. During the pandemic, more people wanted to adopt or buy a four-legged companion, so the landlord’s agreement for this was often a crucial factor in the selection of an apartment.
The institutional rental market in Poland is continuing to develop. Looking at the number of planned rental apartment projects, it seems that in a few years potential tenants will become much more aware of this segment. However, currently over half of those surveyed stated that they definitely prefer to rent from a private landlord than from an institutional operator.
About C&W
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. It is among the largest real estate services firms with approximately 50,000 employees in 400 offices and 60 countries. In 2020, it generated revenue of USD 7.8 bln from its core services of property, facilities and project management, leasing, capital markets, valuation and other services.