IVG Research Market Tracker 12/2013 : the Poland/Warsaw Property Market

by Thomas Beyerle, Managing Director IVG Immobilien AG
Taking the Polish property market as an example, two developments are apparently happening concurrently that together are creating an extremely attractive mange for investments: Some justify investment in Poland’s property markets with the enormous momentum that the country’s economy as a whole is enjoying. Others specifically cite its stability as the main reason. Blended in these two – at first glance – almost diametrically opposed explanations is the entirely textbook evolution of a country’s market. Praise is coming from all sides in Europe: “Poland has done its homework”, “Poland: the golden boy of Europe”, “Poland: the anchor of stability”. It may well be that opinions differ somewhat within the country itself, though for Poles these statements are a reflection of how things currently are in much of the rest of Europe.
The latest IVG Research Market Tracker “Poland/Warsaw Property Market” has the following information for you:
• According to IMF forecasts, the Polish economy will grow by 3% p.a. in the years 2014 to 2018. Given the significant correlation between macroeconomic and specifically property market developments, strong demand for space is expected to continue.
• The supply side is developing dynamically, however. On account of the high completion volume, the vacancy rate will increase from 8.1% to 10.9% over the course of the year. This process will continue next year.
• Demand for office space in Warsaw is generally highly dynamic. At 11% per year, average space turnover – measured as the ratio of space take-up to space available for 2000 to 2012 – was significantly higher than in the established office markets of Western Europe.
• While the financial sector has shrunk in most Western European centers since the financial crisis, Warsaw has posted growth in this segment. The share of 25% of office space take-up reflects Warsaw’s continuing rise as the most important financial center in the Central and Eastern Europe region. For example, there have been 78 IPOs on the Warsaw stock exchange in the past twelve months, while only 70 companies went public in London over the same period.
• The strong macroeconomic situation, low interest rates and relatively good availability of loans for core properties have led to rising prices and falling prime yields. In Warsaw prime yields for office properties are 5.9% to 6.25% in the CBD, 6.75% in less central areas. The difference to Western and Northern European centers is currently adequate in terms of risks in light of the more pronounced risk volatility of the Warsaw office property market.
Warsaw has since become a core market with high liquidity and a high market standard. This assessment merely states nothing more than the future competitive position of property locations. But the question is – does everyone know about this? From a Polish perspective, it is often forgotten that internationally the CEE classification still prevails. Many investors still consider Poland and therefore Warsaw to be on par with Hungary and the Czech Republic. After 20 years of market activity, this definition is not only obsolete but also completely wrong.
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