2023-03-22-莱坊-Review_2022_Outlook_2023_ENG_11页_3mb

Summary of the Polish Commercial Real Estate Market

Core Content

The Polish commercial real estate market concluded 2022 with a total investment volume of approximately EUR 5.78 billion, comparable to 2021 despite negative sentiment. The first half of 2022 was marked by uncertainty due to the war in Ukraine, while the second half saw increased caution from investors due to global economic changes and rising interest rates.

The office, retail, and warehouse sectors dominated the investment landscape, with office and warehouse assets accounting for over 70% of the total investment volume. The office sector attracted the most capital, with EUR 2.12 billion invested in 2022, a 25% increase from 2021.

Main Sectors and Key Insights

Office Sector

• Market Activity: Developers in Warsaw and regional cities reduced new investment activity due to high construction and financing costs, leading to a lower supply of new office space.
• Vacancy Rates: The average vacancy rate for the nine largest business centres in Poland reached 13.5% at the end of 2022, up 0.1 percentage points year-on-year.
• Demand Recovery: Tenant activity increased significantly in 2022, with demand approaching pre-pandemic levels. Warsaw recorded the highest demand, with over 860,000 sq m leased, up by over 30% from 2021.
• Rental Trends: Asking rents increased in many office markets, with rates in Warsaw ranging from EUR 20 to EUR 26/sq m/month, and in regional cities from EUR 8 to EUR 16/sq m/month.
• Prime Yields: Prime office yields in Warsaw were at 5.25-5.50%, while in regional cities they were approximately 6.25-6.50%. Yields are expected to rise further due to tighter monetary policy.
• Construction Trends: In 2022, over 642,000 sq m of office space was delivered, with 37% in Warsaw. Only 185,000 sq m was under construction in Warsaw, significantly lower than pre-pandemic levels. Regional cities like Wroclaw and Kraków saw higher construction activity.

Retail Sector

• Market Activity: The retail market experienced a significant expansion, especially in small-sized cities (with less than 100,000 inhabitants), which accounted for over 60% of the new supply.
• Vacancy Rates: The average vacancy rate in the eight largest agglomerations fell slightly from 5.3% to 4.7%, with some cities like Poznań and Tricity seeing increases.
• Footfall and Turnover: Shopping centre footfall increased compared to 2019, with only November and December 2022 showing declines. Turnover in October 2022 was 16% higher than in 2019, partly due to the presence of Ukrainian refugees.
• Investment Trends: Retail investment volume increased by over 60% compared to 2021, reaching EUR 1.45 billion. Most investments were in small retail parks and standalone grocery shops.
• Online Sales: The share of online sales in total retail sales averaged 9.6% in 2022, with a slight decline in December to 9.5%. Online shopping habits established during the pandemic are expected to persist.

Warehouse Sector

• Market Growth: The warehouse market continued its dynamic growth, with over 6.8 million sq m leased in 2022, the second-highest volume ever recorded.
• Vacancy Rates: The average vacancy rate in the warehouse sector was 4.1% at the end of 2022, showing a decline from previous years.
• Investment Trends: The warehouse market attracted significant investment due to its strategic location, developed motorway network, and low labor costs. Developers focused on large-scale projects with direct access to motorways.
• New Supply: Over 4.4 million sq m of new warehouse space was delivered in 2022, a record-breaking volume. At the end of 2022, 3.4 million sq m was under construction, a 30% decrease from the previous year's record.
• Tenant Activity: High tenant interest in warehouse space drove the market's growth, with companies from logistics, manufacturing, e-commerce, distribution, and FMCG sectors leading the demand.

Economic Indicators

• GDP Growth: Real GDP growth in Poland was 4.9% in 2022, down from 6.8% in 2021. A decline of 2.4% in Q4 2022 was noted, with the European Commission forecasting potential negative GDP growth in early 2023.
• Unemployment: The registered unemployment rate in December 2022 was 5.2%, down from 5.8% in December 2021, indicating resilience in the labor market despite the war in Ukraine.
• Inflation: The Consumer Price Index (CPI) increased by 14.4% in 2022, the highest in over two decades. Inflation is expected to remain at 11.7% in 2023, driven by rising energy and food prices.

Key Trends

• Investor Behavior: Investors are becoming more cautious, with institutional capital hesitant to enter the market. Active investors are mainly private and opportunistic.
• Cost Increases: High construction and financing costs, along with rising service and utility prices, are affecting both investors and tenants.
• ESG Impact: ESG considerations are gaining momentum, influencing building features and cost optimization strategies in the office and retail sectors.
• Digital Transformation: The growth of e-commerce and omnichannel sales is driving the digitization of retail spaces, with online shopping expected to continue supplementing traditional channels.
• Regional Focus: Regional cities are becoming more attractive for investment due to lower supply and higher yields, especially in the retail and warehouse sectors. Small cities are expected to overtake medium-sized cities in retail supply in the coming quarters.

Conclusion

The Polish commercial real estate market in 2022 showed resilience despite economic challenges, with the office, retail, and warehouse sectors driving investment activity. While office markets faced high vacancy rates and cautious investor behavior, retail and warehouse markets continued to grow, particularly in smaller cities and with the rise of e-commerce. Economic uncertainty and high inflation are expected to persist into 2023, influencing market dynamics and investment decisions.