Warsaw Commercial Property Market
Spring 2006
Dear Readers and Clients, Welcome to the 2006 annual report. It has been the most successful year ever for King Sturge Poland and as Managing Director I would like to thank all of our clients, partners and staff for their continued support to our thriving business. One of our key achievements during 2005 was contributing to AVIVA Fund’s recognition as the investor of the year and the outstanding company of the year, at recent Central & Eastern European Real Estate Quality Awards. We have been a key participant in realizing the funds objectives over the last year and are immensely proud of our achievements. Furthermore, our investment department has invested over €140 million of our client’s money since June last year and aims to exceed this record by a considerable margin in 2006. The Office Agency team has advised more landlords and occupiers than ever before, helping our clients to realize their property needs. The Industrial and Logistics department remains on course for another outstanding year and we are proud to announce the establishment of a new Shopping Centre Leasing capability. The Valuation and Analysis business has shown enormous growth, and our team has prepared more reports than ever before. Our clients include developers, investors and more noticeably banks who are now regularly appointing us for loan security purposes. During 2005 we extended our Property Management team, where we now employ two licensed managers, leading a team working on seven office, industrial, retail warehouse and shopping centre instructions. We are also planning to develop our Building Consultancy team in Poland, where we are already providing clients with due diligence and monitoring support, to also provide full project management services. In summary, our team is genuinely becoming a market force within Poland, and combined with an improving market economy, we anticipate an exciting and fruitful 2006. Kind Regards,
Jason Sharman MRICS Managing Director
Investment Market
Some of the well-known regional investors such as Heitman and Europolis have now established new funds whilst numerous ‘new comers’ completed their first deals on the market including Aviva (Morley), who purchased three prime office buildings and a distribution centre and Dawnay Day who, purchased four shopping centres, both of whom were advised by King Sturge.
Investors continue to see Central Europe as an outstanding location for property investment, evidenced by the ongoing yield compression. Annual investment volumes have continued to grow with the total volume of transactions in 2005 exceeding € 3.2 billion which is by more than 119% greater than the previous year and approximately equal to the cumulative sum of investment volumes since 1997.
In 2005, investors were still primarily focused on the three core sectors: office, retail and industrial, however, increasing interest was observed in the residential and hotel markets.
Investment Volume (mln €) 3,500
Investment approaches differ; institutional investors such as pension funds typically target prime buildings whereas opportunity funds and private investors may seek out distressed properties or those with potential to add value through asset management, however, all have to be increasingly flexible in respect of their investment criteria.
3,000 2,500 2,000 1,500 1,000
Prime investments are most usually widely marketed which helps to attract the keenest yields. Multi-stage tender processes, also designed to extract the maximum sale price, are becoming increasingly common, however, vendors may not always select the highest offer if from an untested bidder, preferring instead to run with a party with a proven track record or represented by an experienced team of advisors.
500 0 1997
1998
1999
office
2000
2001
industrial
2002
2003
2004
2005
retail
Source: 2006 King Sturge Research
In addition to strong macro economics the market is driven by a number of external factors: • •
• •
On the buyer’s side use of an experienced team has become ever more important, partly because the competitive market has resulted in a shortening of time allowed for due diligence but also so as to benefit from up to date market and transactional knowledge which may give a competitive advantage.
EU accession, which saw the establishment of many funds concentrating solely on Central and Eastern Europe. In the UK, Europe’s largest investment market, the margin between yields and interest rates are at their lowest point for many years forcing both national and international investors to seek new markets. In Europe, with the exception of Germany, yields in most markets are similarly reaching new lows. In Germany, funds seeking to escape liquidity problems at home and boost otherwise poor returns continue to look east for higher yields.
In order to secure better returns investors, where permitted by their remit, seek out development opportunities where the developer lacks sufficient equity and needs a party to co-invest or prefers the security a forward purchase commitment. Alternatively, as noted above, they may chose to focus on more secondary opportunities which may be acquired without a tender.
Selected Investment Transactions Location Warsaw Warsaw Warsaw Warsaw Gdańsk, Toruń, Łódź, Sosnowiec Janki Kostrzyn Wrocław & Gdańsk Wrocław
Property Office: Wiśniowy Business Park, Building A Office: Irydion building Office: Zielony Zakątek Office & warehouse: Cybernetyki Office Park Retail: Gdańsk Osowa, Tulipan Łódź, Kometa Toruń & CH Sosnowiec Retail: Saturn Janki Warehouse: Jeronimo Martins Distribution Center Warehouse: DHL distribution centres Warehouse
Source: 2006 King Sturge Research
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Size (m2) Estimated Price Purchaser 5,400 $ 14,200,000 Aviva 9,600 € 18,200,000 Aviva 9,600 € 19,700,000 Aviva 9,000 ca. € 10,000,000 Laxey Partners 26,700 € 64,500,000 Dawnay Day Carpathian 6,300 ca. € 6 - 7,000,000 London & Cambridge Properties 20,000 ca. € 11,000,000 Aviva 7,500 ca. € 7 - 8,000,000 London & Overseas 11,600 ca. € 6 - 7,000,000 King Sturge Client (UK Fund)
Warsaw Commercial Property Market 2006 Share in Investment Volume by Vendor's Country of Origin
Institutional investors have generally preferred to spend money in bigger lot sizes, either on a single building or a portfolio, while private investors were chasing smaller transactions. Recent portfolio sales in 2005 have included Heitman’s sale of four shopping centres, reported at €64 million; two Klif shopping centres, estimated to have sold at in excess of €150 million and three shopping centres developed by Ahold which are believed to have sold for €108 million. Although portfolio transactions are most likely to appear in the retail sector, we expect the sale of an office portfolio to be completed later this year.
Belgium 5.9%
Denmark 8.3%
other 15.6%
France 20.1%
The Nederlands 13.6%
In order to successfully secure product investors have bid yields down to new lows. According to the latest market evidence the very best offices now trade at sub 6% while prime retail attracts sub 6.5%. The industrial sector seems to be the least aggressive and prime locations were traded above 7.5%. With prime yield levels now closer to those within more mature property markets the rate of yield compression is expected to slow.
5.6% Germany
10.3% Poland
5.9% Hungary 14.7% multinationals Source: 2006 King Sturge Research
Theoretical Prime Net Investment Yields Sector Retail Office Industrial
May 2003 10.00 % 9.50 % 11.00 %
Feb 2005 8.25 - 8.75 % 7.75 - 8.25 % 8.50 - 9.00 %
Share in Investment Volume by Purchaser's Country of Origin
Feb 2006 6.25 % 5.75 - 6.00 % 7.50 - 7.75 %
Austria 26.2%
other 15.6%
Source: 2006 King Sturge Research
USA 7.5%
In terms of location, investors still favour Warsaw, which attracted over 50% of investment volume in 2005 and the main regional cities, however, due to the shortage of available product, they started to consider opportunities in secondary or even tertiary cities (in particular in retail and warehousing).
6.4% UK 15.3% France 10.8% multinationals
The most active vendors, by country of origin, during 2005 were from France, selling three retail portfolios, the Netherlands and multinational companies. The most active buyers were institutional investors from Austria, France and Germany.
5.0% Ireland
13.3% Germany
Source: 2006 King Sturge Research
Lot Size vs Yield Distribution in 2005 Office
%
Industrial
%
12
13
13
11
12
12
10
11
11
9
10
10
8
9
9
7
8
8
6 €0
€ 50
€ 100
€ 150
€ 200 Million
7 €0
€ 10
€ 20
€ 30
Source: 2006 King Sturge Research
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Retail
%
€ 40
€ 50 Million
7 €0
€ 50
€ 100 € 150 € 200 € 250 € 300 € 350 Million
Take-up by Tenant Activity
Warehouse Market
Wholesalers 6%
Retailers 8% Food and FMCG producers
Demand
13%
Logistics Providers 44%
Total take-up of modern warehouse space in Poland during 2005 was 535,500 m2, matching the previous high achieved in 2004. Over 77% of the take-up was new lettings, expansions made another 12% and extensions – 11%. Renegotiations become a marginal phenomenon and their share has fallen further. Notable was an increased number of short-term leases granted for less than one year.
24% Non-food manufacturers
A further trend is increased regional diversification. In 2004 the Warsaw market's share of take-up was ca. 71%, in 2005 this had fallen to ca. 56%. Upper Silesia is the fastest growing market accounting for 19% of take-up.
Source: 2006 King Sturge Research
Medium-sized transactions prevailed in 2005. There were fewer larger deals – 14 transactions of over 10,000 m2 - than in 2004. The average transaction size in the Warsaw market was ca. 3,100 m2 and ca. 6,000 m2 for the rest of Poland.
Take-up by Market
Lower Silesia 6%
Central 4%
other 1%
5% Other
Warsaw, zone 1 14% Warsaw, zone 2 22%
Other notable characteristics of the market:
Wielkopolska 14%
19% Silesia
20% Warsaw, zone 3
•
Pre-letting and build to suit remains popular amongst largest tenants whose requirements could only be satisfied in such way.
•
Small units in in-town locations in Warsaw and other cities are sought after, but there is very limited availability of small good quality space at a reasonable price.
Supply
Source: 2006 King Sturge Research
Poland's warehousing stock is estimated at ca. 16.5 million m² of which modern stock in developer led projects accounted for 1.882 million m2 by year-end. As more of the year's completions were located in
Demand was dominated by third party logistics providers. Together with food/FMCG and non-food manufacturers they account for ca. three quarters of leased space.
Selected Warehouse Transactions in 2005 Region Silesia Wielkopolska Warsaw, zone 2 Warsaw, zone 2 Warsaw, zone 3 Warsaw, zone 2 Wielkopolska Silesia Warsaw, zone 3 Central Lower Silesia Warsaw, zone 1 Warsaw, zone 3 Warsaw, zone 3
Building Parkridge Distribution Center Silesia Komorniki Distribution Center Lexar - Kostowiec Eurinpro - Grodzisk Mazowiecki ProLogis Park Błonie Parkridge Distribution Center Warsaw ProLogis Park Poznań 2 Panattoni Bielsko Biała ProLogis Park Błonie ProLogis Park Piotrków Trybunalski ProLogis Park Wrocław City Point Metropol Park Błonie ProLogis Park Teresin
Tenant Fiege Eurocash Michelin Geffco L’Oreal Michelin IBP Connex Coty Wincanton Nomi Kuehne & Nagel Colgate Palmolive Philip Morris Schenker
Source: 2006 King Sturge Research
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Size (m2) 29,725 20,000 15,056 15,000 14,536 14,400 12,975 12,500 12,195 12,144 11,910 11,500 10,947 10,938
Type new new new new expansion + extension new expansion new, BTS extension new new new new new
Warsaw Commercial Property Market 2006 Gauging the level of new supply for 2006 is problematic as developers can bring a building to the market within four to six months once permits and infrastructure are in place. Similarly, when vacancy is high developers may easily postpone construction to the following years or until a pre-let is secured. Consequently the supply forecast spread for 2006 is wide, potentially as low as 250,000 m² or as high as in recent years.
regional markets than in previous years, the Warsaw region's share in total modern stock dropped from 79.5% to 71.0%. The most notable increase in supply occurred in Upper and Lower Silesia, increasing their share in total stock to 9.0% and 7.1% respectively. Thirty three new buildings were completed during 2005 adding nearly 523,400 m2. Developers were most active in: · Warsaw's zone 3 (out-of-town locations), where over 144,600 m2 was delivered, · Silesia, where completions amounted to over 111,900 m2, · Lower Silesia, where new supply was nearly 78,000 m2. In previous years the market was dominated by ProLogis but with the first completions by rival developer Parkridge the market became far more competitive. Together the two companies delivered ca. 335,000 m2 to the Polish market in 2005.
ProLogis Park Teresin Selection of New Supply 2005 Location Warsaw, zone 3 Warsaw, zone 3 Central Warsaw, zone 1 Warsaw, zone 1 Warsaw, zone 3 Warsaw, zone 3 Warsaw, zone 2 Warsaw, zone 2 Silesia Silesia Silesia Lower Silesia Warsaw, zone 3 Central Wielkopolska Wielkopolska Wielkopolska Silesia Silesia Warsaw, zone 3 Warsaw, zone 3 Lower Silesia Lower Silesia Lower Silesia Warsaw, zone 1
Scheme Alliance Logistics Center Alliance Logistics Center Diamond Business Park Łódź Krakowska Distribution Center Łopuszańska Business Park Metropol Park Błonie, Metropol Group Metropol Park Błonie, Metropol Group Parkridge Distribudion Center Warsaw Parkridge Distribudion Center Warsaw Parkridge Distribution Center Silesia Parkridge Distribution Center Silesia Parkridge Distribution Center Silesia Parkridge Distribution Center Wrocław ProLogis Park Błonie ProLogis Park Piotrków ProLogis Park Poznań ProLogis Park Poznań ProLogis Park Poznań ProLogis Park Sosnowiec ProLogis Park Sosnowiec ProLogis Park Teresin ProLogis Park Teresin ProLogis Park Wrocław ProLogis Park Wrocław Tiner Logistic Park Żerań Park II
2006 should see the realisation of two schemes in the Tricity region, a previously neglected market, ultimately bringing over 100,000 m2 in new supply.
2
Size (m ) 12,500 12,500 20,000 11,000 10,000 14,000 14,000 16,400 14,800 18,340 16,612 29,989 14,594 27,000 12,144 14,925 16,687 14,300 28,790 18,210 24,420 29,722 18,331 18,323 21,748 19,800
Vacancy The overall vacancy rate has jumped to 14.8%. High vacancy was a new phenomenon to emerging markets where shortage of space kept vacancy close to zero in previous years. In particular, this was the case in Silesia and Lower Silesia, where new supply was respectively ca. 195% and 138% of previously existing stock. In Q3 2005 vacancy peaked in Silesia at over 20%, but space leased quickly, ending the year at 1.5%. In Lower Silesia the high supply elevated year-end vacancy to 40% but the ratio is expected to drop quickly to sub -10%, especially since the region has recently attracted significant foreign direct investment from LG Electronics, which should in turn attract their suppliers to proxy locations. Nearly 75% of available space is located in the Warsaw region, where take-up was lower than in 2004. As a result, net absorption for the region amounted to
Source: 2006 King Sturge Research
Market Overview Total
Stock New supply 2005 Takeup 2005 Vacant space Vacancy rate (%) Headline Rents (€ / m2)
Size (m2) 1,882,300 523,400 535,500 271,500 14.43
Warsaw Total % Total 70.98 48.80 57.51 73.00 14.84 2.90 - 5.25
Warsaw, zone 1 % Total 24.62 10.10 13.61 23.61 13.83 4.00 - 5.25
Warsaw, zone 2 % Total
% Total
19.16 11.06 21.19 17.66 13.29 3.30 - 4.00
Source: 2006 King Sturge Research
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Warsaw, zone 3
4
27.19 27.64 22.71 31.73 16.83 2.90 - 3.50
Central % Total 7.07 6.14 4.17 4.12 8.41 2.90 - 3.30
Silesia % Total 9.00 21.39 18.52 0.93 1.49 2.90 - 3.50
Lower Silesia % Total 7.14 14.90 5.96 19.35 39.06 3.00 - 3.40
Wielkopolska % Total 5.54 8.77 13.83 2.60 6.77 3.00 - 3.60
+149,000 m2. At the same time net absorption for the entire country, including Warsaw, amounted to +340,000 m2.
The pattern of demand mirrors that of previous years with take-up concentrated in the Central, Mokotów & Old Ochota and Jerozolimskie sub-markets. Depending on the availability of quality office space the former three clusters are joined by Wola, Okęcie, Right Bank and Żoliborz.
Gauging the strength of the market by tracking net absorption minus new completions 2005 was negative and the lowest ever for the Warsaw region. In other markets this indicator was marginally negative with exception of Lower Silesia due to the reasons mentioned above.
Selected Office Transactions in 2005
Net Absortion Minus New Supply in Poland, 2005 (m2) 0
Warsaw, total
Central
Wielkopolska
Lower Silesia
Silesia
Poland, total
-20,000 -40,000 -60,000 -80,000 -100,000
Building International Business Center I Servier HQ Prosta Offce Center Trinity Park I Secondary building in Mokotów Ludna 2 Secondary building in Mokotów
Tenant
Articom Centrum Polskiej Farmacji Saski Point Passat
-120,000 -140,000 -160,000
Size (m2) Transaction Type
PriceWaterhouseCoopers
8,000 Extension
Servier Presspublica (Rzeczpospolita) Axel Springler
7,500 New, owner occupation 7,200 New, pre-lease 7,000 New, pre-lease
Pharmaceutical sector company
6,800 Extension, expansion
Nationale Nederlanden
6,600 Extension
Media and publishing sector company
5,308 Extension
Ministry of Foreign Affairs
5,050
undisclosed tenant
5,000 New, pre-lease
Societe Generale Warbud SA
5,000 Extension 4,705 New, pre-lease
Purchase, owner occupation
Source: 2006 King Sturge Research
-180,000 -200,000
The Finance, Insurance and Professional Services sector accounted for the largest tranche of take-up followed by Pharmaceutical, Beauty, Medical Research & Equipment and Media & Publishing.
Source: 2006 King Sturge Research
Rents Headline rents remained stable throughout 2005 in all regions, with a small decrease in Warsaw in-town (zone 1) where there is a surplus of medium and larger units. However, toughening competition between developers resulted in a decrease in net effective rents, which in some cases are even 30% down from the previous year.
Take-up by Tenant Activity Energy, Mining, Construction 4% Manufacturing 6%
Other 2%
Finance, Insurance, Professional Services 38%
Public sector, NGOs 6% Retail chains, FMCG 8%
On the other hand, rents in the Polish market are already amongst the lowest in Europe and lower than in potentially competing neighbouring countries such as Czech Republic, Slovakia or Hungary.
10% IT / Telecom
Office Market 10% Media, Press, Publishing
Demand
Pharmaceutical, 16% Health, Beauty
Source: 2006 King Sturge Research
Total take-up of modern office space during 2005 was 380,000 m2, the highest result ever, improving on the previous high of 373,000 m2 in 2004.
The average transaction size for Warsaw was 770 m2 in comparison to 875 m2 in 2004. The main submarkets witnessed average transaction sizes at levels comparable to those achieved in 2004, with the exception of Jerozolimskie, where the average dropped by 30%. Mokotów & Old Ochota and the Right Bank sub-markets recorded the highest average transaction sizes – 1,080 and 930 m2, respectively.
The lower volume of renegotiations and subleasing in comparison to 2004 supports an optimistic view of the letting market and the country's economy. However, the low volume of office expansions may indicate either a lack of confidence in the sustainability of economic growth or a preference to relocate to new premises.
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Warsaw Commercial Property Market 2006 Other notable characteristics of the market:
stock), Mokotów & Old Ochota (19.8%), Wola (8.9%) and Jerozolimskie (8.7%) sub-markets.
· Pre-letting activity proved not to be as prevalent as
Twenty five new buildings were completed during 2005 adding over 86,700 m2. In addition, a further six buildings were renovated or converted to office use adding over 23,300 m2, of which 11,100 m2 was not previously classified as modern office space.
in previous years with deals signed a significant time before construction completion amounting to some 11% of take-up compared to 17% a year earlier. · Despite rising take-up the market still favours tenants, particularly those with large requirements. · Circa 14,000 m2 of the developed space was occupied by building owners. · In terms of tenant migration, the relocation of tenants to non-central areas appears to have ended, evidenced by three of the ten largest transactions involving a move from a non-central area to the centre with only one in the opposite direction. Tenants Migration To Central From Central From other clusters
23% 25%
To other clusters 12% 40%
Share in total volume of relocation for transactions over 500 m2 Source: 2006 King Sturge Research
Supply Warsaw's modern office stock reached 2.627 million m2 by year-end, located mainly in the Central (40.5% of
Irydion Office Center
The majority of new supply was concentrated in the Central (29.7%), Mokotów & Old Ochota (27.3%) and Wola (20.4%) clusters.
Selection of New Supply in 2005 & pipeline for 2006 Building’s name Riverside Park A & B * Prosta 69 A & B Allianz Financial Center (MBP Topaz I) DOM 50 - beta Deloitte House (Zaułek Piękna) Ostrobramska 101a Esta / Modzelewskiego 77a * Pańska 73 Łopuszańska Business Park A Kopernik Offce Building III * Griffn House Płocka 9/11a * Zielna Center C Yona Park Statoil HQ Rondo 1B Rondo 1A (the tower) Prosta Offce Center Trinity Park I Cirrus Topaz (MBP Topaz II) Salzburg Center * Nexo - Prosta 69 C Centrum Polskiej Farmacji Cybernetyki 19 DOM 50 - alfa CTA Plaza A & B * Wola Plaza (PDT Wola) Kopernik Offce Building IV Vipol 2 Trinity Park II Lipowy Business Park
2005
Cluster Central Wola Mokotów & old Ochota Mokotów & old Ochota Central Right bank Mokotów & old Ochota Central Jerozolimskie Jerozolimskie Central Wola Central Ursynów Mokotów & old Ochota Central Central Wola Mokotów & old Ochota Mokotów & old Ochota Mokotów & old Ochota Jerozolimskie Wola Mokotów & old Ochota Mokotów & old Ochota Mokotów & old Ochota Okęcie Wola Jerozolimskie Wola Mokotów & old Ochota Okęcie
2006
Size (m2) 12,992 12,170 11,747 7,659 7,390 6,038 4,635 4,000 3,500 3,496 2,740 2,733 2,435 2,337 2,262 2,000 55,000 20,000 18,500 13,000 11,080 9,910 9,000 8,160 8,000 7,659 5,218 5,000 4,696 4,400 12,000 10,000
The trend of developing smaller office projects which may be constructed, leased to 100% and subsequently sold to an investor over a shorter time period continued during 2005 evidenced by an average new building size of 3,550 m2 in comparison to ca. 8,000 m2 between 1999-2003. 2006 will, however, see a reversal of this trend with a minimum of 18 and a maximum of 29 buildings likely to complete this year with an average size of ca. 10,000 m2. Inevitably delivery of some buildings will overrun in to next year, either due to pre-leasing requirements or construction delays, with the most likely outcome estimated at ca. 205,000 m², the highest since 2002. Vacancy The overall vacancy rate dropped in every quarter of 2005, although the addition of new stock and the effect of tenant migration have elevated it in some clusters. The rate was 9.9% at end of 2005, and is considerably lower than the previous two years (13.6% in 2004 and 16.5% in 2003). The most evident drop occurred in the sub-market with largest vacancy problem - Central, down from 17.8% to 12.9%.
2006/2007
* refurbishments Source: 2006 King Sturge Research
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Rent Abacus 5
10
15
20
25 Central
Mokotów & Old Ochota
Jerozolimskie
Wola
Żoliborz
Okęcie
Wilanów & Sadyba
Ursynów
The Right Bank
asking
The King Sturge Cluster Map distinguishes between the main sub-markets in Warsaw to facilitate more in-depth analysis. These sectors do not relate to administrative districts but centers of development and leasing activity.
headline
net effective
Rents in Warsaw clusters in € / m2 / month. Rents are asking, headline and net effective for 500-1,000 m2 units and exclude occupational costs such as service charge, ranging from €2.5 to €5.5 / m2. Lease area is net area raised by add-on factor (usually from 0% up to 15%)
Take-up in Warsaw, by cluster Central 43.77%
Source: 2006 King Sturge Research
Vacancy in major clusters (%)
17
other clusters 7.13%
14,5 12
Okęcie 3.96%
9,5
Ursynów 4.11%
7 4,5
Mokotów & Old Ochota 24.17%
Wola 6.89%
2 2004 Q4
Jerozolimskie 9.97%
Warsaw Total
Source: 2006 King Sturge Research
2005 Q1 Central
2005 Q2 Mokotów & old Ochota
2005 Q3 Jerozolimskie
2005 Q4 Wola
Source: 2006 King Sturge Research
Market Overview Mokotów & The Right Jerozolimskie Wola Żoliborz Okęcie Ursynów Old Ochota Bank Size (m ) % Total % Total % Total % Total % Total % Total % Total % Total 2,627,377 40.68% 19.77% 8.50% 8.87% 5.56% 4.42% 5.04% 5.31% 185,794 25.67% 11.45% 11.89% 13.71% 16.66% 11.43% 1.51% 6.48% 111,163 29.76% 26.22% 6.29% 20.15% 0.00% 5.49% 8.27% 3.82% 172,000 - 275,000 372,952 33.53% 31.82% 10.95% 4.92% 4.29% 7.87% 1.69% 3.74% 380,068 43.77% 24.17% 9.97% 6.89% 3.21% 3.96% 3.67% 4.11% 259,861 53.21% 13.35% 12.31% 2.70% 1.23% 3.75% 4.47% 7.79% 9.89% 12.94% 6.68% 13.72% 4.80% 2.41% 4.36% 8.32% 17.45% Total
Central
2
Stock New supply 2004 New supply 2005 New supply 2006F Take-up 2004 Take-up 2005 Vacant space Vacancy rate
Source: 2006 King Sturge Research
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Warsaw Commercial Property Market 2006 Vacancy is still concentrated within a relatively small number of buildings, but is slightly more widely spread than in 2004. Some 22% of the 260,000 m2 of available space is concentrated in four buildings: Warsaw Trade Tower, Europlex, Chałubińskiego 8 and Metropolitan; with 16 buildings accounting for half of total vacancy. In comparison to previous years the relationship between building age and vacant space has become more apparent peaking with buildings seven years in age which proves the former predominance of five year lease structures, as well as landlords' lack of experience in re-letting. Building Age and Cumulated Vacant Space (m2) Cumulated Vacant Space
Office Building Płocka 9/11a 50,000
Vacant space and building size (m2)
40,000 30,000
350,000
20,000
300,000
Vacancy rate 11.5%
250,000 10,000
Vacancy rate 10.0%
200,000 0 1
2
3
4
5
6
7
8
9
10
11
12
13
14
Building age (years)
total
non-central
Vacancy rate 14.1%
150,000
15
Vacancy rate 9.3%
100,000
central
Vacancy rate 13.2%
50,000 Source: 2006 King Sturge Research
Vacancy rate 10.4%
0
Building Age and Vacant Space
2004 Q4
Vacancy Rate (WA, %)
2005 Q1
2005 Q2
2005 Q3
2005 Q4
Building size (m2):
20,000 and over
10,000 - less 20,000
less 10,000
50 % Source: 2006 King Sturge Research
40 %
An alternate way to gauge the strength of the market is by tracking net absorption minus new completions. This indicator is a proxy for the worst case demand for existing buildings, assuming that newly constructed buildings are generally delivered with a high amount of pre-leasing and are popular among tenants. As the Net Absorption minus New Supply chart illustrates the last three years have been positive for the Warsaw market.
30 % 20 % 10 % 0% 1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Building age (years)
total
non-central
central
Source: 2006 King Sturge Research
Net Absorption minus New Supply (m2) 80,000
A further contributing factor may be that developers of new product have built in to their budgets larger incentives than can be offered by owners of existing buildings. The chart showing vacancy rate and building age illustrates that buildings built during the oversupply period of 2000-2003 are now succeeding in attracting tenants but also that buildings in the Central cluster are still experiencing problems.
60,000 40,000 20,000 0 -20,000 -40,000 -60,000 -80,000
Thanks to high take-up levels the net absorption amounted to +186,600 m² in 2005, which is highest during the last five years.
-100,000 -120,000
1998
1999
2000
Source: 2006 King Sturge Research
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2001
2002
2003
2004
2005
Rents
Łódź (60,000 m²) and in Wrocław: Arkady Wrocławskie (30,200 m²) and Pasaż Grunwaldzki (50,000 m²). In 2007 the retail stock of Wrocław will be further increased with the completion of the 65,000 m² Galeria Legnicka.
Comparing current asking rents to those from previous years indicates that for the first time in recent years more landlords are increasing quoting prices than reducing them. As a result the spread between minimum and maximum rents for modern space in some market clusters, such as Central, Mokotów & Old Ochota, Wola and the Right Bank, has widened, compared to end2004 data.
Shopping Centre, Hypermarket and Big Box Retail Stock (m2) 1,200,000 Existing Supply
New Supply in 2006
1,000,000 800,000
Despite the above, the use of incentives such as rent rebates, fit out and other incentives remains widespread.
600,000 400,000
The Ursynów, Okęcie and Wilanów & Sadyba clusters have seen a slight downward movement in rent levels.
200,000
W ar sz aw
a Łó Kr dź ak W ów ro cł Po aw zn G ań da Sz ńsk c By ze dg cin os zc Lu z Ka blin to Bi wic ał e ys t C G ok zę d y st ni oc a So ho sn wa ow i R ec ad om Ki el ce To r G uń li w ic e
0
Retail Market
Source: 2006 King Sturge Research
Shopping Centres According to the King Sturge Retail City Ranking*, the retail market in the seven largest cities, which have a population greater than 400,000 starts to appear saturated with between 400 m² to 700 m² of shopping centre, hypermarket and big box retail space per 1,000 inhabitants. In consequence, developers have turned their attention to medium sized cities with populations of 200,000 to 400,000 inhabitants where there is typically a lower retail supply.
Retail development continued apace during 2005 with the opening of four major centres. The largest scheme to come to the market was TriGranit’s 65,000 m² Silesia City Centre in Katowice. Also in the south of the country, GTC opened their 33,000 m² Galeria Kazimierz in Kraków. Whilst both developments are predominantly retail in focus, future phases will see the addition of hotels, residential and office space. 2005 also saw two significant openings within two months of each other in Poznań: Poznań Plaza (30,000 m²) and King Cross Marcelin (46,000 m²).
Salary Income per m2 of Hypermarket & Shopping Centre Space PLN/m
7,000 2005
2006
6,000 5,000 4,000 3,000 2,000
Kr a W ków ro c Po ław zn G ań da Sz ńs k By cze dg cin os zc Lu z Ka bli to n Bi wic ał e ys C G tok zę d st yn o ia So cho sn wa ow R i ec ad om Ki el c To e r G uń li w i Za ce br z By e to m
Łó
W ar sz aw
a dź
1,000
Source: 2006 King Sturge Research
A comparison of salary income per city with existing floor space can further highlight locations of potential opportunity such as Gliwice, Lublin and Białystok. However, these apparent areas of unmet demand are being rapidly exploited by developers and not surprisingly, planned centres for 2006 include the
Shopping Center Zielone Tarasy
Major centres scheduled to open during 2006 include Złote Tarasy in Warsaw (63,500 m²); Manufaktura in
www.kingsturge.com
9
Warsaw Commercial Property Market 2006 16,000 m² Focus Park Białystok, the 68,000 m² Lublin Plaza and in 2007 GE’s 46,000 m² Forum Gliwice and Parkridge’s 62,000 m² Focus Park Gliwice.
(12,000 m²) and Fashion House Gdańsk (9,300 m²) opened during 2005. Both include popular national and international brands such as H&M, Reserved, Ecco, Gino Rossi and Puma.
Shopping Centre Supply (m2)
In 2006 The Outlet Company will add further 12,000 m² and 82 stores to their Piaseczno scheme and will construct three more outlets in Poznań, Szczecin and Wrocław. Further schemes are also likely in Kraków.
300,000 2005
2006 +99%
250,000 new retail area
+161%
200,000
Neinver currently has a further outlet of 10,000 m² under construction in Wrocław and plans to add further schemes in Poznań and Kraków.
150,000 100,000
+15%
Hypermarkets and Big Box Retailers
50,000 0
