The Polish PRS market will grow 2.5 times in three years

The housing shortage contributes to high demand on the rental market. Poland faces a significant housing shortage, especially in large metropolitan areas. Cities such as Warsaw, Kraków, Wrocław, Poznań and Tri-City are struggling to meet the growing housing needs associated with the increasing number of households as well as the needs of migrant workers. As of now, the significant structural housing deficit is estimated to be 1.5 million units, compared to 15.3 million flats currently available across the country. In the six largest cities alone, the deficit exceeds 0.4 million, not including Ukrainian migration.

At the moment, over one million Ukrainians still live in Poland and the country might expect another inflow of refugees depending on the course of the war. In addition, interest rates are still high and the creditworthiness of young Poles remains low. This has contributed to the consistently high demand in the rental market in Poland. As the supply side of the market was slowly recovering in 2023, average rents continued to follow a general upward trend in the country’s eight major cities. The analysis of private rental offers in 8 cities: Gdańsk, Gdynia, Katowice, Kraków, Łódź, Poznań, Warsaw, Wrocław, shows an 85% increase in rent prices between January 2021 and January 2024, and a 54% decrease in the number of rental offers in that period.

- In the institutional sector, we saw a wave of new projects entering the market. 2023 was a record-breaking year - institutional operators started renting almost 5,200 new units. However, hundreds of thousands of additional apartments are needed to meet the housing needs of Poles in the largest cities. The institutional student housing market in Poland has also been experiencing significant growth in recent years. With a large number of domestic and international students choosing Poland as their preferred study destination, there is a strong demand for high-quality PBSA offering modern amenities, comfortable and affordable living spaces, and a supportive environment for students. – says Paweł Sztejter, Head of Living Investments, Poland, JLL.

Investment activity on the PSR market

Following a 28% drop in investment volume due to a turbulent macro-economic and geopolitical environment in 2022, investor sentiment in the Polish living sector remained subdued throughout 2023. Nevertheless, there had been a growing focus on equity stakes in PRS platforms, such as with EBRD lending EUR 25m to LifeSpot, one of the largest PRS operators in Poland, to support the development and operation of a pipeline of apartments for rent across the country or Spanish Grupo Lar and Lithuanian developer Hanner launching a PLN one billion joint venture for the construction of 1,300 flats in Warsaw over six years at the end of 2023.

Despite the slowdown on the transaction market, investors were active in terms of finalizing their ongoing projects. The private rented sector (PRS) in Poland finished 2023 with over 16,000 operating units, of which approx. 30% (24 new projects ) were introduced last year. The majority of these projects were located in Warsaw. The capital city covers almost 50% of the total PRS stock in Poland, both in operation and in the pipeline. This year investors plan to launch around 7,500 apartments for rent in more than 30 new projects. What is more, in the next three years the market is set to increase by almost 2.5 times with more than 40,000 units in operation. However, the PRS market in Poland still constitutes only slightly more than 0.1% of Polish housing stock.

Mokotów as the Polish PRS hub

The Mokotów district in Warsaw, and particularly the areas near the Służewiec business hub can be pinpointed as the key place attracting investors’ attention. The Mokotów district, with nine operational projects and four under construction, is attractive to both investors and tenants due to its significant office stock, wide availability of services as well as amenities, and a well-developed infrastructure.

A rental market analysis of the Mokotów district shows that rents in PRS projects are approximately 7% higher compared to the private rental market in the area. Studios in Mokotów PRS schemes tend to be 9% more expensive than those available in the private market. However, the disparity in rents is less pronounced for larger apartments, as one-bedroom or two-bedroom units are only 1% more expensive in PRS schemes than in the surrounding rental market. The target customers of PRS schemes, typically young urban professionals, singles, and couples without children, prefer smaller apartments such as studios. In addition to that, it is fair to assume that tenants are willing to pay a premium for a lease with an institutional landlord given the higher security and long-term stability of such a lease.

Poland in 6th place in terms of student accommodation deficit in Europe

Apart from the broader rental market, the Polish student housing segment, including purpose-built student accommodation, is increasingly drawing investors’ attention. This growing interest is underpinned by favourable market developments, as we’re seeing an upward trend in the number of students in Poland since 2019. The number has not only increased but it’s set to continue to grow, with the official forecasts predicting the number of Polish student to reach 1,4 milion by the end of the decade. The growing population of students, especially those from abroad, is increasing the need for adequate housing. Poland has an unmet demand for student accommodation of ca. 400,000 beds. which is the 6th largest deficit in Europe.

- There are only around 115,300 places in public dormitories in Poland. This means that only 9% of students in Poland can live in public dormitories. Depending on the city, the bed coverage ranges between 5-15%. Among Poland’s biggest cities, the worst beds per student ratio (in public dormitories), is to be found in Warsaw (4%), which happens to be the city of choice in terms of studying. The lack of beds in public dormitories is one of the reasons for the growth of Purpose Built Student Accommodation (PBSA) in Poland. The others include poor conditions of existing dormitories or their lack of single units. Furthermore, although the Polish private rental market has paved the way for the establishment of the PBSA market, it lacks small apartments dedicated to students. – says Krystyna Pietruszyńska, Director, Living Investment, JLL.

As of February 2024, there were around 14,000 beds in operational PBSA projects in Poland with only 7,000 in the pipeline. The number is very low compared to other European countries. The demand for PBSA projects is visible especially in terms of the number of beds per international students, as the ratio constitutes only 13% in Poland whereas in the UK and Spain, it was 64% and 55%, respectively.

Securing a place at a public, state-owned dormitory is nearly impossible from a student’s perspective. Consequently, students are left with options available on the private market, which typically include renting from private individuals (often of low quality) or renting from institutional PRS or PBSA projects (offering higher quality but at a higher price).

The long-term trend of rental growth in private dormitories is evident, with an average yearly increase of 13% across the six largest cities over the past three years. Among these cities, Poznań (+8%) and Łódź (+9%) experienced slightly lower but still impressive yearly growth rates. On the other hand, Warsaw (+18%) and Tri-City (+16%) showed the highest levels of dynamism in rental growth. It is noteworthy that despite the aforementioned rental growth, well-managed institutional projects maintain consistently high occupancy rates, reaching levels of above 97%. This highlights the strong demand and desirability of these projects among students seeking accommodation.