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News Release

Warsaw

Good prospects for the investment land market in Poland

2015 will be dominated by transactions from the residential and agricultural land market. The hotel land market is expected to experience a revival. Poland is attracting new capital, e.g. from India, Saudi Arabia or United Arab Emirates.


Advisory firm JLL summarizes 2014 and underlines key trends on the residential, office, retail, hotel and agricultural investment land market in Poland for 2015.

Daniel Puchalski, Head of Land Advisory Services, JLL, said: "On the back of the Polish economy's good performance, as well as long-term growth prospects, we observe growing investor interest in Poland. This is reflected in the fact that not only companies with European capital but also with investors from all over the world are expressing an interest in the Polish land market. Land investment opportunities, mainly in Warsaw, are being analyzed by companies from places as diverse as the Republic of South Africa, India, China and the Arabian Peninsula".

Despite the significant domination of transactions concerning land designated for residential development, 2014 saw a strong presence of transactions in the market for land for offices.

Lands for residential development – engine for growth in 2014 and 2015

2014 saw a record-breaking number of sales on the primary residential market in Poland. This was a result of low interest rates, the government program, Accommodation for the Young, and the Developer Act. Another factor that has influenced the decisions of purchasers was the fact that 2014 saw the last opportunity to take out a loan for up to 95% of the property price. Encouraged by good sales results, the developers eagerly started new investment projects by using land properties from their land banks. This generated demand for plots covered by master plans or with a binding WZ - a decision on site development conditions. In addition these plots would preferably have a valid building permit and architectural plan, on the condition that the average size of the planned units did not differ substantially from current market standards.

The good economic performance of the residential market in 2014 gave rise to a large number of sales of plots for residential projects. It also made the owners of real estate and investors more likely to co-operate in joint-venture projects. Furthermore, the increasing demand for new apartments led to interest from investors previously known for investing in office projects.

Lands for office development – transactions with postponed construction schedule

The high level of new office supply in 2014 affected the activity of investors interested in the acquisition of land

designated for such projects. They acted more cautiously when it came to the analysis of potential return on investment and thoroughly considered the start of each new project. It is worth noting that, although influenced by the office market, the land market is not a mirror reflection of that market. Therefore, whenever a growing number of new office projects and increased vacancy rates are seen, the prices of land designated for office development usually tend to fall. This may lead to new land acquisitions, with the prospect of the office building development process being started in three to five years' time.

The ageing of office buildings also affects the land market. A growing percentage of land properties put on sale in large agglomerations are plots developed with buildings which are operational or whose tenants have recently left. They are often situated in very attractive locations and offered for sale by means of public tender by public sector entities, which are increasingly eager to consolidate their branches and move to new buildings. The owners or investors considering the purchase of such a plot, often make efforts to secure favorable provisions in the local Master Plan allowing for the demolition of existing buildings and the construction of new, higher structures.

Lands for retail developments – moving towards minimalism

A growing number of enquiries for medium-size plots of land for retail development was registered. Investors are attracted not only by plots in the biggest agglomerations, but also in cities with fewer than 100,000 inhabitants. Plots of land in cities with more than 50,000 inhabitants and designated for retail developments of 2,000 sq m to 5 000 sq m of usable area are particularly popular.

Projects combining retail schemes with public buildings, such as bus and train stations, gained popularity in 2014. An immediate effect of this trend is the high level of interest from investors in public tenders organized by Polish State Railways or the Polish Post Office.

The factors which increase interest in smaller retail projects include the saturation of retail space, the growing pressure on reducing rents and difficulties with the commercialisation requirements laid down by the banks for funding. Another factor is the insufficient preparation of plots for the projected development of large-format retail schemes, especially with respect to utilities and road infrastructure. As a result, a new investment can mean that the investor must bear high additional costs, which would affect the profit margin.

Revival on the hotel development land market

Conference and congress infrastructure is continuing to develop dynamically in Poland. As a result, Poland is more often chosen as a business tourism destination. Also, growing popularity of medical tourism can be observed.

Unsurprisingly, hotel operators who are looking for new land investment opportunities are mostly interested in Warsaw, Wrocław, Kraków and the Tri-City. As with investors operating on the office market, hotel operators want well-connected sites located relatively close to the city centre. In Warsaw the most attractive plots are those located along the second metro line, while in other large cities it is those that are located fairly close to the main train station, bus station or major road arteries. The hotel land market, although less dynamic than in the past, has the chance to experience a revival in 2015 and beyond.

Based on market analysis, experts from JLL expect to see within the next three to five years around 10 to 15 new hotel facilities being introduced to the market, half of which will be low-budget hotels. In addition to well-known hotel brands already here, new ones are expected to enter the Polish market.

Agricultural land – investors are ready to buy

In 2014, the agricultural market attracted strong interest from potential purchasers. In 2013, the National Agricultural Agency sold the largest number of plots since 2003 and expects that a similar performance was achieved in 2014.

"1st May 2016 is the date on which the market for agricultural land will be open to certain foreign investors, i.e. nationals of the European Economic Zone and Switzerland. This means that they will be entitled to purchase plots of agricultural land under the same conditions as Polish citizens; this may mean that interest in agricultural land in Poland is not going to lessen anytime soon and that the demand will be underpinned by foreign investors. Moreover, it is worth noting that, despite the upward trend in prices, agricultural land in Poland is a half or even a third of the average price in other EU countries. Moreover, Western Europe often lacks a wide choice of such types of properties", Daniel Puchalski explained.

As a result, investors operating on the agricultural market are already striving to 'book' the most attractive areas by signing lease agreements thus avoiding the necessity of obtaining approval from the Ministry of the Interior to purchase such properties. It is also a way for them to guarantee the price of such properties in 2016.

The soaring demand for agricultural land in Poland means that the price expectations of owners has rocketed. Therefore, asking prices often significantly exceed the average transaction price published quarterly by Poland's Main Statistical Office.

The forecast for 2015 – huge demand and price growth in the residential and agricultural land segment

"In 2015, we will continue to see increasing demand for plots of land designated for residential development, including the less attractive investment plots suitable for lower-class residential buildings where potential buyers will be able to be buy apartments by taking advantage of the funding provided by the government's Accommodation for the young program. Moreover, we expect to see a further increase of demand for agricultural land. The opening of the market will result in a higher demand for plots of land over 100 ha. Despite the growth of the vacancy rate in office buildings, we expect further transactions on the office market. Investors will be seeking lands for smaller developments, between 15 000 and 20 000 sq m of usable office area. The prices of land for offices, retail projects and hotels will remain stable. With regard to the residential land segment, we expect a continuation of the 2014 trend and increases of prices both in Warsaw and other Polish agglomerations. The upward trend will also apply to agricultural land prices", Daniel Puchalski commented.

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