A hectic 2017 for Poland's investment land market

Another good year of office land sale/purchase deals is now behind us. The scale of demand for new plots and the number of transactions, both in Warsaw and in regional cities, were at similar levels as in 2016

February 01, 2018

The appetite of developers for new purchases was underlined by deals for several dozen properties throughout the Poland. Despite the fact that the supply of attractive sites for office projects was limited, the situation in the office land segment was somewhat calm and the prices of land were rather stable. Acrimonious fights between potential purchasers took place only for the most attractive locations in Warsaw, Kraków, Wrocław and, occasionally, Gdańsk.

The fall last year in the vacancy rate, which was a consequence of strong demand and the moderate volume of new supply, increased the optimism of investors and their interest in looking for opportunities for new office projects. It is worth keeping in mind that at the end of 2017 the vacancy rate in Warsaw had fallen to the lowest level since 2013: 11.7% (a fall of 2.5 percentage points compared to the end of 2016).

The high level of demand for office space in 2017 (2017's gross demand for office space totaled 1.5 million sq m) was generated by both new entrants to the Polish market and organic growth of companies already here, as well as consolidations by tenants which had leased office space spread across a couple of, or even several, different buildings. The demand was strengthened further by the dynamic development of the operators of flexible and co-working spaces. The co-operation between firms that run co-working space and the companies which are developing office projects has opened a new chapter in the history of the Polish office market. It has created an opportunity for even faster development and also, potentially, transformation. Given the popularity of this new model of leasing space, we can expect that in the future flexible space will account for significant parts of office buildings, or even entire buildings.

Regional markets are still growing

From the perspective of the amount of demand for new, modern office space, and the supply thereof, Kraków and Wrocław are still the leading regional cities, followed by the Tri-City, Poznań, Łódź and Katowice. It is those urban centres that have drawn the most interest from investors which are considering purchases of land outside of Warsaw. Their growing reputation among foreign investors helped plans to be bolder than in previous years and encouraged investors to involve their capital in new office projects there.

Average prices of residential land in 2017

​Price (PLN / sq m PUM*)
​Warsaw, city centre
​3,000 – 5,000** PLN
​Warsaw – other districts
​1,000 – 2,500 PLN
​Cities with more than 400,000 residents
​650 – 2,500 PLN

* PUM – Residential Usable Area

** price of single plots of residential land in prime locations exceeded 5,000 PLN / sq m PUM

Source: JLL

What's next?

We have no doubt that the potential for the further development of the office market is to be found not only with undeveloped land, the availability of which in major cities, especially in central and well-connected locations, does not match the demand. In Warsaw alone there are more than 100 buildings, including old tenements and factory buildings, which could potentially be rebuilt, revitalised and converted into modern office spaces over the next 10 to 15 years. The decisions of investors about whether to acquire such sites and to adapt them to the expectations of tenants, as well as the success of such projects, will depend on many factors, such as the price asked by the owner, the provisions of the master plan covering a given property and the constraints in the form of conservation requirements which protect historic buildings.

In 2018 we can expect to see growing interest from investors in plots of land which currently have buildings designated for modernisation or demolition. This trend will not be restricted to Warsaw, it will be noticeable in all regional cities targeted by office developers. Many investments that require revitalization are already being carried out in our country. The best example is Łódź and Monopolis - a modern multi-functional complex, which will include three office buildings with an area of over 23,000 sq m.