Lower offer not meeting high demand for new apartments

2021 in the residential market in Poland was marked by a deepening imbalance between supply and demand. Developers put up for sale 11,000 fewer units than they sold. Buyers considered flats mainly as a safe capital investment. Had it not been for the pandemic, the slowdown that awaits the Polish residential market in 2022 would have arrived much earlier.

JLL's latest report, Residential Market in Poland - Q4 2021, summarizing the situation on the primary residential market in Poland's 6 largest cities (Warsaw, Krakow, Wrocław, the Tri-City, Poznań and Łódź) shows that: 

• 2021 saw housing sales reach 69,000 – only 2017, considered the peak of the boom in this market cycle, had a better performance.
• The difference between the units sold and those introduced to the developers' offer was 11,000 - the largest imbalance between supply and demand since 2013. At the end of December 2021, the offer was 22% lower than a year earlier.
• Rising costs of construction combined with a limited supply of new flats and unabated demand resulted in rapid price increases – by 14% to 18% y-o-y and even, as in the case of Łódź, by 21% y-o-y.  
• It is difficult to expect significant discounts, given the very high level of pre-sales in projects under construction and the limited supply of new units, with investment demand still high.

Developers operating on these six markets have been able to flexibly increase their offer due to the fact that they have the largest “stock” of units with issued permits. In the Tri-City, the number of units sold amounted to 10,900 with the average price increasing by 15.1% y-o-y. This result was achieved thanks to the activity of developers in this market, who managed to introduce 9,200 residential units to the market, i.e. only slightly less than the average in previous years. 

In Poland's largest market, Warsaw, where an average of 24,000-25,000 units were put on sale in 2018-1019, only 19,000 units were on offer in 2021. With sales of 23,000 in 2021, it means a reduction of 4,000 new units available for purchase. Compared to 2019, new annual supply was 11% lower in Warsaw, and compared to 2018 - by as much as 22%. As a result, the offer on the primary market at the end of December was an extremely low 10,000 units.

Therefore, it is not surprising that in the largest cities, where competition for units was high and opportunities to increase supply were limited, prices of units which appeared on the market increased from quarter to quarter. 

Asking prices for residential units in 2021 outstripped the rate of inflation. JLL data shows that during the last quarter of the year, the largest increases in the average price of units launched for sale were in Warsaw (6%) and Łódź (5%), with the smallest being in Wrocław (1%). In other cities the quarterly increase was around 3%.

On an annual basis, the majority of the six markets saw double digit increases of between 14% and 18%, with the exception of Łódź which, apart from sales volume, started to close the price gap with the other five cities. At the end of December 2021, the average price for units on offer in Łódź was PLN 8,100/m², a 21% increase on the year before.

“There are many indications that the supply-demand gap on Poland's largest residential markets, which is largely responsible for the price increases, will continue to widen. A certain slowdown in demand can be expected in connection with rises in interest rates, and the weakening in the purchasing capacity of buyers that would follow – especially those buyers who took out a mortgage to purchase a property. Still, rising inflation will continue to underpin the shift of savings into the real estate market”, explains Aleksandra Gawrońska, Head of Residential Research at JLL.

“Statistics from the residential market confirm that the development sector is entering 2022 in very good shape. Unfortunately, as has been the case in the past, the most important risks have nothing to do with either the potential of development companies or factors directly affecting demand, such as interest rates. It is these external factors, including those originating from outside Poland, which make it so difficult to formulate clear-cut forecasts”, concludes Kazimierz Kirejczyk.