On the residential front the Polish real estate sector has enjoyed an unprecedented boom fired by a housing deficit that's estimated by analysts to stand at three million units, the poor quality of existing stock (much of which dating back to the country's time behind the Iron Curtain), and the public's voracious appetite for better, more modern accommodation. However, while in the past Poles have clambered to get onto the property ladder, there are signs that this now is changing. Moreover, institutional investors from abroad are gathering in ever larger numbers as they look towards entering Poland's private rental sector (PRS). Converged together, these factors have seen the birth and emergence of a dynamic private rental sector that is set to expand rapidly in the coming years.
While residential property continues to sell, the changing lifestyle expectations of predominantly young professionals have seen a sharp splinter trend. “At one stage,” says Robert Watkins of Hamilton May, “this demographic group would have been looking to snap up a studio apartment before eventually upgrading. There was always this culture of property ownership, but now the younger generation is placing more value on mobility and liquidity – they don't want a big mortgage hanging around their neck.”
The problem these potential tenants face lies in the fragmented nature of the rentals sector. Ever since Poland's post-communist political transition, developers have tended to sell their property as opposed to holding on to it, and as a result, the PRS has come to be dominated by private landlords. The uncomfortable truth, from a tenant's perspective, is that this is far from ideal. “The modern tenant is looking for professional service,” says Robert Watkins, “by that I mean landlords who don't shift the goalposts all the time – people are tired of dealing with unregulated, unreliable and inexperienced landlords. They want stability, they want security.”
Slowly though, this is being remedied by the institutional investors that are arriving in Poland. “The country's economic stability has put Poland under the spotlight,” adds Robert Watkins, “so funds that are looking for new opportunities are now turning their heads towards Poland.” The attraction isn't hard to see: with demand set high, average gross rental yield in Warsaw has oscillated between 6 to 8%, compared to approximately 3 to 4% achieved in Berlin. With good access to finance, it's easy to see why German and British investors are borrowing to reinvest in nascent markets such as Poland.
Despite this, many investors have found themselves hitting a brick wall: the lack of available product (specifically whole buildings) has become a key issue, and it's likely that the future will see more funds partnering up with developers to build and deliver schemes themselves. “It's probable,” says Robert Watkins, “that the next step for the PRS will be the emergence of purpose-built and professionally managed developments backed by institutional investors.”
From a tenant's point of view, this can only be good news: with the Polish public now fully aware of what constitutes good living – and, in fact, demanding it – the overall quality of schemes needs to meet certain requirements for the leasing process to be successful. It's no longer sufficient to simply have a porter sweeping the floor every other day, the modern Polish renter is now looking for something altogether more special. As such, developers are taking into account added frills such as common areas, concierge services, gym facilities and so forth. This situation has already played out in Germany and Britain, and it's become increasingly common for investors to create themes around their properties to make them more attractive – in the long-term, it's only natural to expect Poland to eventually follow suit.
In the meantime, the PRS has been buoyed by a number of milestone transactions: among these, those of note have included Catella's 2016 purchase of 72 units in Zlota 44. Amounting to nine floors (25% of the project, and with a gross yield estimated to be 6.6%), this was the first large scale transaction in the premium segment. Further, Bouwfonds completed the first foreign purchase of an entire Matexi’s development for PRS purposes with their acquisition of 193 units (9,500 sq/m) in Warsaw's CBD, while BGK (the rental housing arm of the State Bank subsidiary) announced they would be releasing 5,500 units across Poland in 2018.
“The prospects of the PRS’s development are being noticed not only by investors looking for alternatives to investment in the commercial real estate market” – says Artur Pietraszewski, Associate Director, Investment Properties, Residential (CBRE).“They are also being noticed by residential developers, for whom the institutional rental market, alongside customers purchasing entire buildings or large volumes of apartments, bring a steady and stable revenue. Developers are aware that today's high demand for real estate generated by individual clients may slow down - the resulting market gap could be filled by the PRS market. That is why offers tailored to appeal to institutional buyers are seen as an opportunity for rapid expansion of the companies in need of maintaining the fast pace of development. The residential market developers have access to sufficient quantities of land or already finished projects for institutional lease.”
More such deals are foreseen and it's widely predicted that the next 7-10 years will see the residential market in Warsaw emulate a more Western-style level in which a significant proportion of the sector will be owned by institutions and large scale investors. For all this, it's imperative that those entering the Polish market proceed carefully; having local expertise is paramount to the achievement of any chosen target, and with none of The Big Four offering residential management and letting services, this is where Hamilton May have a proven track record of ensuring success. “As a company, we've been approached by institutional funds and individuals representing investment syndicates,” says Robert Watkins, “investors are looking to build relations to ensure the commercial success of the schemes and as a company, we are strategically well placed to assist.” With so much on the line, and competition set to grow, an established, well-placed local operator has become more than just a valuable connection.
