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Real property

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For a long period of time the prices for land in Poland recorded an upward trend, which coincides with the perception of investing in real estate land as a safe investment. In order to implement the investment project, one would always need to have in his disposition a set of instruments, to ensure the security and calculation of risks. Investing in real estate is often associated with buying a house or commercial premises to appropriate rent. The soil is, however, an asset that rarely attracts the attention of investors. Meanwhile, the land in Poland turned out to be the most favorable and stable type of investment in the past decade. Since the early 90’s, land prices were growing significantly regardless of the economic or political situation in the country. Since Polish accession to the EU and the related with it direct subsidies, the price for land has increased almost six fold in 10 years (20% increase per year).

Investing in real properties in Poland is an interesting alternative for local and foreign investors. There are many factors contributing to that, e.g.:

Availability of EU funds and other investment incentives for entrepreneurs. In fact, Poland is the biggest beneficiary of EU funds, in comparison to other member states.

Government programmes, aiming at creating favourable conditions for development of private businesses and promoting foreign investors as crucial partners in developing modern economy.

Special Economic Zones (SEZ) for performing investment projects on preferential conditions. There are 14 such zones in Poland where foreign investors are exempt from taxes and there are tax deductions for companies with foreign capital.

The value of the transactions, finalized on the Polish real es¬tate market in 2015, has exceeded EUR 4.1 billion. According to Jones Lang LaSalle (JLL), the investors were the most active in the commercial retail segment, where projects with a total value of EUR 2.26 billion changed their owners, followed by offices - 1.27 billion euros and warehouses - EUR 473 million. 2015 was an exceptional year in terms of the inflow of new investments and the capital; and the prices for a land in Poland show a steady upward trend. Regardless of the process of reassignment of the land, the investment, indeed, turns out to be profitable. One can follow different paths in order to maximize profits from owned property while waiting for the growth of the prices. Below are presented some of well-trod¬den ways.

Residential properties

Poland as a modern country that belongs to the European family, intends to reduce harmful emissions, including greenhouse gases. The technology of energy production, currently based on the combustion of fossil fuels, requires a transition to the technology of obtaining energy from renewable sources. Besides the production of ecological energy, this sector is in need of solutions that would save energy and reduce its loss. These solutions fit the technology of passive and active houses. Passive houses are those that reduce energy consumption and loss; they are equipped with a range of technologies intended to prevent heat loss, reduce the consumption of electricity and water. Whereas active houses embody the idea of energy production by the house itself. This can be achieved by means of photovoltaic cells, geothermal or wind energy. Houses would not only consume less energy, but what is more, produce even more than can be used. By this improving the energy balance of the household and the power grid of the country. Worth noting that the produced energy surplus can be sold out or consumed for domestic purposes, beyond the household. The electricity can charge the vehicles, or on the contrary- the excess of energy produced, can be stored by the vehicle for household use. Due to their multifunctionality, active houses are also called plus energy houses.

Seeing the possibilities that are hidden in this technology, Polish government targets to launch a program „Flat +”. The essence of the project consists in the construction of plus energy houses which will be available to Polish citizens living under the poverty line. In fact, there is a significant demand for building new housing in Poland, which is caused by the rapid development and high life dynamics of society. At the same time the widespread desire of people to buy new apartment connected with the necessity of obtaining great sum of loans. This constitutes a considerable financial burden for young people, aiming to start families. In order to help them to come out into adulthood and stimulate the economy of the country, the government is planning to build one million apartments, using modern and ecological technology. As the Polish Prime¬-Minister Beata Szydło said: „The most important pillar of this prRgram is to create a national housing fund. This would be a fund, in which the National Treasury will transfer the land. As a result, houses built on the land will cost much cheaper.” The plan provides a reduction of costs per square meter of the apartment from about PLN 2000 to PLN 3000, which will make this type of housing affordable to young people. The land for the construction of such facilities has to come up from the state-owned companies. At the beginning, the owners will rent a newly constructed apartments at extremely favorable prices. After few years of renting the apartments, the tenants will have an opportunity to take over ownership of this property. This means that after decades of renting, the tenants will become the owners of the apartments.

The second pillar of this government’s project will support the development of social housing. There will be used the potential, contained in already implemented projects on the construction of housing cooperatives, municipal companies and TBS-ah. Local governments, which are requesting a grant, may receive up to 30-35% of money for building public housing. According to CSO (Central Statistical Office) data, Poland lucks 1.5 mln of housing. Polish construction market is the 7th largest in the European Union and according to the report of Euro¬construct, it is one of the two fastest growing in Europe. Its value in 2014 amounted to EUR 43 billion, placing Poland just behind Germany, France, the Great Britain, Italy, Spain and the Netherlands. Today, the sector of constructional materials and services is responsible for approximately 21% of GDP and creates 2.6 million of workplaces, which corresponds to approx. 19% of total employment in the Polish economy. The analytical platform Building Radar indicates that by 2020 this sector will grow in Poland by over 10%, reaching, together with Portugal, the highest rates in Europe.

Industrial properties

As proven by time, nothing can affect the land prices, no matter whether it is the financial crisis, political unrest or other problems, which affect investors in different sectors. There is no need to explain the benefits of investing and building on the territory of Poland. This is due to the fact that Poland has favourable geopolitical as well as geographical position. Indeed, it is situated in the very centre of Europe, so its strategic location offers many attractive opportunities for investors. It should be stressed here, that land prices in Poland are still significantly lower in comparison to other EU countries. At the same time, long-lasting visible economic growth, that has a direct impact on the development of the industry, results in an increase in demand for a land that is favorable for construction of such facilities as logistics centers, warehouses, factories, assembly plants, ports, airports, stores of energy materials, etc.

Very good indicators of the demand and supply, as well as the lowest rate of not-used warehouses along with stable rates of rent - is an image of storage sector in 2015. The record volume of transactions in 2014 was broken. Last year, a total rent constituted 2.53 million sq. m., over 60% of which were new rent contracts. High activity of the tenants, has also influenced the developers activities, which commissioned 920 thousand. sq. m. A low rate of not-used warehouses affected high growth of demand, which at the end of the year amounted to 4.8% and was 5% lower in comparison to the previous year. According to a report prepared by AXI IMMO, visible high activity in the rental market had also a positive impact on the investment market.

The total value of transactions in the investment market in 2015 exceeded EUR 4.1 billion, of which nearly EUR 470 million belonged to storage sector. Polish logistics sector was placed among the top 10 fastest growing logistics markets in Europe. We are observing the high liquidity of the market, where value-added products, which have the potential to develop and increase their value, are sold. Polish warehouse market due to the scale and scope of activity, will remain a key sector for a growing number of institutional investors. Companies, which actively work in the warehouse sector, are as follow: Hillwood Europe, Deka Immoblien, Logicor, P3 or W.P. Carey. The rates of return in the warehouse sector compared to other sectors of commercial real estate remain the highest – from 7.0 to 7.5%.

During the entire 2015, nearly 2.53 million sq. m were rented, of which over 60% constituted new leasing agreements and expansions. This result is nearly 1 million square meters bigger, when compared to 2014. High outcomes of the demand are the result of economic prosperity, the growth in sales in e-commerce channel and increase in the production of companies present in Poland. Immense demand was recorded throughout the Warsaw region (660 sq. m.), and also in the part of the Central Poland (540 thousand sq. m). Hence, the highest share of new rent agreement appeared to be within the Warsaw area. However, the largest deals were concluded in Central Poland. Besides the dominant warehouse regions, it is worth to note that there was also a rather high demand in smaller regions and new locations such as Lublin, Rzeszów and Bydgoszcz, which appeared on Polish storage map in 2015. The amount of leasing agreements concluded in these three regions reached 257 thousand sq. m.1

It is expected that a high activity of tenants and expanded development activities in major markets should continue in 2016. Among the major markets one can expect the largest number of new investments to occur in the regions of Poznań and Warsaw. The dynamics of supply and demand will depend primarily on internal macroeconomic factors, including the expenditure on investment of the companies, as well as the rates of exports and domestic consumption. The average prices of good quality lands in the logistics locations vary from PLN 70 to 150 per sq. m with the exception of plots, located within the city limits of Warsaw and Krakow, where prices reach a level of PLN 650 per sq. m. Industrial properties will show an upward trend, while still maintaining a competitive price in relation to other countries. The current real estate prices on the open market are shown in the Table 1.

Properties for environmental investments

Agricultural land with lower agricultural usefulness can be converted and used also as sites for the construction of re­newable energy sources. Purchase of agricultural land is a form of capital investment and the preparation for the ap­proaching in Poland revolution in the energy sector. Curren­tly, the sale of agricultural land in Poland is characterized as difficult, however, if the current owner of the land will change its classification to another, the sale process will be greatly simplified. Such territories of lands are constantly so­ught by the green energy industry. Photovoltaic and wind farms require large open spaces and proper terrain, located far away from human settlements. Investments in this sector may foster further development of real estate market in Po­land. Observing the rising trends of the prices on agricultu­ral property, one will surely notice further increase in profits from such investments.

The industry of renewable energy in Poland is expected to significantly expand in the upcoming years, due to the growing trend of rejection the fossil fuels. This opens great opportunities for land investment. Wind and photovoltaic farms, above all need space, which Poland has in abundance. As for the strength of the wind and sunlight, the conditions in Poland are very similar to those in neighboring Germany, where this type of industry occupies about 20% of the energy market and is constantly evolving. High availability of suitable spots in Poland means that the implementation of investments on the well-selected properties, combined with carrying out preparatory activities for investment, allow the investors to achieve high profits from sailing or leasing the prepared location. Prices of hundreds ha of former farms start at EUR 0,5 per m2 of land. According to Eurostat, the average price per hectare of land in Poland equals to 6 thousand euros. For comparison, in the Netherlands it value goes to 49 thousand; in Belgium – 25 thousand, while in Germany prices are almost twice as high. These are the areas, which can be then retrained and profitably sold. The relevant fact is that, Polish soil remains to be sold in significantly lower prices, if compared to the land of Western Europe.

The easiest investment scenario involves purchasing agricultu­ral land with purpose of making profit from the increase of its value in the long term. It is a simple and reliable strategy, since the prices for land will definitely rise, while profits can multiply. The observations of markets and trends lead one to the conc­lusion that the smaller the number of available for purchase property - the higher are their prices, even in time of constant demand. In addition to that, the investors of RES industry (renewable energy sources) are looking for a land to lease, around which neither natural (eg. trees), nor anthropogenic (tall buildings) ob­stacles exist. Therefore, one can observe a growing interest in long-term use of selected agricultural areas, based on the lease agreement. There are solar, wind power and biogas plants that require large undeveloped areas.

Recreational properties

One of the most popular ways of the agricultural land usage is its designation for a recreational area. Almost every land, agricultural land, forest or building plot, can be used as a recreation ground as long as it is located in attractive natural environment, or among leisure centres. The attractiveness of the garden plot is determined by its location and the quality of the environment. In Poland, buyers are interested mainly in a land with direct access to the lake and forest, or sea and the mountains.

The cheapest plots are located in the Carpathian mountains: as the average price in this region equals to PLN 13 per sq.m. The most expensive areas for leisure are located in Lower Silesia. Here, one would have to pay an average of PLN 117 per sq. m. However, it is also not cheaper in the West Pomeranian Voivodship and Greater Poland Voivodship. For those, seeking to spend the holidays at a lake, surrounded by forests, the purchase of land in Lubusz Voivodship would be a favorable proposal. Although the average price per 1 square meter in the group of the smallest plots equals to PLN 68. Masuria Voivodship is much more expensive than the Lubusz Voivodship. A recreational plot of no more than 1000 sq. m close to the lake, here, would costs an average of PLN 89 per square meter. Despite the high competition on the local real estate market, land prices in Masuria Voivodship are approx. 20% higher than the national average price. The most expensive plots are those located near large cities. In Wielkopolska Voivodship the most frequently sold lands are those surrounded by forests and lakes. The average price per sq. m for a small piece of land is PLN 107. Interestingly, Masovian Voivodship seemed to reach much more positive results with an average price of PLN 57. In Mazovia, however, 1 sq. m of plot, regardless of its acreage, amounts to approx. PLN 60. Price may drop only at sizes greater than 5 000 sq. m.

Coastal real estate are the most expensive. In the group of the smallest plots (up to 1 000 sq. meters) are the most valued areas in the Pomeranian Voivodship. However, with the increase in the area, in the following categories, the prices are falling (the resort area of 1 000 sq. meters are valued by almost 30% lower price). The situation is different in the West Pomeranian Voivodship. Here, indeed, the minimal price of plots is PLN 91, but a group of plots of 1 000 sq. meter of a large one rises to PLN 132. The average price of land in the coastal towns, regardless of size, are as follows: in West Pomerania Province- PLN 85, in Pomeranian Voivodship - PLN 69, in the Warmian–Masurian Voivodship PLN - 64.2

Land for commercial buildings

On the commercial real estate market, each of the sectors has recorded an upward trend. The situation in the warehouse sector seems to be the most stable and positive. In turn, the nature of the office market currently is more beneficial for tenants. Commercial investments focus on large cities, as a supplement to the existing offer. Poland’s economy, for many years, has been the fastest growing economy in the region, what is reflected on the growing economic indicators for this country. The retail market is characterized by noticeable interest within the developers and investors, who allocate their resources into the large cities, where the concentration of retail space still creates the opportunities for building new facilities. The investments, implemented in 2015, are mainly located in large cities and will operate as multifunctional shopping centers. One should bear in mind that warehouse, industrial and trade commercial real estate sector is largely dependent on the economic situation in Poland, which currently remains in a good condition. As long as the Polish economy and the international economic situation remain stable, the dynamics of the market will not be affected.

Construction market

According to the report prepared by Euroconstruct, Polish construction market is the 7th largest in the European Union and one of two fastest growing on the Old Continent. In 2014, its value amounted EUR 43 billion and was ranked just after Germany, France, Great Britain, Italy, Spain and the Netherlands. Currently, the market of building materials and services is responsible for nearly 21% of GDP and provides 2.6 million of work places, accounting approx. 19% of the total employment rate in Polish economy.3 An analytical platform Building Radar indicates that by 2020 this sector will grow in Poland to more than 10%, achieving, along with Portugal, the highest growth rate in Europe.

The building sector in Poland, after a decline in 2012-2013, (caused by completion of big investment project related to the previous financial union prospects as well as organizing UEFA Euro 2012™ Championship in Poland) is experiencing a revival.4 Already in 2014 it has marked a gradual deviation from the crisis, and in 2015 just consolidated this positive trend. In the first half of 2015, the income of building companies in Poland amounted PLN 10 billion, whereas in the same period of the previous year were equal to PLN 9.2 billion. There has also been a growth noticed in selling margin, amounting 8.3% already in the first quarter of 2015. In 2014, the income of 15 biggest construction companies in Poland constituted PLN 28.5 billion and increased by PLN 2.5 billion in comparison to 2013, what accounted for 9.4% growth. The Deloitte ranking of 2015 started with Skanska Group, which managed to gain profit worth of PLN 5.1 billion - 16.5% growth. The second place was occupied by last year’s leader – Budimex Group – with revenue amounting PLN 4.9 billion, what accounts for 4.2% growth in comparison to 2013. Among three biggest construction companies in Poland, there also operates Austrian Strabag, which, as the only one from this group, experienced 5% of decrease in comparison to the previous year, making profit of PLN 3.1 billion.5

The value of WIG BUDOWNICTWO index increased in the first 6 months of 2015 by 24%, while there was only 4% growth of WIG index in the same time. On June 30, the capitalization of the construction companies, listed on Warsaw Stock Exchange, constituted PLN 9.11 billion and rose by PLN 1.67 billion in comparison to the value from the end of December of 2014. Nonetheless, it is worth mentioning that the results of construction submarket greatly depend on the rates of Budimex, which share in companies’ capitalization, listed as a part of WIG BUDOWNICTWO, amounts to 46%. The further growth of construction industry is fostered by macroeconomic factors. Economist Intelligence Unit estimated that 3.9% GDP growth in 2016-2018 should significantly increase the tendency of public sector to invest into infrastructure.

The great encouragement also stems from the inflow of new funds, amounting EUR 82.5 billion, of which EUR 25.8 billion are planned for infrastructure expansion and estimated investment needs, expected to reach by 2020 almost PLN 310 billion. This value comprises mainly of investments connected with road, railway, energy and environment protection infrastructure. However, one should also bear in mind that from the beginning of the announcement of the tender till the commencement of the construction works can delay up to 2 years. Therefore, the greatest revival in construction industry is expected to take place at the beginning of 2017.

Furniture industry

Poland is one of the most important countries as far as the furniture industry is concerned. Furniture are one of Polish export flagship products and its furniture are exported to countries all around the globe. On the global market, Poland is outstripped only by USA, Germany, China and Italy, which means that the country is placed on the very podium of global export, remaining third in Europe. In the last years, would be observed and the so-called “Polish phenomenon of furniture production”, explained by several reasons, such as:

   -positive influence of furniture market fragmentation in the country, hence, synergistic effect, e.g. resulting in the creation of clusters;

   -furniture made of wood are based on raw materials, coming from country’s forest resources and national companies, manufacturing wood-based products (boards, plywood);

   -well-educated staff both of the highest and average levels;

   -long tradition of furniture production in several parts of Poland (Swarzędz, Kępno and others).

 

The furniture constitute also one of the most important commodity group in Polish import – its share accounts for 4.5% of the total value. Despite of growing competition on the furniture market, in 2014 the largest exporters of wooden furniture among EU countries were as follows: Italy (EUR 5.25 billion +4%), Poland (EUR 4.14 billion +12%) and Germany (EUR 4.12 billion +2%). Among serious competitors, exporting furniture to EU can be found Denmark, Lithuania, Sweden, Romania, France, Spain and Portugal. It should be highlighted that approximately 70% of furniture manufactured in the EU, is sold on the EU market.7 What is interesting, the value of Polish furniture, which reached foreign markets, reached EUR 8 billion. In fact, 90% of Polish furniture is destined for export. It proves that the furniture from Polish manufacturers are highly appreciated by the foreign purchasers.

Year 2015 was a time of a dynamic export growth of Polish furniture to European and other markets. According to estimations of Polish Chamber of Commerce of Furniture Manufacturers, based on Eurostat data, the average growth rate of Polish export constituted 8%. The importance of Poland as furniture exporter is not declining, but, on the contrary, gradually increasing– although the country is still remains on the fourth place in the world ranking of exporters. The country possesses 6.3% share in the international export. The greatest dynamics could be observed in the export to Romania, Slovakia and the United States. However, Germany remains the biggest recipient of Polish furniture (approx. EUR 3.200 million), outstripping the UK (EUR 722 million), France (EUR 522 million), Czech Republic (EUR 485 million), the Netherlands, Sweden and USA.8

The figures from the first quarter of 2015, indicating an upward tendency in the volume of furniture production. In three out of four furniture groups, there has been noticed a growth in number of manufactured products, in comparison to the same period of 2014. The demand for furniture like sofas with sleeping function, has increased by 10.7% and the bedroom furniture index rose by 29.5%.

The employment data confirms the fact that Polish wood industry, including the furniture one, has moved away from the crisis long time ago. However, not just the employment in furniture and wood industry increases, which according to Polish Chamber of Commerce of Furniture Manufacturers in 2014 created 140 thousand of work places) but also the level of wages, which noted an increase by approximately 5% in comparison to the same period of 2014.

Source:

1.            Axi Immo report - warehouse market in 2015

2.            www.zyskier.pl

3.            The Report of Deloitte and Union of Employers – Manufacturers of Building Materials for the Construction Industry

4.            “Polish construction companies 2015” report by Deloitte

5.            “Polish construction companies 2015” report by Deloitte

6.            www.deloitte.com

7.            Meble News - Polish Chamber of Commerce of Furniture Manufacturers

8.            www.biznesmeblowy.pl

 

Source: investpl.eu