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The Polish Commercial Real Estate Market Overview
14 June 2012
Agenda
1. The Polish economy and investment market
2. Retail market
3. Office market
4. Industrial and logistic market
5. Summary
6. DTZ in Poland
2
Economy
3
• Poland is considered as a target market among investors.
• 6th largest economy in EU by population (38 million people)
• EU entry in May 2004: fast development of ICT and BPO sectors
• Diversified economy - manufacturing, light and heavy industry, automotive and increasing share of services
• Boost for infrastructure - Poland is to receive nearly 20% of the EU’s €308 billion structural funds for the period 2007-2013
• Eight cities with more than 400,000 inhabitants, 17 cities with more than 200,000 inhabitants, 39 cities with more than 100,000 inhabitants
• 4 Polish cities to host Euro 2012 championships – Warsaw, Poznań, Wrocław and Gdańsk
In recent years the Polish economy has proved to have a strong macroeconomic base as it was relatively immune to the negative situation and instability on many European markets.
Poland - Macroeconomic OverviewEconomy in good dynamic shape
4
Source: Central Statistical Office (GUS), Oxford Economics
• Poland the only country within the European Union to avoid recession in 2009: Well-capitalised financial sector, low degree of openness of the economy and timely reactions from fiscal and monetary policies
• Strong GDP growth compared with other EU countries (4.3% y-o-y in 2011), with inflation slightly above the target
• Positive macroeconomic trends result mainly from growth of internal demand and large-scale infrastructure investments
• The Warsaw stock exchange is the largest one in Central Eastern Europe and one of the fastest growing in the world
• Acceptable level of public debt: 56.7% of Gross Domestic Product
• Due to the global macroeconomic slowdown expected in 2012, the Polish economy may also experience a decrease in GDP growth to approximately 2.5% (-0.3% for the euro area).
Annual GDP Growth and Inflation, 2003-2012f
0
1
2
3
4
5
6
7
8
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012(f )
%
GDP growth Inf lation rate Consumer Prices
Employment Gross Domestic Product
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Jan. 2012
Economy indicators
Annual GDP Growth Industrial Output
FDI Inflows (€ bln) Retail Sales
Source: Central Statistical Office (GUS), National Bank of Poland, Oxford Economics 5
3,7%
5,3%
3,4%
6,1%6,8%
5,1%
1,6%
3,9%4,3%
2,5%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(f)
0%
2%
4%
6%
8%
10%
12%
14%
16%
June
201
0
July
201
0
Aug
. 201
0
Sep
. 201
0
Oct
. 201
0
No
v. 2
010
Dec
. 201
0
Jan.
201
1
Feb
. 201
1
Mar
ch 2
011
Ap
r. 2
011
May
201
1
June
201
1
July
201
1
Aug
. 201
1
Sep
. 201
1
Oct
. 201
1
No
v. 2
011
Dec
. 201
1
Jan.
201
2
Road infrastructure
6
Legend:Motorways completed to 2008Motorways completed to 2010Motorways scheduled for 2012
Central and Eastern Europe vs Poland
• Poland far more dynamic than other CEE countries. The country has proven its position as the leading market in the CEE Region
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
€ mn
CEE* (excluding Poland) Poland
* Czech Republic, Hungary, Ukraine, Slovakia
Source: IVG Research/European Commission
Ø Economic growth 2007 - 2011 Investment volumes*
7
The Polish real estate investment market
8
• €2.5bn of investment transactions was recorded in 2011 representing 37% increase year on year. €1,5bn transacted in the second half of 2011 contributing 60% to the total volume represents the strongest six months since the beginning of 2007.
• Market activity in 2012 is expected to remain polarised between core players looking for security at better price in Poland and opportunistic players targetting 17 - 25% IRR’s, the latter group being more volatile to financing restrictions.
• Banks remain cautious but financing is available for best in class assets, including larger lot sizes via club deals.
2000200120022003200420052006200720082009201020110
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,5005,000
0
10
20
30
40
50
60
70
80
90
Volume of transactions Number of transactions
€ mn
44%
49%
7%
Office Retail Industrial
Investment Volumes Poland, 2000 – 2011 Investment Transaction Volume by sector, 2011
Prime Investment Yields – 2005 – 2012(f)
9
• After two years of upward revision, prime yields in all sectors compressed by 25 – 50 p.p. Therefore prime office and retail yields as at the end of 2011 were at the level of approximately 6.25 and 6.00% respectively. Prime yields in the logistics property sector stood at 7.75%. DTZ expects prime yields to remain relatively stable in the first quarters of 2012.
• Yields for the secondary assets are traded on average 100 -125 bps higher.
2005 2006 2007 2008 2009 2010 2011 2012 (f) 0
1
2
3
4
5
6
7
8
9
6.25 6.25
6.00 5.75
7.75 7.75
Office Retail Logistics
%
Poland - Investment highlights
• Poland has not only a large domestic market but also has developed strong growth momentum as a result of its
successful transition to a market economy. The prospects that the success story will continue are good,
considering the moderate national public debt, essential improvements to the transportation infrastructure and the
large pool of low-cost, dedicated and skilled workforce
General Economy
• The classification of Poland as CEE country appears out-of-date, as the individual countries of Central and Eastern Europe have developed very differently in the last two decades. But also a comparison of Poland with Western Europe is not adequate, because Poland is much worse off with regard to income per capita, but better positioned in terms of economic growth and public indebtedness
Poland not part of CEE
• The Warsaw office rental market has been experiencing a steep upswing since mid 2010, leading to a considerable
reduction in the vacancy rate and a strong recovery in rent levels. The expected high demand for office space in
2012 and especially 2013 will be met by a number of potential completions
• Poland has a liquid, relatively transparent investment market characterised by international players and, due to its
relatively short history and growth dynamics, a large supply of modern and core properties.
Real Estate Market
In a number of international surveys, Poland is currently ranked as one of the most attractive countries in Europe for commercial real estate investments. Reasons for this are, in addition to the broad range of investment opportunities and relatively high achievable yields, the
Polish economy’s good position as compared to other European economies and its growth prospects, which are relatively good in spite of the sovereign debt crisis in the Eurozone
Poland – Investment highlights in Commercial Real Estate
Złote Tarasy
Warsaw
11
The Polish retail market
DEVELOPERS AND OWNERSTesco, Metro Properties, Unibail-Rodamco, Axa, Apollo Rida, Blackstone, Rockspring, Union Investment
RETAILERSAuchan, Carrefour, Leroy Merlin, Sephora, Promod, Decathlon, H&M, C&A, LPP, Tatuum, NG2
Modern retail stock in Poland
12
Total modern retail stock in Poland:11 m sq m
Shopping centres:9 m sq m 390 schemes
Average size of shopping centre: 23,000 sq m
Density in Poland:236 sq m per 1,000 inhabitants
Source All Data: DTZ Research
UPPER SILESIA
WROCŁAW
WARSAW
KRAKÓW
ŁÓDŹ
TRICITY
POZNAŃ
546
680
671
570
433
716
547
sq m per thousand inhabitants
The Polish retail market
Comments • Large agglomerations dominate the retail market, however over the last four-five years secondary and tertiary cities have been
gaining on importance, substantially increasing their market share in the overall volume of annual retail supply.
• Around 59% of total modern retail supply is situated in 8 major Polish agglomerations with a population over 400,000. These are Warsaw, Krakow, Silesia, TriCity, Poznan, Wroclaw, Lodz and Szczecin.
Source: DTZ
Supply split by city size, 2011 Retail supply by formats, 2011
74%
17%
7%
1% 1%
Shopping centres
Stand alone retail warehouses
Retail parks
Other
Factory outlets
59%
14%
14%
13%Over 400,000 inhabi-tants
200 - 400,000 inhabi-tants
100 - 200,000 inhabi-tants
Below 100,000 inhab-itants
13
Evolution of the Polish retail market
14
Stage I
largest Polish cities and agglomerations
Stage II
cities with populationof 100,000 to 400,000
Stage III
cities with population of 50,000 to 100,000
GDAŃSK
LUBLIN
WARSZAWA
POZNAŃ
ŁÓDŹ
WROCŁAW
KRAKÓW
KATOWICE
SZCZECIN
BYDGOSZCZ
LEGNICA
LUBIN
WAŁBRZYCH
PIŁA
LESZNO
OSTRÓW WLKP.
KALISZ
PRZEMYŚL
RZESZÓW
TARNOBRZEG
STALOWA WOLA
NOWY SĄCZ
BIAŁYSTOK
ŚWIDNICA
KOSZALIN
CHORZÓW
TARNÓW
ZIELONA GÓRA
WŁOCŁAWEK
GORZÓW WLKP.
ELBLĄG
PŁOCK
OPOLE DĄBROWA GÓRN.
TYCHYRYBNIK
OLSZTYN
BIELSKO-BIAŁA
BYTOMGLIWICE
KIELCE
TORUŃ
SOSNOWIEC
RADOM
CZĘSTOCHOWA
GDYNIA
ZAMOŚĆ
TOMASZAÓW MAZ
SUWAŁKI
STARGARD SZ.
SŁUPSK
SIEDLCE
RACIBÓRZ
PIOTRKÓW
PABIANICE
OSTROWIEC ŚW.
OSTROŁĘKA
OLKUSZ
MIELEC
ŁOMŻA
LEGIONOWO
KONIN
KĘDZIERZYN-KOŹLE
JELENIA GÓRA
JASTRZĘBIE ZDRÓJ
INOWROCLAW
GRUDZIĄDZ
GNIEZNO
GŁOGÓW
EŁK
CHEŁM
BIAŁA PODLASKA
The Polish retail market
Comments • 50% of supply delivered in 2010 was situated in eight major Polish agglomerations with a population over 400,000. In 2011 it oscillated around
25%.
• New stock delivered in 2011 amounted to ca. 740,000 sq m, what indicates around 35% increase in comparison to 2010.
• DTZ notice growing interest of landlords in redevelopment and repositioning activities as large part of the stock is already over 10-years old
• Retailers are still picky when it comes to new projects, but more confident about expansion plans. Food and DIY chains, as well as established fashion brands and new entrants are very active.
Source: DTZ
Annual supply split by city size Vacancy rate in major cities, End of 2011
Kra
kó
w
Łó
dź
Po
zn
ań
Sile
sia
Sz
cz
ec
in
Tri
city
Wa
rsa
w
Wro
cla
w
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
f0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Over 400,000 200 - 400,000 100 - 200,000 Below 100,000 inhabitants
sq m
15
The Polish retail market: opportunities
Comments • Wrocław, Warsaw, Poznań and TriCity are the most developed markets in terms of operating formats.
• 51% out of over 6,5 million sq m located in eight major agglomerations is occupied either by large scale big boxes (food operators, DIY, electronic appliances etc.) located as stand alone projects or in shopping centres.
• Prime rents remain stable, while secondary properties are under strong retailers’ pressure.
0%
20%
40%
60%
80%
100%
Krakow Lodz Poznan Szczecin TriCity Silesia Warsaw Wroclaw
Stand alone retail warehouse Large scale operators in shopping centres
Shopping malls within shopping centres Retail parks
Outlets
Modern Retail Space mix Prime Retail Rents
0102030405060708090
100
War
saw
Up
per
Sile
sia
Kra
ków
Po
znan
Szc
zeci
n
Tric
ity
Wro
cław
Łód
ź
€ per sq m per month
16
The Polish retail market: forecasts
17
Source: DTZ
0%
2%
4%
6%
8%
10%
12%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
f
2013
f
2014
f
2015
f
%
Prime retail rents Prime yields
• Saturation in large cities calculated per pure population, yet niches still available
• Strong development pipeline 2012-14 but slowdown foreseen beyond 2014
• Rents stable for properly positioned urban malls, others facing rental decline, especially in effective rents (large fit out contributions, etc)
• Decreasing space of hypers (lease surrenders)
• Extensions of established schemes – Piaseczno Auchan, Bielany Wrocławskie, Janki
• Letting in mid and small sized cities difficult
• Small formats on the move (small retail parks, convenience centres)
• Vacancy differentiation: large agglomerations – low at around 2-3%, followed by secondary – 5-7%, and tertiary – 5-10%
• Repositioning gaining on importance
• Luxury niche still not popular – failure of Likus
• Ecommerce as a threat to traditional shopping
2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f
0
20
40
60
80
100
120
Warsaw - shopping centres Warsaw - high streets
/ sq m / €month
The Polish office market Rondo IWarsaw
18
INVESTORSDeka Immobilien, CA Immo, Immofinanz, Heitman, SEB, Arka, RREEF, ING REIM, Polonia Property Fund, PZU AM
DEVELOPERSGTC, Ghelamco, Echo Investment, Skanska Property Poland, Liebrecht&wooD, Karimpol, Swedeprop, Dantex, Hochtief Project, Development, AIG/Lincoln, ECI
The Polish office market
19Source All Data: DTZ
WROCŁAW
WARSAW
KRAKÓW
ŁÓDŹ
TRICITY
KATOWICE
POZNAŃ
3,600,000 (64%)
355,000 (6%)
256,000 (5%)
375,000 (7%)
244,000 (4%)
271,000 (5%)
516,900 (9%)
Stock End 2011
Overall stock – 5,6 mln sq m
The Warsaw office market
20
Overall stock – 3,6 mln sq m
Vacancy rate – 6.7%
Source: DTZ
Stock, End 2011
1,207,335
954,430
588,918
261,357166,874 149,596 144,016 124,475
City Centre +
Core
Upper South
South West
West East Lower South
South East
North
(34%)
(3%)
(27%)
(16%)
(7%)(5%) (4%) (4%)
Comments• 120,100 sq m of modern office space was completed in 2011,
which is the lowest value recorded so far on the Warsaw market.
• Demand is strong with several significant transactions in progress.
• Buildings located in the Upper South, City Centre and South West are still the most attractive for occupiers leasing new office space.
Annual new Supply and Take-up, 2000-2012f New Supply, 2011
Take-up, 2011
The Warsaw office market
21
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(f)
2013
(f)
sq m
Supply Take-up
33%
30%
30%
7%
Upper South
South West
City Centre + Core
East
35%
31%
22%
7%2% 2%
1%
City Centre + Core
Upper South
South West
Lower South
West
East
South East
Source: DTZ
The Warsaw office market
Comments • Availability oscilating around 6-7%. It is likely to remain relatively stable till the end of 2012.
• After 2012 – possible growth of the vacancy ratio.
Source: DTZ
Annual Vacancy Levels, 2000-2012f Vacancy levels, End 2011
22
0
5
10
15
20
25
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(f)
%
Average Central Non Central
12.07%
11.46%
6.95%
6.70%
6.62%
6.23%
5.52%
2.71%
East
Lower South
South West
City Centre+Core
North
West
Upper South
South East
Source: DTZ
The Warsaw office market
Comments • Prime asking rents in the city centre stabilized at €25-27 per sq m per month (300-325 €/sq m/year).
• In non central locations they are at a level of €14-16 per sq m per month (168-192 €/sq m/year).
• Till the end of 2012 rents are likely to remain stable.
Source: DTZ
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
East
Lower South
South East
South West
Upper South
North
West
City Centre
Core
€ per sq m per month
Prime Headline Rents, 1998-2012f Prime Headline Rents, End 2011
23
0
5
10
15
20
25
30
35
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
(f)
€ / sq / month
Central Non CentralSource: DTZ
The regional office market
24Source: DTZ
Source: DTZ
Comments • Office market in Poland is dominated by Warsaw with 64% share
in a total stock.
• Among regional markets, the largest office supply is located in Kraków (516,900 sq m) and Wrocław (375,000 sq m).
• In 2011 significant drop in annual supply levels. Strong pipeline for 2012-2013.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Kraków Wrocław Tricity Poznań Katowice Łódź
Stock 2011 New supply 2012(f) New supply 2013(f)
64%9%
7%
6%
5%5%
4%
Warsaw
Kraków
Wrocław
Tricity
Katowice
Poznań
Łódź
0
50,000
100,000
150,000
200,000
250,000
300,000
Until 1
997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012 (
f)
2013 (
f)
Existing and pipeline supply Office stock, End of 2011
Annual supply
10 12 14 16 18
Kraków
Wrocław
Tricity
Poznań
Katowice
Łódź
€ / sq m / month
The regional office market
25Source: DTZ
Source: DTZ
Comments • Apart from Łódź and Wrocław, the vacancy rate in all analysed
regional cities dropped throughout 2011
• Prime asking rental levels vary from €12-16.5 per sq m per month.
Vacancy rates, End 2011 Annual vacancy levels, 2006-2011
Prime headline rents, End 2011
22.7%
9.9%
9.2%
8.6%
7.8%
6.7%
5.0%
Łódź
Katowice
Poznań
Tricity
Kraków
Warsaw
Wrocław
0%
5%
10%
15%
20%
25%
H2
2006
H1
2007
H2
2007
H1
2008
H2
2008
H1
2009
H2
2009
H1
2010
H2
2010
H1
2011
H2
2011
Łódź Katowice KrakówTricity Poznań Wrocław
The Polish office market: forecasts
26Source: DTZ
0
2
4
6
8
10
12
14
16
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012(f
)
2013(f
)
2014(f
)
2015(f
)
2016(f
)
%
Warsaw Regional cities
Office prime yield
Comments Warsaw
• Further concentration of business clusters (Core, area bordered by Prosta/Towarowa, Służew Przemysłowy – Mokotów and along Żwirki i Wigury)
• Strengthening of metrolines importance for the development of office areas – rental differentiation
• Many office towers planned in the centre – large pipeline but only 1-2 could succeed over the next 3-5 years (planning constraints and lack of financing
• Substantial levels of new deliveries planned for 2012-2014 – downward impact on rents both in CBD and non central locations
• Vacancy should not exceed 8-10% as demand is still sustainable and large occupiers are on the move
• Going “green” is on the radar screens more often
Comments Regional cities
• Wrocław and Krakow still dominate, but TriCity is catching up specialising in ITC (information, technology and communication), Łódź lagging behind
• Rents remaining flat with stable vacancy
The Polish industrial and logistic market
Panattoni ParkPoznań
27
INVESTORSValad, CA Immo, NBGI, Hines
DEVELOPERSPrologis, Panattoni, SEGRO, MLG Group, Point Park Properties, Goodman
The Polish industrial and logistic market
28
• Total industrial and logistic stock in Poland at the end of Q4 2011 was estimated at 6.9 mn sq m. Approx. 40% of the stock is located within Greater Warsaw area including three zones – Warsaw Zone 1 (within the city limits), Warsaw Zone 2 (approx. 15-30 km from Warsaw centre) and Warsaw Zone 3 (approx. 30-50 km from Warsaw centre).
• Among the largest regionals market there are: Upper Silesia, Central Poland, Poznań Region and Lower Silesia
9%
15%
15%
13%12%
10%
19%
2%2% 2%
Warsaw Zone 1
Warsaw Zone 2
Warsaw Zone 3
Central Poland
Poznań Region
Lower Silesia
Upper Silesia
Krakow Region
Tricity Region
Other Regions
Source: DTZ Research*numbers on the map show total stock (‘000 sq m) at the end of 2011
Major industrial and logistic hubs in Poland
Tricity Region
140
Poznań Region
840Greater Warsaw
2,700920
Central Poland
Lower Silesia
680
Kraków Region 1,300 150
Upper Silesia
Source: DTZ Research
Stock split by regions, Q4 2011
The Polish industrial and logistic market
29
• Developers focused on pre-let and BTS projects which resulted in a substantially low level of new supply (approx. 350,000 sq m in 2011). Taking into consideration level of space under construction we expect higher level of deliveries in 2012.
• Record level of take-up, including new agreeements as well as renegotiations, in 2011 (1.8 million sq m) which is a 20% increase y-o-y.
• Constant decrease of vacancy rates – from 18.0% at the end of 2009 to 11.7% at the end of 2011 resulting from strong take-up and very low level of speculative developments
• Prime headline rents oscillating from €5.20 per sm per month (62 €/sq m/year) in Warsaw Zone 1 to € 3.8 – 4.0 per sq m per month (45.6-48 €/sq m/year) in Warsaw Zone 2, Upper Silesia, Tricity Region and Krakow Region to €3.10 – 3.30 (37-40 €/sq m/year) in other major regions.
2004
2005
2006
2007
2008
2009
2010
2011
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
New supply (sq m) Take-up (sq m) Vacancy rate*
sq m
Source: DTZ Research
The Polish industrial and logistic market: forecasts
30Source: DTZ
4.5
4.8
5.0
5.3
5.5
5.8
6.0
6.3
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(f)
2013
(f)
2014
(f)
2015
(f)
2016
(f)
€ / sq m / month
5
6
7
8
9
10
11
12
13
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(f)
2013
(f)
2014
(f)
2015
(f)
2016
(f)
%
Prime headline rents (€ per sq m per month), Greater Warsaw
Prime yields, Greater Warsaw
Comments • Supply correlated with demand – continuation of BTS model
• Few spec with stable headline levels.
Summary
Warsaw
31
Poland is an attractive market for property investors
32
High investment volume in spite of limited stock: High share of modern commercial properties
Continuation of Polish economic success story: Moderate public debt, infrastructure
improvements etc.
Classification as CEE country out-of-date: Poland much more dynamic and larger than other
countries
Warsaw office market extremely dynamic both on demand and supply side: More balanced in
2012/2013
Regional office markets maturing thanks to BPO, but relatively volatile due to their limited
market size
DTZ in Poland
Warsaw
33
DTZ in Poland
3434
Office
Project and Building Consultancy
Industrial and logistics
Retail
Property and Asset Management
Consulting & Research
Valuation
Investment, land and hospitality advisoryEstablished in 1994 in Warsaw
Over 280 professionals
326,000 GLA sq m under current leasing [office, retail, industrial]
2,500 lease contracts under management in 42 properties
3,200,000 GLA sq m in valuation within the last 12 months
Patrick Delcol
Country Head Poland
www.dtz.com
Lumen / Złote Tarasy
ul. Złota 59
00-120 Warszawa
tel. +48 22 222 3000
fax +48 22 222 3001
DTZ Polska Sp. z o.o.
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