|
Warsaw’s magnetism and Poland’s 2nd & 3rd tier cities. Time to buy…or wait?
|
Neil - Let’s talk a bit about Poland.
No, Warsaw didn’t have the largest stand for any city – that honour went to Hamburg (see below – although the conglomerate ‘region of the Ruhr’ took more space).
But the Polish property presence was everywhere and shows really two things:
The degree to which Poland has shifted from investment back water to mainstream investment location in just two years.
The degree to which we are rapidly becoming familiar with all of Poland’s cities
Add to this a supercharged office building and lettings environment and you have a clear indication of Warsaw becoming a major player in the region.
Infrastructure
One of the things that has held Warsaw back has been the road connections from Warsaw to the rest of the country. This has tended to encourage regional development and a large number of independent cities. It is pretty clear that Warsaw is now establishing itself as the true capital and the biggest city in Poland.
The road building program is well under way with funds from the EU increasing and with the Euro 2012 football championships, this almost guarantees a fully connected road structure in the next few years.
So, yes, the demand for Warsaw office space surprised me – not because I am an expert on office space – but because I saw the latest data from Warsaw causing a sir. Clearly, Warsaw was supposed to be slowing down a bit as it absorbed every increasing new office space – but oddly, the opposite is happening.
If only this was happening in Germany, you can almost hear some observers say!
3rd tier cities
However, the 3rd tier cities of Poland no longer escape under the radar.
Katowice, Gliwice, the Silesian conurbation (3m people) are creating a big stir this year.
Add to that, large – but 3rd tier cities near Poland’s borders – Szcechen or Rzeschov – and you’ll find regular mention of them as if they are already old friends.
Curiously, Poland didn’t even feature in the panel discussion about Investment Locations – as it has long (ie for the past 6 months) ceased to be a single investment location – nor locations that needs much debate - the evidence is speaking for itself.
All this would normally lead me to say ‘hot investment – go grab it’ . And the only reason I don’t, is that we know how much prices have already risen, and what we are seeing are a large number of office and business projects that will create jobs and so support the price value increases and provide a platform for on-going- albeit more stable growth (around 15% is ideal).
However, growth patterns in different cities and neighbourhoods will vary widely – clearly, the 3rd cities will have the best of it – and 2nd tier cities such as Wroclaw and Krakow probably need a bit of time for their markets to calm down from 40%+ price growth.
However, it is really clear that a return to rapid price growth in Warsaw is simply a matter of when not if – and, at the same time, the city is building a full and expanded service economy based on knowledge industries and so creating a stable base for recent and future growth.
The 2nd tier cities too have a tremendous future ahead of them, all the major players are talking about ‘how much’ office space in Wroclaw – not ‘where is it?’ and this change has come about in just 12 to 24 months.
Modest growth
So, expect modest to good growth in Poland followed by a strong pick up in 12 to 24 months.
Well-priced or well-thought out investments with favourable payment terms are still attractive. But, it is time to be moderately selective in Poland. And that means either continuing a measured entry into the market or holding back for now, ready for larger investments in 12 to 24 months.
Robin – Yes, it was very apparent, Neil, as you say, that the Polish presence wasn’t centred on one location – either a city (and you’d expect Warsaw), or just the country itself, which seemed to be how most other emerging locations sold themselves.
What I kept hearing was people talking about other markets – mostly in terms of office or retail investment - and they would list those countries where the investment money was coming from. Poland was mentioned repeatedly.
Surely a sign of how mature this economy has become and how important some of the big institutional Polish investors have become?
The current phase in Warsaw’s development reminds me a lot of the way Prague developed – early, very fast growth, followed by a cooling to more sustainable levels, before a second phase of accelerated growth. With Warsaw, as you say, Neil, that phase is coming, but hasn’t yet arrived. Isn’t that an excellent time to invest then?
Bursts of growth
I think these bursts of growth are fairly typical of markets where the fundamentals mean demand will always be there, where economic activities are high value and so growth is sustainable over the long term – economies in which services and knowledge-based activities dominate.
But where property prices grow at a pace that is clearly unsustainable year after year, they are always going to be forced to take a breather.
The fundamentals of the property market also remind me a lot of the long term argument for the UK – simple supply and demand.
Official stats from Poland’s Ministry of Infrastructure say the country faces a shortage of around 1.5 million residential units. Unofficial estimates, according to Ernst & Young, put this number at more like 2.5 million – and of this shortage around 5% to 10% is in Warsaw – up to 250,000 units!
Under-supply
And yet in 2005, total supply was around 140,000 units, of which some 10% (14,000) came to market in Warsaw. The figures for 2006 were roughly the same.
With this kind of shortfall, which, as we’ve mentioned before, is exacerbated by the slow process of issuing planning permits and the inadequate zoning system in the city, you cannot fail but have demand driven price rises.
Ernst & Young put it like this: ‘Employment and education possibilities in Warsaw are a magnet for the strong influx of young people from other regions of Poland. Migrations combined with the highest level of income and the lowest unemployment rate, generate a very strong demand for housing in Warsaw, which is reflected by a high level of presales in cases of the most reputable investors and the best locations.’
I think this ‘Warsaw pull’ factor is going to be very important and we’ll see it’s importance with other cities in other countries as the demography of so many CEE countries change.
Overall many populations are falling – some quite dramatically – due to falling birth-rates and outward migration. That’s why property investors need to identify those cities that have the right combination of factors to attract people (high wages, choice, opportunities for advancement, including the best education), as well as business investment, which will continue the benign spiral of growth.
Warsaw is clearly a winner in this regard – and it’s relatively small compared to the size of the country. So, lots and lots of potential to grow.
(PS – look out for our forthcoming Warsaw market report)
Posted by Neil Lewis and Robin Bowman
|
|
POSTED BY
ROBIN BOWMAN
ON
THU 11TH OCTOBER
AT
14:53 GMT
|
|
[ Back To Blog Home ]
|
WARSAW’S MAGNETISM AND POLAND’S 2ND & 3RD TIER CITIES. TIME TO BUY…OR WAIT?
Yep Robin - my recommendation is that the current investment targets (for new money) in Poland are Warsaw and some of the 3rd tier cities.
For all other cities, it is an 'exciting hold'.
The big change here in the market is the strength that Warsaw is showing - which is surprising relative to the recent growth, but not so surprising relative to the long term potential.
I think there will be good investments opportunties in Warsaw in the next 6 months.
Cheers
Neil
|
POSTED BY
NEIL LEWIS
ON
THU 11TH OCTOBER
AT
17:59
|
|
|
|
[ Back To Blog Home ]
|
|
CONTRIBUTORS
- Neil Lewis
- Robin Bowman
- Ben Greenwood
- Noreen Lucey
- Stanislaw Staromlynski
- Brett Tudor
- Panos Tsigaras
BLOG POSTS
Aug 2008
Jul 2008
Jun 2008
May 2008
Apr 2008
Mar 2008
Feb 2008
Jan 2008
Dec 2007
Nov 2007
Oct 2007
Sep 2007
Aug 2007
Jul 2007
DISCUSS
BOOKMARK THIS
|
![[ Comment On This Post ]](/sites/uk/images/reply.jpg)
ES