Challenges of the Polish Real Estate Market

Office and warehouse markets will maintain their strong growth momentum. Interestingly enough, the BPO/SSC sector opening new locations in Poland is driving both office and hospitality developments. In addition, the shopping centre sector, which will be dominated by extensions and upgrades, is entering a new phase, says Piotr Kaszyński, Managing Partner, Cresa Poland.

According to ABSL’s report, between 50,000 and 60,000 IT
jobs were shed in India last year as robots had replaced
people. Will the automation of BPO/SSC processes hamper
this sector’s growth in Poland?

There’s no such threat, quite on the contrary. Overseas firms are very keen to locate shared services centres in Poland. As outsourcing is largely dependent on high-tech advances, it very quickly evolves with the ongoing technological progress. And this should come as no surprise.

Indeed, simple and repetitive processes such as call centre operations or invoice processing will become increasingly automated. Meanwhile, firms are beginning to locate more complex operations in Poland. There will be an increased demand for high-skilled technical labour. In addition, some degree of cultural alignment and presence within a single time zone will become relevant to cooperation between programmers and analysts. In this respect, Poland will always be closer to Western corporations than, let’s say, India or the Philippines.

Will Poland remain attractive cost-wise?

Definitely yes. Poland is a good place to locate a business. It continues to offer lower labour costs and a lot cheaper development lands than the West. Very competitive office rents are another advantage. And above all, Poland is a good place to live, offering affordable flat prices. By comparison, the cost of renting a flat in London accounts for 50-60% of a salary on average.

That’s why today’s employment in the SSC sector stands at nearly 280,000 and continues to rise. While another 50 business services centres will be set up in Poland this year, the growth trend is expected to carry into upcoming years with several dozen projects breaking ground annually.

This shows that shared services centres are somehow
connected with both the office and residential markets.

And the hospitality sector. Shared services centres employ not only staff working on the spot, but also managers who travel a lot. That’s why the BPO/SSC sector opening new locations in Poland is driving the growth of the hospitality sector, particularly in the mid-market segment. By no means is it the only reason for its rapid expansion, but it’s an important one. STR’s data shows that from January through April 2018 Warsaw had the highest hotel occupancy rate of all the CEE capital cities averaging 70.5%, compared to Budapest’s 68% and Prague’s 67.2%.

The warehouse market is growing equally rapidly. Are there
any limitations or risks to its further growth?

The warehouse market keeps setting new highs with take-up also reaching record highs. Poland remains a leading European country in terms of both occupier and developer activity. In addition, the new legislation on special economic zones is likely to bring in new dynamics on the Polish industrial and warehouse market. We also expect an increase in development of more high-tech tailor-made schemes for occupiers. This will lead to more trading in lands and industrial hubs being developed in regions with a high logistics and operational potential.

But to answer your question, as many companies realize their expansion plans, the demand for additional human resources is a challenge being faced by many, leading to upward pressure on wages. For companies with major investment plans for Poland, the search for adequate employees is now the number one priority and is also one of the fundamental drivers in the development of new locations on the industrial and warehouse map. The labour market will be key to the expansion of most real estate market segments, but demographics could limit this growth.

Do you mean to say that such demographic forecasts as
aging society or the decreasing share of the population in
the mobile age will have a significant impact on the
commercial property market?

The demographic situation and the labour market are fairly strongly tied with the property market. Poland is an attractive country to locate a business provided it remains competitive cost-wise and offers a variety of specialists. However, statistics show that Poland is facing the same demographic problems as most European countries. Generation renewal is assured with the fertility rate of 2.1, but in Poland this rate is 1.4. Last year’s increase in Poland’s fertility rate is not enough yet, but there’s some light at the end of the tunnel. It remains to be seen whether the growth trend will carry into upcoming years.
Neither the real estate market nor the economy can develop at this rate without an appropriate base. Over the past ten years the number of students fell by 30% to the current 1.29 million. Luckily, this decrease is being partially compensated by a higher standard of teaching and a better alignment of many study programs with business needs.

Could foreign nationals solve this problem?

The last two years saw a much stronger than expected wage growth in the enterprise sector. This makes Poland very attractive to workers from the East. Although foreign nationals could alleviate the problem in the short term, they can’t be relied upon to be the economy’s driving force in the long term. The economy must grow organically.

As opposed to office buildings and warehouses, there are
few shopping centres being designed. Does this mark an
end of an era?

At the moment there are few large-scale shopping centre projects underway. Although the Polish retail market is saturated in many locations, development activity remains robust. The current focus, however, is on redevelopments, extensions and upgrades. Investors also concentrate on high-quality combination of retail, leisure and entertainment. Poland keeps attracting new retail brands as the Polish market has a very strong capacity and provides a broad range of investment opportunities in shopping centres, retail parks and outlet centres. The steady increase in affluence of the Polish society is an important factor attracting international tenants.

The global economy is now at a tipping point. What impact
could it have on the Polish real estate market?

Globally, there are various social and economic concepts in opposition to one another. Trade and excess debts of some countries are likely to alter the dynamics and distribution of forces on global markets in the near future. Poland has, however, strong economic fundamentals and despite any potential global slowdown it will remain an attractive destination for investors and firms needing a stable business environment.

Related blog posts

Arkadiusz_Bielecki
Blog
May 20, 2019

Valuation – Not Always a Routine and Repetitiveness

Valuation reports may be fundamental to entire processes, for example in negotiations, arbitration and litigation, calculation of land usufruct fees or compensation for expropriated properties, valuation for tax purposes - explains Arkadiusz Bielecki, Co-Head of Valuation at Cresa Poland.
Szymon_Lukasik_UE
Blog
May 13, 2019

After 15 Years of EU Membership Poland is a Mature Market

In 2004, the European Union saw a robust retail market in Poland which was experiencing an organic growth and benefiting from the country’s buoyant economy and the growing affluence of the Polish society, says Szymon Łukasik, Head of Retail at Cresa Poland.