The Q1 2017 RICS Poland Commercial Property Monitor
The Q1 2017 RICS Poland Commercial Property Monitor shows sentiment improving (or becoming less negative) in the Polish commercial property market. This is broadly consistent with macroeconomic news flow which generally continues to surprise on the upside.
Occupier Market
The Q1 2017 results signal an acceleration in occupier demand growth across all areas of the market, with the headline reading indicating the firmest pace of growth since the end of 2015.
Nevertheless, availability of leasable space continued to rise in each sector, with the office segment again posting the most significant quarterly pick-up (in net balance terms). The value of landlord incentive packages increased once more, albeit at the slowest pace since 2013.
New commercial construction activity posted another strong quarterly rise, again led by developments in the office sector. Meanwhile, new development starts rose at the fastest pace since 2008 in the industrial sector.
Over the next twelve months, the prime industrial and retail markets are the only categories expected to see positive rental growth. The outlook is now broadly flat for prime office space, although rents are expected to decline across all sectors in secondary locations.
The Occupier Sentiment Index (a composite measure capturing overall momentum) moved into broadly neutral territory, at -1. This thereby represent the first occasion since 2012 in which conditions have not reportedly deteriorated. Even so, the measure is consistent with stable occupier market dynamics, rather than an outright improvement as yet.
Investment Market
Following a modest decline reported in the closing quarter of 2016, investment enquiries returned to growth during Q1. Indeed, demand rose at a solid pace across all areas of the market, with growth evenly spread between sectors. What’s more, foreign investment enquiries also rose firmly across the board.
The supply of property for sale on the market increased modestly in the industrial and retail arenas, and a slightly stronger pace in the office sector.
Twelve month capital value expectations were revised significantly higher (relative to Q4) in all prime sub-sectors, with prime retail and industrial assets projected to post the strongest gains. Conversely, capital values are anticipated to come under downward pressure in all secondary markets over the coming year.
A combined 57% of respondents sense conditions in their local market are consistent with some stage of an upturn at present. Last quarter, 42% felt the market was in the downturn phase.
The Investment Sentiment Index climbed to +19 (from -4 in Q4.) Marking the strongest reading since the end of 2015. This suggests momentum is now building again across the investment market, following a period of stagnation through much of last year.
“The increase in demand for the office space in Polish cities is coming from tenants new to the market, what many see as the effect of Brexit. After a few months of uncertainty connected with the VAT returns and transaction structuring, the situation is slowly stabilizing – in many transactions VAT has been repaid and investors’ sentiments are improving, what translates into growth of the transaction volume”, Małgorzata Cieślak-Belgy MRICS, REINO Partners.
Poland Commercial Property Monitor Q1 2017 – the key characteristics of the market:
- Market Valuations - A strong majority of respondents (79%) view commercial real estate to be either at or below fair value, albeit there was a slight increase in the share of contributors sensing valuations were becoming slightly stretched (from 10% to 21%).
- Credit Conditions - On balance, credit conditions reportedly improved very slightly during Q1. This follows two consecutive quarters in which financial conditions deteriorated somewhat.
- 12m Capital Value Expectations - Strong capital value growth is expected across all prime markets over the year ahead. The outlook is broadly flat across secondary counterparts, although office values are expected to slip further.
- 12m Rental Expectations - Secondary office rents continue to display firmly negative projections given the sharp rise in availability over recent years. At the other end of the scale, prime industrial and retail rental expectations moved further into positive territory.
Global Commercial Property Monitor: RICS’ Global Commercial Property Monitor is a quarterly guide to the trends in the commercial property investment and occupier markets. The report is available from the RICS website www.rics.org/economics along with other surveys covering the housing market, residential lettings, commercial property, construction activity and the rural land market.
Methodology: Survey questionnaires were sent out on 14 March 2017 with responses received until 7 April 2017. Respondents were asked to compare conditions over the latest three months with the previous three months as well as their views as to the outlook. A total of 1699 company responses were received, with 362 from the UK.
Responses have been amalgamated across the three real estate sub-sectors (offices, retail and industrial) at a country level, to form a net balance reading for the market as a whole.
Net balance = Proportion of respondents reporting a rise in a variable (e.g. occupier demand) minus those reporting a fall (if 30% reported a rise and 5% reported a fall, the net balance will be 25%). Net balance data can range from -100 to +100.
A positive net balance reading indicates an overall increase while a negative reading indicates an overall decline. The RICS Occupier Sentiment Index (OSI) is constructed by taking an unweighted average of readings for three series relating to the occupier market measured on a net balance basis; occupier demand, the level of inducements and rent expectations. The RICS Investment Sentiment Index (ISI) is constructed by taking an unweighted average of readings for three series relating to the investment market measured on a net balance basis; investment enquiries, capital value expectations and the supply of properties for sale.
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