Boom on Poland’s real estate market continues
The good times keep rolling for the commercial property sector, particularly in Warsaw, but there remains room for legislative improvements.
Statistics and conclusions from numerous analyses of Polish commercial property cannot be wrong. Clearly, over the last decade, we have witnessed a huge transformation of the sector in Poland, creating a mature market which offers competitive investment products, both in all standard sectors (office, warehouse, retail and hotel) and alternative investments such as student residential or apartments for rent. The extraordinary success of the market is illustrated by the commercial property investment figure for 2018, with the value of transactions reaching a record high of €7.2bn.
The boom isn’t letting up. The first quarter of 2019 indicates continued strong interest in investing in Poland. What is more, our practice and market data show the group of active investors has grown since last year. On the one hand this creates competition among investors, but on the other hand it motivates developers to come up with new products. Developer activity is also driven by strong demand, which reached record highs in the office sector in the first two quarters of 2019 (more than 400,000 sqm of office space were leased). Due to limited availability of product and a small amount of vacant office space, this demand extends also to projects which are still under development. The commercial property market in Poland benefits from the security provided by the growing scale of the market, by its liquidity and also from positive macroeconomic factors – in particular the growing economy. For these reasons, Poland’s commercial property market has every chance of continuing on its path of fast growth in the near future.
One of the conditions that needs to be fulfilled to allow for such development to continue is to foster and maintain a friendly and stable legal environment. Modern legal solutions must be available to activate and support sustainable market growth. However, Poland has still some areas which need to be tackled or resolved in both these cases. Anyone looking at today’s legal environment must acknowledge that there aren’t any particular barriers making it difficult for investors to enter Poland, yet laws and regulations which govern the investment and development process can be complex. This is often an outcome of historical legacy.
It’s hard to make a clear assessment of the actions taken by the Polish authorities in that respect. We can see some positive trends, such as the lessening of the significance of perpetual usufruct and the simplification of administrative procedures, as well as a certain relaxation of the agricultural trade regime (after agricultural properties were at first almost excluded from trade). The changes which have been announced, designed to simplify and stabilise the development process – in particular excluding the possibility of invalidation of construction and occupancy permits after a lapse of a 5-year period – must also be viewed as positive. On the other end, the way in which changes which directly or indirectly affect commercial property market players – broadly speaking – are introduced, is a negative thing. In this regard, particularly worrying is the pace of the legislative process and frequent practice of skipping the phase of market consultations. The most glaring example of this was the introduction of the sunday trading ban, as well as the fast-track enactment of new regulations without allowing market players enough time to prepare for them. The same goes for the numerous amendments either prior to, or soon after, enactment of new regulations.
In conclusion, the Polish legal system is not the optimum tool to either activate or regulate the commercial property market. However, one cannot say that it’s a barrier to the market’s further development either. Still, reasonable legal changes which respond to concerns voiced by commercial property market players could further speed up development, not to mention the introduction of REIT into the Polish legal system or introducing system solutions to the problems of short-term letting of apartments.
Mateusz Grabiec is a partner in the Real Estate team of the Baker McKenzie Warsaw office. His professional experience includes legal assistance at all stages of real property development, commercialization and sale process in relation to a wide range of real property projects, including office, PRS, logistics and infrastructure projects.