How Will Covid-19 Affect Poland’s Nascent Institutional Rental Market?

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One trend that was gaining momentum on Poland’s housing market before the coronavirus pandemic struck was the rise of institutional rental. Foreign funds had started to deploy substantial capital to accumulate portfolios of rental apartments in the country, attracted by the Polish housing market’s huge growth potential and by high returns in its rented sector.  

Institutional rental in Poland: a market at an early stage of development

The largest player in the institutional rented sector in Poland at the moment is state development bank Bank Gospodarstwa Krajowego’s Fundusz Mieszkan na Wynajem (FMW). It has a portfolio of nearly 2,000 rental apartments in six big cities: Warsaw, Gdansk, Wroclaw, Krakow, Poznan and Katowice. FMW’s leadership position is unlikely to be challenged in the near future; it is building rentals as part of the government’s Mieszkanie+ programme’s so-called market component.

The second-largest operator by number of apartments is Resi4Rent, a subsidiary of Echo Investment, the listed property developer. Its portfolio already includes more than 1,200 units in three cities, Wroclaw, Lodz and Warsaw, with another 1,400 under construction or in planning in Warsaw, Poznan, Gdansk, and Krakow. By 2023, Resi4Rent aims to grow its portfolio to about 7,500 units. 

The main problem holding back quicker growth of institutional rental in Poland before the pandemic was to do with supply. Investors were keen on acquiring large packages of apartments, preferably entire buildings, however developers often weren’t interested, as they got higher margins from selling to individuals. But then Covid-19 came. Sales of new apartments tumbled in the second quarter of 2020 amid the lockdown and unprecedented uncertainty. While demand bounced back in the summer and especially in September, things got worse again in October as the second wave rolled in.

Ambitious plans, new entrants

Over the past year or so, there have been a number of major developments – deals and announcements of expansion plans – in the institutional rented space. Here are the most important ones:

• In the fourth quarter of 2019 TAG Immobilien of Germany acquired Vantage Development, one of the largest developers on the Wroclaw market. After completing the transaction, TAG said it plans to build 8,000-10,000 rental apartments in Poland.
• Eiffage Immobilier Polska is also lining up a major push into rental housing. Its first project of this kind is PRogress Spot on Postepu Street in Warsaw, which will include 450 units. Plans include the construction of 2,300 apartments for rent in Krakow, Poznan, Wroclaw, and Gdansk. It has appointed Savills, the real estate consultancy, to advise it on the construction of rental apartments.
• Another notable player is Zeitgeist Asset Management of Germany. “Ever since our entry to the Polish market it has been our goal to build a property portfolio that includes at least 800 rental apartments,” says co-founder Peter Noack, adding: “Now it is time for a change of priorities. Buildings are close to completion. The next step, in the near future, will be to prepare them for rental, tailoring them to the needs of different groups of customers.” Mr Noack says Zeitgeist is open to working with property developers in further enlarging its portfolio of buildings with rental apartments in Poland’s major cities.
• Catella Polska, an investment fund that already owns a package of apartments in Warsaw’s Zlota 44, as well as Pereca 11, an apartment building in Warsaw that it acquired from Matexi Polska, and a mixed-use project of apartments and student accommodation in Krakow, said it is considering investing in student halls of residence in Gdansk, Wroclaw and Warsaw.
• Atrium Real Estate, one of the largest owners and operators of shopping centres in Poland, also announced bold plans to move into rental apartments. It said it aims to build a portfolio of 5,000 apartments for rent in Warsaw over the next five years. In November 2019 it bought a residential tower with 900 rental apartments that Golub GetHouse is building at 59 Grzybowska Street.

Innovative solutions: apartment as a service, not an investment

Resi4Rent, the Echo Investment subsidiary, offers apartments as a subscription service. As Slawomir Imianowski, the chief executive, explains: “Product-as-a-service has been functioning for years in the transport and tourism industry; now it is time for the housing market. Apartment as a service can be an attractive solution for various types of households including singles, families with children, or young couples with pets. All apartments in our offer are rented directly from the company, for 12 months with the possibility to renew – without brokers, without surprises. We can see that more and more people appreciate the flexibility offered by renting on partner-like terms. It allows you to change your housing as your needs change; to choose a suitable location for your current workplace; or to live in an area where purchasing an apartment is out of your reach.” 

Will Covid-19 change the trend?

In the new Covid-19 reality, will the growth of institutional rental in Poland accelerate or slow down?

The pandemic and its socioeconomic consequences – the outflow of Ukrainian workers, the shift to home working and online university learning – have delivered a major negative shock to demand for rented accommodation in Poland. Estate agents are reporting that rent prices have fallen by more than 10%; that the number of rental seekers has declined sharply; and that students are withdrawing from signed agreements. On the supply side, meanwhile, developers have not reduced the prices of apartments; some have even raised them. This will have changed the calculus for investors.

But a lot depends on how home buyers react to the ferocious second wave of Covid-19. Faced with a slump in apartment sales and a downward pressure on prices, developers could become more willing to work with large buy-to-rent investors. And more developers could follow the example of Echo Investment and its Resi4Rent venture, diversifying into apartment rental themselves. For the moment, they still prefer to construct apartments for sale; but a stable, parallel revenue stream from rental income could appeal to them.

It appears, though, that the institutional rental market in Poland will only really take off in a big way when a legal framework is established for the operation of real estate investment trust (REIT)-type entities in the country. Policymakers have been talking about it for a long time, and there seems to be a broad consensus around the idea, yet we have seen no concrete action over the last two years. Perhaps the shock of Covid-19 will be the factor that finally galvanises them into action. Encouraging institutional investment in rental housing could be a way to avert a major housing market correction caused by a collapse in demand. It would also create opportunities for Polish companies to get involved in a promising new market that has so far been dominated by international capital.

 

Szymon Jungiewicz

Head Construction Market Analyst, PMR