Five trends that will change the housing market in Poland
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New economic conditions and the demographic processes of a changing environment are bringing about transformations in many areas of life or the economy. Technological and social transformation is also not without significance. The winners of these changes will be their precursors, companies with vision and horizons, which are already preparing their strategy for the coming future. Here are the main trends that will make it necessary to adapt to the new rules and significantly change the development market in our country.
It was already known by the ancient Romans, used as elements for building bridges, aqueducts and tunnels, i.e. infrastructure, but also structural and architectural components. Although it is making a comeback in our country, it is associated with the era of prefabricated concrete blocks in the People’s Republic of Poland and the construction of record numbers of flats over 40 years ago during the reign of Edward Gierek. However, comparing that period with today’s prefabrication is like comparing a Polonez manufactured at FSO at the time with today’s Tesla. Contemporary prefabrication is environmentally friendly, offers exceptional precision, high quality and, importantly, time savings. This has an impact on shortening the operation cycle, and thus on increasing the profitability index of development investments. Building with prefabricates requires fewer workers, takes twice as long as traditional technology and is more precise. Their share of the housing market is steadily increasing – from 1.7% in 2014, to a projected 2.4% share just one year from now. In contrast, the heavy precast concrete segment, according to estimates, accounted for 3% of the market share last year, worth PLN 3.49 billion. And, this is only a modest prelude to future growth, although generating profits from them is not as easy as one might think. Their production and logistics are relatively expensive, and meaningful use is not obvious to every developer. Also, the shortage of qualified construction workers, with the accumulation of investments in the economy and full order books for general contractors and subcontractors, and thus an increase in production costs, have caused the Polish precast concrete market to double in value in just a few years, indicating its further development and popularity like that seen for years on Western European markets.
No wonder that companies in this sector are experiencing a boom. For example, the shares of the leader in the production of prefabricated reinforced and prestressed concrete units, Pekabex, cost 7 PLN in March last year, in December they already cost 17 PLN, and recently Ipopema Securities analysts have raised the target price to 26.91 PLN. Those who invested earned more than the shares of new technology giants. On the other hand, HRE Investment, a leader in the development of prefabricated housing, behind which stands the icon of the development market – Michał Sapota, will continue to buy development companies and producers of prefabricated housing and proptech solutions. HRE Investments wants to spend up to PLN 150 million this year to expand its potential. The company plans to reach the level of building 10 thousand flats per year using this technology.
Another big player is the Industrial Development Agency (IDA) owned companies Operator ARP and ARP Prefabrykacja, which have signed an agreement on cooperation in the implementation of the Fabryka Programme. They will build high-class office and service buildings in medium-sized cities. They will use modern prefabricated elements supplied by ARP Prefabrykacja, whose majority shareholder is ARP S.A. (70%), and the remaining 30% of shares are held by HM Factory – a producer of prefabricated elements. The most important goals of ARP Prefabrykacja are the implementation of modern modular and prefabrication technologies into the domestic construction market – using the experience of its shareholder HM Factory, a leading producer and exporter of prefabricated elements on the Polish, Scandinavian and German markets. The company will produce highly processed prefabricated and modular elements, which will be used in housing and office construction, as well as in the construction of public utility buildings – schools, kindergartens, offices. The factory will also manufacture walls, ceilings, stairs – a complete system allowing for quick construction – and will be one of the most modern in Europe, fully automated. It can be estimated that in the first phase it will reach a scale of 4-4.5 thousand units per year, which is still a drop in the ocean of demand market needs. In the following years, the company’s strategy is to produce components for up to 12,000 dwellings per year. No wonder that seeing such a huge potential, other construction producers are entering the heavy prefabrication segment – e.g. producer of ready-mixed concrete Thomas Beteiligungen, or paving blocks such as Poz Bruk, as well as developers and general industrial and warehouse contractors, e.g. Dekpol, Goldbeck or Depenbrock.
Prefabrication is not only used in multi-family housing, but also in single-family housing, as well as commercial buildings: office buildings, warehouse and production halls, hotels, public buildings, agriculture, etc. Prefabrication for interior finishing is also growing in popularity. Offering an innovative system of ready-made modules for quick gypsum-cardboard installation, which revolutionises finishing and arrangement works, the Raciborska-based company Gipset records such a high demand that it urgently needs to invest in another factory. Year by year, houses assembled from ecological prefabricated wooden elements are also gaining importance. The company Polskie Domy Drewniane SA (PDD) builds residential, service and residential-service buildings made in technologies using the domestic potential of the wood and construction industry and the raw material base. The first houses were supposed to be built in 2020, but a pandemic stood in the way. However, this direction in housing construction is very common in many markets in Western Europe, Canada or the USA.
Sustainability and CSR
Construction is responsible for as much as 39% of carbon dioxide emissions into the atmosphere. Eco CSR in social urbanism is one of the priorities of the future, the most important of which is to support sustainable development processes. It is important to actively support, share legal, business and technological experiences. But also helping to better educate and shape common urban space to build ecologically and with saving our planet in mind. CSR is becoming a mandatory part of the real estate sector’s strategy. The development industry is increasingly taking into account the needs of the environment in which it plans an investment, thus taking care of the well-being of future residents. Reducing the CO2 emission rate is a goal enshrined in the Paris Agreement and the European Green Deal 2050. This involves major technological changes, but also new standards and legal requirements, and even the way we design. Last year, the European Commission presented a plan to reduce greenhouse gas emissions in the EU by at least 55% by 2030 (compared to 1990 levels). The aim of the long-term strategy, called the European Green Deal, is to achieve climate neutrality as early as 2050. Let us also remember the Paris Agreement signed by 189 countries (including Poland) five years ago. Its priorities include limiting the increase in global temperature and achieving carbon neutrality by 2050.
No wonder that CSR has become a basic requirement and has been gaining popularity even in smaller companies in recent years. Corporate social responsibility is a kind of socio-business ecosystem. Beneficial for inhabitants, including sustainable urban development, connecting all planes: social, environmental and economic – especially at the stages of their implementation, when many decisions and solutions are discretionary or intuitive.
A good example is Skanska’s climate objective, which promotes environmentally friendly housing estates and office buildings. This global construction leader (residential, office and general contracting investments) wants to reduce greenhouse gas emissions by 50 percent by 2030 and reach zero net emissions by 2045. Currently it is already applying many pro-ecological solutions, e.g. only by powering one housing estate construction site in Warsaw with wind energy the emission of ca. 1300 tons of carbon dioxide to the atmosphere was avoided. Skanska certifies its residential buildings in the BREEM system (Building Research Establishment Environmental Assessment Method), confirming that they are environmentally friendly. It also ensures lower maintenance costs – by up to 10% for future owners and tenants, and 99% of waste from its construction sites is recycled. And in the office segment, Skanska, which has built more than one million sq m of space in Central and Eastern Europe by the end of last year, is embracing the prestigious LEED (Leadership in Energy and Environmental Design) certification with its goal of zero-energy buildings. In the Czech city of Prague, the first office building in this part of Europe made of so-called structural wood with a zero carbon footprint is to be built.
Further investments are positively changing urban space and the level of architectural design is improving. It is also protecting the health of residents and improving the productivity of employees, as well as reducing waste, pollution and environmental degradation. There is a growing emphasis on the overall impact of investments on the environment, not just the construction process itself. Climate change is also important, creating new challenges. Urban space must be ventilated, have the capacity to absorb rainwater, use green energy, electric communication or build gardens on roofs and facades. Noteworthy projects include Echo Investment’s city-building projects in Warsaw’s Kabaty district and Łódź’s Fuzja. One of the important tasks is to fight against smog. Green concrete”, which is already used by Skanska, is to help with that. Thanks to sunrays on its surface there is a reduction of harmful compounds from car exhaust fumes. Tests have shown that concrete reduces the concentration of nitrogen dioxide by an average of 30 percent.
The growing importance of socially responsible development in the real estate sector can be defined as actions taken to reduce the negative impact of buildings and structures on human health and the environment, while striving to use energy, water and other resources efficiently. The aspect of corporate social responsibility is playing an increasingly important role in the Polish economy. It is worth showing its positive influence on our nearest urban environment and investments – including developer ones. The idea refers to the belief that companies should have a positive impact on the community and the wider partnership, and not just generate profit. Until recently, Corporate Social Responsibility (CSR) was the domain of multinational corporations, but now it is also appreciated by domestic business, and entrepreneurs are increasingly willing to engage in ethical activities. The activation of these mechanisms brings great benefits to local communities, which can gain a lot, and its importance is constantly growing.
In 2040, there will already be 35 million of us left, and if we do not increase the fertility rate, the progressive process will lead to the fact that in 80 years there will be 10 million less of us – according to Eurostat forecasts. The shrinking of the Polish society will cause a property revolution to begin in the next decade. Already in 20 years, the wealth of an average family will increase to over 860 thousand zlotys. Poles will start to become rapidly richer, and the inheritances inherited from relatives will be even three times greater than today. It is easy to observe the progressive increase in the number of estates per capita. Demographic statistics are an often overlooked but important factor that influences long-term valuation and analysis of what types of property will be attractive in the future. Short and medium term evaluations indicate the potential and profitability of investing in real estate. However, when examining long-term trends, investors need to pay attention to several important parameters that may affect the profitability of their purchases today.
In the next decade, developers can still count on a bull market, with an increase in the importance of demographically attractive locations, higher housing standards, innovative technologies and building to new ecological standards.
Premium segment projects will also gain in importance. Currently, according to various forecasts, the market is still short of 2.3 to 3 million flats. This is due to a variety of factors, including the legacy of the post-war period and Poland’s socialist history, but also to changes in living patterns, rising standards of space, immigration, etc. Today’s “premium” will become the norm for future generations. That is why investments in this segment seem to be extremely promising, e.g. those offered by Tacit Investment, an experienced investor known for such projects as Cosmopolitan, Park Lane or Nobu Hotel in Warsaw. It is a company with a strong and well-established capital position – a forerunner on the market of exclusive properties in Poland. In turn, Invest Komfort concentrates in its offer all the positive features of the trends of the future. For a quarter of a century this Tri-City developer has specialised in building premium flats in the best locations. It has built 44 of them and currently offers another eight. Apart from paying attention to the smallest details, its projects have been winning the most prestigious awards, such as the Botanica, Nowe Kolibki and Brabank estates. The company has also accumulated a large land bank allowing for its further development.
Meanwhile, the average population of the world’s 100 largest cities has increased dramatically to 9.7 million in 2020, compared to 2 million in 1950 and 184,270 in 1800. Today, 23% of the population lives in cities with a population of more than one million (and there are already 512 of them worldwide). In contrast, 7% live in megacities of more than ten million. The analysis of long-term trends shows that it is not worth investing in smaller towns that do not attract with good infrastructure, university facilities or easy job opportunities. Long-term investors choose capital cities and other large agglomerations. Even if the country’s population falls overall, with urbanisation, they should still do well.
Places with tourism potential and the outskirts of major cities are also future-proof. These have been strengthened by the pandemic with the prospect of infrastructure, social trends and lifestyles, such as having one’s own garden and attractive green surroundings with rising land values. This is why the Tricity has been gaining importance for years. This location is very prospective, because apart from living by the sea in attractive urban centres such as Gdańsk, Gdynia or Sopot, we will benefit from the increase in their value. And this is due to an additional factor, which is the growing demand of the increasingly affluent society associated with better standards and larger size. It is also an ideal location for a growing group of older people who are looking for an offer that is well connected to the rest of the country and the world, combining security with the attractions of seaside resorts. Premium properties will continue to be a great investment to protect capital against inflation, which can be rented or sold in addition to living there.
An important key to the development of future investments will be acquired land, which is becoming scarce and their prices are extremely high. One of the largest active land banks among Polish developers is held by Murapol S.A. – One of the largest active land banks among Polish developers is held by Murapol S.A., with a total of 815.8 thousand sq. m of PUM. PUM. Its value is estimated at approximately PLN 638 million, and the development potential – at 18.8 thousand flats. No wonder that the latest list of the most important personalities of the real estate sector of Gazeta Finansowa includes the President of Murapol S.A. – NIkodem Iskra, the President and CEO of Skanska CEE Office Company – Katarzyna Zawodna-Bijoch and the President of Tacit Investment – Maciej Wolski – companies which already have one foot in the future.
REITs and the rise of institutional rental
In Europe’s largest real estate market, Germany, where around half of the properties located are residential, special purpose funds and REITs occupy a majority share of total residential developments. This is a trend that will lead to further development of institutional rental in Poland. In the future, we will have more residential “wholesalers”, having entire buildings (estates) with premises for rent, such as the Swedish Heimstaden Bostad, which recently bought three Warsaw investments with 647 flats for rent from Marvipol, or the “Resi4Rent” brand operating successfully. – Echo Investment brand. Polish investors, both individual and institutional, still have very limited opportunities to invest and make profits on the real estate market. This state of affairs may be changed by introducing systemic and proven solutions, with great benefit for Polish individual investors and our economy.
Work on the Polish REIT Act is in progress. In Europe (excluding Great Britain), there are already 151 REITs with the total market capitalization of USD 420 bln, and in the British Isles 56 with the capitalization of USD 89.5 bln. REITs in the USA, with a total of over USD 3.5 trillion in assets, are a popular global solution, which also operates in 40 countries. In Poland, foreign REITs own commercial properties worth EUR 64 billion. Unfortunately, the share of domestic capital is less than 5 percent. In the West, REITs provide competitive and total returns based on high, stable dividend income and long-term capital appreciation. Their relatively low correlation with other assets also makes them an excellent diversifier, which can help reduce overall portfolio risk and increase returns. Let’s remember that the value of household net financial assets in Poland (assets less liabilities) was as high as PLN 1,398,874 million at the end of 2019. Current settlement deposits are the largest component of household financial assets. Nearly PLN 604 billion was accumulated in this item in the period indicated. Domestic individual investors want to make money on our real estate market. The REITs we are waiting for in Poland are a type of investment funds, often listed on the stock exchange, which allow individual (small) investors to collectively invest their funds in real estate. These extremely popular financial entities, which act as companies or funds listed on the WSE, allow smaller (small) investors to invest their funds in real estate.
The main source of income for REITs remains rents and not the increase in the value of the property, as transactions of sale and purchase of owned assets are only carried out in order to adjust the composition of the property portfolio to the current market situation. The REIT’s income is therefore derived primarily from real estate, other assets or other business ventures related to real estate. REITs invest in a wide range of properties, including offices, apartment buildings, warehouses, shopping centres, medical facilities, data centres, cell towers, infrastructure and hotels. REITs allow anyone to invest in portfolios of real estate assets in the same way that one invests in other industries – by purchasing individual company shares or through a mutual fund or exchange-traded fund (ETF). REIT shareholders receive a share of the income generated from their real estate investment – without having to leave their homes to buy, manage or finance the property. Most REITs focus on a particular type of property, but some have multiple types in their portfolios and also invest in foreign markets. REIT assets listed on stock exchanges fall into one of 13 real estate sectors, such as residential, hotel (resorts), commercial (offices, shopping malls, logistics), healthcare, industrial or data centres (cloud). REITs may constitute a new option for investing in real estate in Poland, which will change the current behaviour of smaller individual investors, giving them an opportunity to earn in a different form than the previously known purchase of real estate and its resale or rental.
Legal changes and digitalisation
We need reform of the planning and zoning system. Good laws can reduce the length of investors’ operational cycles and improve the availability of land. The importance of public participation, which is key to eliminating conflicts, will also increase, especially in the digital age. Spatial planning is something through which our environment is created. It is on the basis of the Law on Spatial Planning and Development that municipal spatial development plans should be created. After the reform, in the areas for which no development plan has been adopted, the urban planning standards specified in the new law will apply.
During the preparation of planning documents, the social involvement of the inhabitants is very important. The current lack of local plans is a factor that blocks the development of investments and is compounded by complicated and unclear procedures. We have been hearing about the need for spatial planning reform for years, so it is no wonder that another attempt to change the outdated law is a long-awaited necessity. On the other hand, digitisation will ensure wider access to documentation and transparency of decision-making processes. Currently, ‘wuzettes’, which were supposed to be issued only in exceptional cases, have become the norm, and local plans, which were supposed to be the norm – are the exception. According to the PZFD, Kraków has the highest coverage of spatial development plans at 65.4% and Rzeszów has the lowest at 16.9%. Warsaw has 39.4% and Łódź only 24.5%. Social participation in spatial planning means a process in which both the authorities and the inhabitants participate in the preparation of plans, the implementation of specific policies and the making of decisions that guarantee the principle of sustainable development and spatial order. The area and scope of digitisation of construction formalities is also growing. It will soon be possible to apply for a building permit online, and this is the first stage of the reform of the digitalisation of formalities. In the future, it envisages that investors will keep an electronic construction diary – first in a web version and then as an application on mobile devices. Investors’ online accounts will be launched, which will allow them to see at what stage the proceedings are, whether additional documents need to be sent, etc. The described processes should significantly improve public perception of the investment process and streamline and unify it, thus reducing excessive bureaucracy.
Author/Photo: Adam Białas, market expert, business journalist, manager of Core PR communication and marketing agency.