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The number of transactions in the investment land market is the highest in more than 20 years, and interest in land has not declined despite the Covid-19 pandemic and ever-increasing prices. In 2021, in less than three quarters, the volume of land transactions in Poland reached PLN 5bn. Investors are more and more willing to pay attention to regional markets, which so far have not been characterised by much transaction activity.
According to Emil Domeracki, Director of the Investment Land Department at Colliers, the good results in the first half of 2021 prove that the pandemic has not affected the investment land market. Although with the outbreak of the pandemic in the first half of 2020 the market temporarily froze, already in the second half of the year the situation returned to normal with the emergence of virtual meetings, visits and first transactions. Nor did the pandemic contribute to the fall in land prices, which have risen by around 70% since 2005.
Also, investments in regional markets, which previously did not enjoy much interest, turned out to be a new trend. Investors are turning their attention to smaller markets such as Łódź, Poznań, Bydgoszcz or Rzeszów. It is worth noting that the huge deficit of land prepared for investment areas, e.g. in Cracow, Wrocław or Tricity, means that the markets have not slowed down. The supply of investment land has been negatively affected by the law on the prohibition of trading in agricultural land, which was introduced in 2016, and the effects can be seen in Katowice or Warsaw, where a lot of lands has been declared agricultural and thus cannot be sold.
Multi-million dollar transactions
High competition on the market influences the increasing amounts of transactions, which is why the purchase of land for over PLN 150m, PLN 200m, or even PLN 300m is becoming a frequent phenomenon. An example of such transactions can be the situation in Poznań, where a Cracovian developer purchased land for PLN 200m, or in Warsaw, where a transaction worth PLN 300m was made.
70% of investments are residential projects
Developers invest intensively in residential projects, and plots allowing for their construction to sell at a very fast pace. Also, in this case, the huge competition forces investors to shorten transaction deadlines to the minimum, which is often connected with the lack of in-depth analysis of the acquired land. In the first half of 2021, residential projects accounted for 70% of the transaction volume on the investment land market, but this trend may soon change due to the decreasing number of building permit decisions issued. In 2020, 12,000-14,000 flats were granted permits in Warsaw, which is half as many as 2 or 3 years earlier.
More and more flats, both in Warsaw and in regional cities, are purchased for investment purposes, i.e. for rent. This results in an increase in developer activity, which is associated with high flat sales results. The great interest in investments causes prices to rise, and land for residential projects is sold for more than PLN 3,000 per square metre of the usable floor area of a flat. Such situations often occur in locations where only two years ago prices were twice as low.
Large investments in flats for rent are also caused by the inflow of investors who implement projects on the so-called local plans covered by commercialization. This applies to hotels, dormitories or seniors’ homes, i.e. premises where short-term or long-term rental is important. One of the largest investments in the rental sector was the sale of PepsiCo on Zamoyskiego Street in Warsaw’s district of Praga in the first half of 2021. The PRS industry paid a record amount of over PLN 3,500 to the metre.
Changes in the logistics industry
An increase in developers’ activity is also noticeable in the logistics industry, where the formula of large logistics parks is slowly being abandoned. Instead, small warehouses are appearing, which are increasingly competing with the commercial market on the outskirts of large cities.
The pandemic, connected with the halt in the development of land for office or hotel projects, has forced many logistic investors to enter speculative projects. Currently, the logistics industry is increasingly implementing projects without potential tenants, and such situations did not occur in the years preceding the pandemic. New market behaviour is generated by e-commerce and the demand for warehouse space.
Do administrative procedures limit investment potential?
The time of the pandemic was not conducive to efficient processing of administrative procedures in offices, and currently, decisions on land development conditions or building permits are not issued on time. This affects the impossibility of realising investments, which in turn is connected with limiting the investment potential. The effects of the slowdown in the granting of permits will be visible in 2022 and 2023.
The current situation makes it increasingly common to hear about business diversification. This is linked to a change in the perception of long-term profitability, which used to be 10 years. Today, it is accepted that the profitability of investment projects should be determined for 20 years. This approach makes the Polish market a mature one, catching up with Western European markets. The forecasted volume of transactions on the investment land market in 2021 may reach PLN 7bn to PLN 8bn.