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The following Wrocław Real Estate Overview was prepared by Knight Frank, one of the largest independent full-service real estate firms in the world.
Office Market - Investment Opportunities
The total modern office stock in Wrocław is estimated to be 108,000 sq m, with a further 15,300 sq m scheduled for delivery during the year 2006.
Total modern office stock, comparison major Polish cities
The year 2005 saw just 3 out of the 7 planned projects completed, delivering approximately 5,000 sq m of new offi ce space. Two out of the three completed schemes are situated in non-central locations (Muchoborska II and Green Point), while Kuźnicza scheme is located in the centre.As is the case in other major Polish cities, the majority of modern office stock in Wrocław is situated outside the city centre (60%) divided between two concentration areas the Western Business Centre (vicinity of Strzegomska and Legnicka Streets) and the area near Powstańców Śląskich Street.
In terms of the total modern office stock, the greatest supply is concentrated in Poland's capital, Warsaw (more than 2.18 mn sq m), however Wrocław closely follows Kraków and Poznań, where the modern office supply levels exceed 120,000 sq m.
Attracted by the lowest office vacancy rates in the country and demand outgrowing supply, developers and investors have turned their attention to Wrocław. Many sites have been secured for new schemes with commencement of construction scheduled for 2006, upon securing building permits.
Annual and cumulative office supply in Wrocław
The limited office accommodation available in prime schemes has resulted in greater demand for lower quality office space. Some of the C- and D-class schemes are being refurbished for the needs of major companies active in the city.Some of the projects where construction began in the years 2004/2005, have been suspended while owners seek financing, other schemes remain at various stages of the planning process. Many existing companies present on the market are seeking expansion possibilities. They either await completion of new supply or negotiate build-to-suit schemes with developers on a pre-let basis. There is currently some 12,200 sq m of office accommodation under construction with plans for 15,300 sq mto be delivered by the end of 2006. Between the years 2002 and 2004, vacancy rate levels fell from almost 20% to approximately 5%, reaching as little as 1% at the end of 2005.
Wrocław has by far the lowest vacancy rate in the country, however all the major Polish cities, including the capital, have entered a downward path in terms of vacancy levels.
Attracted by favourable market conditions, many developers who were previously not present in Wrocław have secured sites for new schemes.
Rental levels in Wrocław and in other major Polish cities
In comparison to other major Polish cities, Wrocław has recorded the lowest rental levels between the years 2001 and 2005.
The low vacancy rate and intensified demand on the other hand have not yet led to an increase in rental levels, however many of the landlords have withdrawn from offering incentives.
Prime rental levels in Wrocław have stabilised in the region of € 11-13/sq m/month, ranging between € 11-12/ sq m/month in schemes situated outside of the city centre. Lower standard schemes record rents at a level of about € 9/sq m/month.
The office market in Wrocław is currently recognized as one of the most attractive in terms of investment opportunities. The low vacancy, limited new supply levels, the number of new entrants and tenants seeking expansion possibilities indicate that the market should continue to experience dynamic growth in the medium term.
Retail Market - Changing Lifestyles
The total modern retail stock in Poland is estimated at the level of at least 5.5 million sq m. Over 50% of the stock is located in major Polish cities - Kraków, Poznań, Trójmiasto, Warszawa and Wrocław. By comparison to other major Polish cities, Wrocław has the lowest level of modern retail stock and the cities absorption index level of 0.51 sq m per capita follows the levels of Warszawa (0.81), Poznań (0.75) and Trójmiasto (0.71). At the end of 2005, the total modern retail stock in Wrocław reached 325,500 sq m. Over the next two years some 210,000 sq m of new annual supply is expected to be delivered to the market.
Share of major Polish cities in the retail market
The annual supply of modern retail accommodation in Wrocław has been moderate over the years, rarely exceeding a level of 30,000 sq m per annum. The greatest increase in supply was recorded in the year 1999, when 8 schemes totalling some 113,800 sq m were delivered to the market.
During 2005 just one scheme has been completed -Ferio Gaj - increasing the total stock by some 10,500 sq m.
As is the case in other major Polish cities, the majority of stock (approximately 86%) is concentrated in outside city centre locations resulting from the lack of available sites and zoning restrictions in the centre.The centrally located retail supply is dominated by stores located at the ground floors of buildings situated along the high streets and near Rynek, as well as by departments stores and small retail galleries. There is only one modern retail scheme located in the city centre - Galeria Dominikańska - offering some 30,000 sq m of retail accommodation in over 170 shops.
The greatest market share by size of retail accommodation is accounted for by 2nd generation shopping centres (45%), which comprise an anchor hypermarket and an attached shopping gallery, however do not offer entertainment facilities.
Factory outlet type projects are the new format of retail supply being introduced to the market. By Q1 2006 Neinver will open the first phase of their Factory Outlet scheme comprising some 10,000 sq m and 80 shops.
At the end of the year 2005, almost 134,000 sq m of retail space was under construction, including two major projects by national developers: Pasaż Grunwaldzki by Echo Investment scheduled for completion before the end of 2006 and Arkady Wrocławskie by L.C. Corp scheduled for opening early 2007. Together, these schemes will increase the city centre stock by 83,000 sq m of modern retail accommodation.
Stage I of the fi rst outlet centre in the city developed by Neinver is scheduled for completion by spring 2006. The scheme will offer some 80 units on approximately 10,000 sq m. A total of 75,000 sq m is planned to be delivered to the market before the end of 2007. Due to significant demand and limited new supply prime rental levels range between € 35-40/sq m/month.
Warehouse Market - Leading Logistic Centre
Total stock of modern warehouse space, regional markets
The presence of such manufacturing companies attracts logistics' companies, which leads to increasing demand for warehouse space. This trend has motivated warehouse developers to commence construction of new schemes, contributing to Lower Silesia becoming a leading logistics' center in Poland. The total modern leasehold stock in the area has been estimated at approximately 100,800 sq m.
New supply (2005) of warehouse space, regional markets
Strong demand for warehouse space has led to increased interest in the Polish warehouse market. More and more developers are being attracted to this market segment. Until recently, warehouse developers had been actively land banking, acquiring plots of land for new industrial projects all over the country. Improving market conditions have encouraged developers to build speculative projects, which was especially visible during 2005 in Lower Silesia. International players such as Prologis, Parkridge and Tiner have entered the local market.
Warehouse projects in the pipeline, regional markets
The Polish warehouse market noticed unprecedented increase in demand during 2005. This was a record year in terms of leased space on regional markets, accounting for some 215,000 sq m. In Lower Silesia, take-up amounted to over 40,000 sq m (16% of the total regional take-up) and was comparable to Central Poland. The largest number of transactions came from logistics' operators. Demand is expected to remain strong, supported by the proinvestment policy of the city authorities to attract foreign manufacturers, who in turn are followed by logistics' operators.
Only in the regional markets alone, the logistics' developers intend to deliver over 3.2 million sq m of new warehouse space over time. In the near future, one may expect growing competition amongst warehouse developers for tenants in Lower Silesia. Warehouse developments in the planning stage in Lower Silesia should increase the stock by approximately 526.000 sq m of modern warehouse accommodation. Due to factors such as securing new tenants, time-scale for the construction process, etc., the timing of particular developments in the pipeline is diffi cult to assess. Warehouse developers who yet plan to enter Lower Silesia include Metroplan, ProjectManagement and Biuro Inwestycji Kapitałowych.
As a result of strong competition and aggressive leasing policy of warehouse developers, there was downward pressure on the rental levels. Average rents in Lower Silesia are similar to other regional markets and vary between € 3-4/sq m/month depending on standard, distance from the centre, floor size and availability. In additional to the base rent, the service charge varies between € 0.68-1.00/sq m/month. Foreign manufacturers such as Volvo, LG, Siemens and ABB have decided to establish production facilities within Wrocław's boundaries.
Strong selling points of Lower Silesia include: well developed infrastructure, qualified workforce, close vicinity to the country's borders and incentives for inward investors in the Special Economic Zones.
Residential Market Rapid Expansion
Wrocław is one of four regional residential markets (along with Kraków, Poznań and Trójmiasto), which has been dynamically developing over the recent years. During 2004, developers and housing co-operatives completed some 1,200 dwellings. Even though this was the lowest recorded number of new dwellings when compared to the other three cities, some 3,000 residential units are scheduled for delivery in the year 2005 and another 3,700 dwellings during 2006 based on a recent Knight Frank survey. As a result the residential supply in Wrocław should level off with Kraków, the second city in Poland (after Warsaw) with the highest number of residential units delivered annually.
The four selected regional cities also differ in demand from potential buyers. Buyers in Wrocław are mostly interested in medium size schemes consisting of 50-100 units in one project. Such projects account for over 40% of all residential schemes (completed in 2005 and at the construction stage in December 2005), while in Kraków, Poznań and especially in Trójmiasto the highest demand is for small schemes up to 50 units in each.
Increasing demand for residential units in attractive medium-sized schemes has effected the absorbtion period which has fallen over the last few quarters to 18 months compared to 30 months in early 2004.
Annual supply of residential units in Wrocław, Kraków, Poznań and Trójmiasto (2004-2006)*
The Wrocław residential market is dominated by dwellings completed by developers, however their dominance over housing co-operatives is not as strong as in other regional cities. Vast majority of the developers are local ones, nevertheless national developers are active in Wroclaw as well. Moreover, there are also foreign investors who are acquiring sites for residential developments.
Scheme sizes and their share in residential markets of Wrocław, Kraków, Poznań and Trójmiasto
Quoted prices are expected to increase in the medium term due to current shortfalls in the existing stock and new demand generated by new employees of foreign investors who are entering or expanding in the region.
Growing demand for new housing units is expected to continue due to an increasing number of employment opportunities to be created over the next four to five years (an estimated 100,000 jobs) as part of a promotion campaign designed to attract foreign investment to Wrocław.
The upward trend in demand for residential units in Wrocław has been supported by the growing availability of mortgage financing generally in Poland characterized by decreasing mortgage interest rates and simplified application procedures.
Minimum net unit price in new developments in Wrocław, Karków, Poznań and Trójmiasto*
(PLN/sq m, December 2005)
Polish local developers are the most active in the regional residential markets of Wrocław, Poznań and Trójmiasto. Nevertheless, national developers also have their share of the market. A growing number of foreign investors who have been entering the market since Poland's accession to the EU is acquiring sites for residential development and purchasing apartments in bulk for investment purposes