Shopping centres can open again from 4 May with strict hygiene rules in place. Restaurants and fitness centres will, however, open on 29 May. A total of 9 weeks of lockdown in Q1 2021, an unclear lease status of many tenants, uncertainty caused by the worsening pandemic and the lack of a specific date for the lifting of retail restrictions have all left their mark on the entire sector. However, according to economic forecasts, the forthcoming months are expected to see a rebound amid substantial consumption growth. Retail sales in constant prices in March 2021 were up by 15.2% year-on-year compared to an 8.9% decrease in March 2020. Although the point of reference for the March 2021 data from Main Statistical Office (year-to-year) is March 2020, a period of the hardest lockdown, the scale of recovery surprised analysts. In March 2021, retail sales rose by 15.0% compared to February 2021. In January-March 2021, sales were up by 1.2% year-on-year against a 0.8% growth in 2020.
Total leasing activity in Q1 2021 on the Polish office market stood at 207,500 sq m which reflects a drop by 41% in comparison to the corresponding period of 2020. The relatively low tenants’ activity has been a continuous trend visible on the market since the start of the pandemic. This uncommon situation and uncertainty regarding the condition of the economy forced most tenants to put on hold their decisions regarding their office spaces. Nevertheless, the improving situation with the outbreak of the COVID-19 pandemic will allow the reopening of most transactional processes stopped in the last months.
The warehouse market is still in a dynamic growth phase. Total take-up in the first quarter of 2021 hit 1.6 million sq m, which is a record result and an increase of 70% compared to Q1 2020. Total warehouse stock exceeded 21.5 million sq m (+13% y/y) and approximately 2.5 million sq m remains under construction which demonstrates the dynamic growth of development activity in the first months of 2021. The vacancy rate of 6.5% in March 2021 was 0.9 pp. lower compared to the same period last year. Rents remained stable, however may increase due to strong demand, lowering vacancy rate and rising construction costs.
Due to the growing number of new COVID-19 cases in Poland, as of 20 March, the Government introduced a fourth lockdown covering the entire country. Limitation on shopping centres' operations was implemented with only stores selling essential items remaining open.
According to the latest available data, retail sales in February decreased by 3.1% YoY, while e-commerce share in retail sales amounted to 8.6%.
As in previous lockdowns the supply side of the office market should not be affected in the short term and projects which are currently under construction will be delivered on schedule. However, this may affect planned schemes in the long term by increasing the supply gap expected in years 2023-2024.
According to Central Statistical Office of Poland, in February 2021, sold production of industry was 2.7% higher than in February 2020. After eliminating the seasonal factors, in February 2021 sold production of industry reached the level higher of 4.5% than in the corresponding month of 2020.
An increase in sold production (in constant prices) was reported in 17 (out of 34) industry divisions.
The footfall in shopping centres stabilised at a level of ca. 80% of the pre-COVID volumes. It is a very good result considering the growing number of new COVID-19 cases in Poland. According to the latest strategy announced by the Government, the lockdowns will be implemented locally, on a voivodship level, rather than nationally. Restrictions for retail were announced in the Varmian-Mazurian voivodship at the end of February and from 13 March, these will also be introduced in the Pomeranian region, where the pandemic situation is getting worse.
No restrictions have been introduced to the industrial and office sectors. Demand for modern warehouse space remains strong, driven mainly by logistics operators and retailers rapidly developing an omnichannel sales strategy and this situation is likely to continue.
Many office occupiers still continue their ‘wait and see strategies’ and flexible solutions are gaining in importance.
After the third lockdown (28 December 2020 - 31 January 2021), in the first two weeks of February 2021, the footfall in shopping centres reached 83% and 76% respectively. Small and medium-sized shopping centres continuously note higher footfall than large and very large schemes. The latest available turnover data (PRCH Turnover Index) for December 2020 shows that sales were lower by 18.4% YoY in large & very large shopping centres (>=40,000 sq m) and by 13.8% YoY in medium & small schemes (<40,000 sq m). Total retail sales in January 2021 decreased by 6.0% YoY, while e-commerce share in total retail sales amounted to 9.8%, with the high share of e-commerce recorded in the fashion category (44.0%).
The office market is at the epicentre of changes caused by the coronavirus pandemic, another lockdown, and remote working that has continued in most organisations since last March. In 2020, office take-up in Poland’s 9 largest markets fell 24% against 2019 because some tenants adopted wait-and-see or time-buying strategies in the last 12 months. In 2020, the total office stock of Poland’s 9 largest office markets reached 11.9 million sq m, up by 6% compared to 2019. New supply amounted to 710,800 sq m in the last 12 months, marking a slight increase on 2019’s figure. Office availability stood at 1.3 million sq m at the end of 2020, a nearly one-third increase compared to 2019. Higher office availability pushed the overall vacancy rate up by 2.4 pp year-on-year to 11.1% at year-end 2020, its highest since Q3 2017. Prime headline rents edged down in Warsaw due to the worsening market sentiment but remained unchanged across regional city markets.
According to the Central Statistical Office of Poland, in January 2021, sold production of industry was 0.9% higher than in January 2020. After eliminating the seasonal factors, in January 2021 sold production of industry reached the level higher of 5.7% than in the corresponding month of 2020.
An increase in sold production (in constant prices) was reported in 15 (out of 34) industry divisions, among others, in the manufacture of electrical equipment by 31.3%, in waste collection, treatment and disposal activities; materials recovery by 12.5%, in manufacture of computer, electronic and optical products by 8.6%, manufacture of rubber and plastic products by 5.9%. According to estimates by the Ministry of Economic Development, Labour and Technology the registered unemployment rate was 6.5% in January, up by 1 pp. year-on-year.
In Q4 2020, we recorded a significant decrease in vacant warehouse space in the market by about 300,000 sq m compared to the previous quarter, and the vacancy rate decreased to 6.8% in December 2020 (-0.6 pp year-on-year). About 73% of the space remaining under construction (2.01 million sq m) was secured by lease agreements. Under strong demand conditions, developers are expanding their offer with new projects dedicated both to companies looking for larger units with limited availability in selected submarkets as well as smaller projects to support last mile logistics.
The third lockdown, which started on 28 December, was extended until at least the end of January 2021. Retail sales in December decreased by -0.8% y/y and share of e-commerce amounted to 9.1% (-2.3 pp month/month). The COVID-19 pandemic accelerated the decision of some retailers (such as: Camaieu, Promod, Sportisimo, Salamander or Stefanel) to leave the Polish retail market. However, 14 international brands have expanded into Poland in 2020 (e.g. Primark, American Urban Outfitters, American Vintage, Giorgio Armani Beauty, Falconeri, Mere and Mömax).
The outbreak of the COVID-19 pandemic in mid-March 2020 had a rather limited impact on leasing activity in the first quarter of 2020, but its effects carried into the remaining quarters of 2020 as business decisions to initiate new deals were put on hold and the transactions that had begun in the pre-pandemic environment were closed. With the closing of these transactions and a falling number of new deals, demand for office space in 2020 amounted to 600,700 sq m reflecting a drop of 31% in comparison to 2019. Between October and December 2020, the highest share in total take-up volume was attributed to new deals (including pre-lets transactions) - 44% and renewals - 43%, while expansions equalled 13%. At the end of Q4 2020, the vacancy rate in Warsaw reached 9.9% (up by 2.1 pp. in relation to the comparable period in 2019).
Preliminary figures for 2020 show that the warehouse market is still in a dynamic growth phase. Total take-up amounted to nearly 5 million sq m of warehouse space leased in 2020, an all-time high and a ca. 25% year-on-year increase.
New supply reached 2 million sq m in 2020, significantly less than 2.7 million sq m noted in the previous year, as the result of reduction in speculative development and a much smaller share of large projects in total development volume, including BTS projects exceeding 50,000 sq m. However, development activity remains strong with approximately 2 million sq m under construction (of which 75% was secured by pre-lets as of Q4 2020). The vacancy rate of 6.6% decreased by 1.9 pp. quarter-on-quarter and decreased by 0.9 pp. compared to the previous year. Healthy developers’ appetite to start new projects combined with strong tenant activity should keep rents stable in 2021.
From 28 December until at least 17 January, the third lockdown has been in place with limitations in shopping centre operations. Before that, in December, average footfall in shopping centres reached 70-75% of the volumes noted the year before. The latest available shopping centre turnover data for October shows that it was lower by ca. 23% in large and very large schemes and by 17% in medium and small schemes. Total retail sales in October 2020 were lower by 2.3% YoY and in November by 5.3%. Share of e-commerce in total retail in October was 7.3% and in November 11.4% - almost the same level as in April 2020 during the first lockdown.
The leasing activity in the office sector in Warsaw showed gradual decline since mid-March 2020 due to the COVID-19 pandemic. In Q4 2020 the activity of tenants was further limited due to the second wave of COVID-19 which emerged in Poland at the beginning of November and caused further economic uncertainty.
The increasing growth of e-commerce, accelerated by restrictions on traditional trade due to the COVID-19 pandemic, remain the main driver of demand for modern warehouse space in Poland. Logistics operators are the most active tenant group generating new warehouse space requests (next year's potential demand). Large retailers are also highly active in the market, offering product categories such as food and beverages, electronics and household appliances or furniture/equipment. Despite the serious challenges associated with limited production processes, the light manufacturing and automotive industries remain an important source of demand. According to the Central Statistical Office, in November 2020, the sold production of industry was 5.4% higher than in November 2019, while in January-November 2020 it was 2.1% lower than in the corresponding period of 2019.
Shopping centres reopened on 28 November, after 3 weeks of limited operations. Restaurants, fitness clubs, cinemas, and theatres, however, remain closed at least until 27 December. The Government also slightly eased the Sunday trading ban allowing stores to be open on one additional Sunday on 6 December.
Total leasing activity on the Warsaw office market shows a decrease in tenant demand, which during the last three quarters of 2020 amounted to approx. 447,500 sq m, down by 35% in comparison to the corresponding period of 2019. The significant decrease in tenant activity is due to occupiers with long term commitments adopting a ‘wait and see’ strategy and a ‘buying time’ policy resulting in short-term renewals. Tenant activity in Q4 2020 is likely to be down since the second wave of COVID-19 in Poland emerged in early November.
The industrial and logistics sector remains one of the least affected by the second wave of the COVID-19 pandemic. By the end of 2020, we will continue to see a limited appetite for speculative investments and a relatively larger share of BTS (build-to-suit) projects or smaller and medium size multi-let projects supporting last-mile logistics due to the long-term expansion of the e-commerce industry.
The Government eased some of the restrictions allowing shopping centres to reopen on 28 November, however restaurants, fitness clubs, cinemas and theatres will remain closed at least until 27 December. Despite stores having to keep the numbers of customers adequately low to maintain the sanitary regime, they will be able to make up for at least some of the losses before Christmas.
In the office market, total leasing activity in Warsaw shows a significant decrease in tenant activity. Office tenants in the last three quarters of 2020 leased approx. 447,500 sq m, down by 35% in comparison to the same period of 2019. The significant decrease in tenant activity was caused by occupiers’ ‘wait and see’ strategies tied with long term commitments and ‘buying time’ policies which results in short-term renewals. The activity of office tenants in Q4 2020 is expected to be limited now that Poland has been in the grip of a second wave of COVID-19 since early November. For now, the Polish Government has not announced a second lockdown. However new prevention measures were announced such as compulsory work from home for public sector employees and the private sector is advised to minimise the number of employees in offices.
Tenant activity in the logistics market remains strong. However developers are now more cautious in terms of speculative supply which in turn leads to lower construction activity as compared to the previous year. According to Oxford Economics, GDP rose 7.7% q/q in Q3, leaving it only 2.7% below its 2019 Q4 level. Details of the national accounts are not available yet, but it is likely that both consumption and investment saw strong bounce-backs. According to the Central Statistical Office, in October 2020, sold production of industry was 1.0% higher than in October 2019. An increase was reported in 19 (out of 34) industry divisions. Poland's unemployment rate remained flat at 6.1% m/m in September 2020. Compared to the end of September 2019, the registered unemployment rate increased by 1.0%.
Since 7 November, limitations on Polish shopping centre operations have been in place, with only stores that sell essential items remaining open, such as grocery stores, pharmacies, drugstores and services. Restaurants may only offer delivery or takeaway meals. Standalone DIY stores remain open.
Total office leasing activity in Q3 2020 shows a significant decrease of tenants’ activity in Warsaw. Tenants in the last three months leased approx. 113,200 sq m, down by 65% in comparison to Q3 2019. Total leasing activity in Warsaw in the first three quarters amounted to 447,700 sq m and was 35% lower in comparison to the corresponding period in 2019. The significant decrease in tenants’ activity is due to occupiers’ ‘wait and see’ approach, along with long term commitments and the desire to ‘buy time’ resulting in short-term lease renewals.
The year 2020 is marked by a decrease in development activity in the Polish warehouse market, but demand remains very strong. This is evident in the record volume of leases, which since the beginning of the year has reached a record 3.5 million sq m, of which new leases and expansions accounted for 71%. At the end of Q3, nearly 1.54m sq m of warehouse space was under construction (-18% y/y). This, albeit a high investment volume, means a further decline in development activity, which in our opinion is temporary and is due to an increase in vacancy rates and a more restrictive policy on pre-let agreements, which translates into a reduction of speculative investments.
Following the autumn increase of the number of new COVID-19 cases in Poland, the footfall in shopping centres began to decline, reaching 74-78% in the weeks of October 5-11 and 12-18. The share of ecommerce in total retail sales again started to grow and in September it amounted to 6.8% (+0.7 pp compared to the month before). Total retail sales in September 2020 were higher by 2.5% YoY. However, compared to August 2020, there was a decrease in overall retail sales by 2.2 pp.
The final results for Q3 2020 office market in Warsaw show a significant decrease in tenant activity. Tenants in the last 3 months leased approximately 113,200 sq m, down by 65% in comparison to Q3 2019. Total leasing activity in Warsaw in the first three quarters amounted to 447,700 sq m and was 35% lower in comparison to the corresponding period in 2019. The significant decrease in demand was caused by some occupiers' ‘wait and see’ strategies where they are tied with long term commitments, as well as occupiers' policies of ‘buying time’, resulting in short-term renewals. In Q3 2020, we observed a limited number of relocations in comparison to recent quarters.
Preliminary market data for Q3 2020 confirms the very high resilience of the industrial sector in the face of the global pandemic crisis. The total letting volume amounted to over 1.2 million sq m and 3.5 million sq m since the beginning of the year which is a record take-up result.
In Q3 developers started 20 projects covering 350,000 sq m. We see continued strong development activity but the total construction volume at 1.5 million sq m is almost 20% lower than year ago. This is due to a substantial increase in vacancy and a more restrictive policy regarding speculative supply.
Shopping centre footfall has stabilised at a level of ca. 80% of the last year’s volumes. Small and medium-sized shopping centres (<40,000 sq m) continue to note slightly higher footfall than large and very large schemes (>=40,000 sq m).
The latest available turnover data (PRCH Turnover Index) for July 2020 shows that sales were lower by 16.5% YoY in large and very large shopping centres and by 7.0% YoY in medium and small schemes.
The preliminary take-up figures in Q3 show significant decrease of leasing activity in Warsaw.
Tenants in the last three months signed approx. 109,000 sq m of office space which reflects a decrease of 60% in comparison to Q2 2019. Total leasing activity in Warsaw in the first three quarters accounted for 445,000 sq m and was lower by 35% in comparison to 2019. The significant decrease is caused by the ‘wait and see’ strategy of occupiers tied to long term commitments and a ‘buying time’ policy which results in short term renewals.
The first aggregate data for Q3 2020 has been received from selected warehouse developers in recent days. The results are optimistic, but the overall transaction volume and the structure of demand are not yet available. Tenants and development activity remain strong, but further market development will largely depend on the impact of the second wave of the COVID-19 pandemic.
Shopping centre footfall has stabilised at the level of ca. 80% of the last year’s volumes. Small and medium-sized shopping centres (<40,000 sq m) continuously note slightly higher footfall than large and very large schemes (>=40,000 sq m).
The latest available turnover data (PRCH Turnover Index) for June 2020 shows that sales were lower by 19.9% YoY in large and very large shopping centres and by 12.1% YoY in medium and small schemes.
Total retail sales (Main Statistical Office) in August 2020 were higher by 0.5% YoY. However, compared to July 2020, there was a decrease in overall retail sales by 2.5 pp.
Since the re-opening of shopping centres on 4 May, a systematic decline in the share of online sales has been noted. In August, it amounted to 6.1%, while a month earlier it was 6.5% and in April 11.9%. Before the pandemic the share of online sales was within 5-6%.
In the current market conditions developers and investors active in the industrial sector require a larger share of pre-lets and are more cautious when verifying the financial standing of potential tenants. However, we expect still positive results in H2 2020 as both demand and construction activity remain strong.
According to Central Statistical Office, in August 2020 sold production of industry was 1.5% higher than in August 2019. An increase was reported in 21 (out of 34) industry divisions. Poland's unemployment remained flat at 6.1% m/m in August 2020 and 0.9 pp. higher than in August 2019.
The preliminary figures for Q3 2020 for the office sector will be available in the next two-three weeks and will show how tenants reacted on softening of lockdown restrictions in May 2020. Nevertheless, the economic slowdown was visible on the Polish office market in Q2 2020 as the gross take-up went down by approx. 5%.
The children's return to school in the first week of September positively affected footfall figures in shopping centres, which on average amounted to 96% of the last years’ volumes. Retail sales values for August are not yet available, however further increase in retail sales is expected.
The temporary economic slowdown is also visible on the Polish office market and reflected in a gross take-up reduction of 17% in H1 2020. However, the strong rebound of market activity is expected along with the gradual improvement of the economy in the remaining period of 2020 and especially 2021 where the GDP growth is expected at a level of 5.7%.
The third quarter of 2020 is marked by strong warehouse market activity and developers continue to secure attractive plots for future investments. However, the estimated take-up volume for Q3 2020 is not yet available and we do not know yet to what extent the companies have verified their needs for the warehouse base in relation to consequences of COVID-19.
The latest available turnover data for shopping centres (by Retail Institute; data from 140 shopping centres) shows that sales increased by 26.4% in June 2020 compared to May 2020, remaining, however 14.9% lower compared to June 2019. Growth of turnover was recorded in all categories, especially in ‘fashion’ category (+43.8% in June 2020, month-to-month).
According to the Main Statistical Office, total retail sales in July 2020 were higher by 3.0% year on year, whereas in June 2020, a -1.3% decrease in retail sales was recorded.
Since the reopening of shopping centres in May, a systematic decline in the share of online sales has been noted. In July it amounted to 6.5%, while a month earlier it was 7.7%, and before the pandemic it was within 5-6%.
According to the Polish Statistical Office, the GDP growth in Q2 2020 in Poland decreased by 8.2 pp. in comparison to corresponding period of 2019. Despite a relatively large decrease in GDP growth, Poland is among those European countries with the lowest drop, making a good forecast for future quarters. Nevertheless, a rising number of confirmed cases and uncertainty related to the impact of COVID-19 on the economy caused some tenants to temporarily suspend decisions on ongoing lease negotiations. However, total leasing activity in the first half of the year amounted to 334,800 sq m and was 17% lower than in the corresponding period of 2019.
Compared to May 2020, an increase in sold production (in constant prices) in June 2020 was recorded in 29 industry divisions (out of 34), among others, in manufacture of motor vehicles, trailers and semi-trailers – by 80.5%, manufacture of leather and related products – by 37.2%, manufacture of furniture – by 33.4%, manufacture of machinery and equipment – by 22.0%, manufacture of pharmaceutical products – by 20.0%, manufacture of rubber and plastic products – by 15.7%, manufacture of computer, electronic and optical products – by 13.2%. A decrease in sold production of industry, as compared to May 2020, was recorded in 5 divisions, among others, in manufacture of coke and refined petroleum products – by 6.5%, in electricity, gas steam and air conditioning supply – by 5.8%.
Since the re-opening of shopping centres in May, a systematic decline in the share of online sales has been noted. In June it amounted to 7.7%, while a month earlier it was 9.1%, and before the pandemic it was within 5-6%. The decrease was shown, among others, by companies classified in the group of ‘textiles, clothing, footwear’ (from 26.8% in May to 19.5% in June), as well as entities from the group ‘press, books, other sales in specialized stores’ (from 25.2% to 21.8%) and ‘furniture, radio, household appliances’ (from 15.6% to 14.1%).
Total retail sales in June 2020 were lower by 1.3% year on year (compared to an increase by 3.7% in June 2019). However, compared to May 2020, there was an increase in overall retail sales by 8.4%.
Footfall in shopping centres has been systematically growing since May 4 (when shopping centres re-opened), and in the week July 20-26, it reached 79-88% of last year's volume. Slightly (several percent points) higher figures are noticed in small and medium-sized shopping centers when compared to large and very large schemes.
The deteriorating economic situation has already led to a growth in the vacancy rate in Warsaw in Q2 2020. It increased by 0.4 pp. in comparison to Q1 2020 and reached 7.9%. The highest increase of vacant space was recorded in office zones such as Mokotów, East and City Centre. Interestingly estimates suggests, in Q2 2020, nearly 50,000 sq m of leased office space in Warsaw was offered for sublease, which is not considered in the statistics of the vacant space. The lockdown and general uncertainty related to the impact of COVID-19 on the economy caused some tenants to temporarily suspend decisions on ongoing lease negotiations. Nevertheless, total leasing activity in the first half of the year amounted to 334,800 sq m and was 17% lower than in the corresponding period of 2019. Moreover, most of the transactions concluded in the first half of the year are still processes which started long before the outbreak of the pandemic.
The Polish warehouse market continues to develop dynamically as both demand and supply remained high in Q2. Total take-up accounted to 1.3 million sq m and almost 2.3 million sq m transacted since the beginning of 2020 (+26% y/y). These statistics would indicate record demand levels in non-pandemic market conditions. However, some extra attention should be given as part of the demand was generated by lease transactions or extensions that included preferential conditions offered to tenants in connection with COVID-19. In the second quarter developers completed 600,000 sq m and over 1 million sq m since January 2020. In June approximately 1.9 million sq m of industrial space was under construction, which demonstrates high development activity, although slightly weaker compared to the corresponding period of the previous year when we saw more than 2.2 million sq m.
The e-commerce sector remains the key driver of the market. During the COVID-19 crisis, we observed its accelerated growth, as evidenced by the two-digit share of online sales in total retail turnover. At present, however, this indicator is gradually returning to the levels recorded before the pandemic although its organic long-term growth will benefit the logistics sector and ultimately the entire warehouse sector in Poland, which successfully operates both domestic and cross-border distribution.
Within the last weeks shopping centre footfall has stabilised and in week 6-12 July it ranged at the level of 78-83% comparing to the same period last year (PRCH). First turnover data for May (PRCH) show that the average turnover value was lower by 33% year on year in large shopping centres (over 40,000 sq m GLA) and lower by 26% in smaller schemes (below 40,000 sqm GLA). The highest decline, up to 97% was noted in the entertainment category, which was mostly closed in May. Average turnover in the service category dropped by 86%, while in food & beverage by 60% compared to the previous year. Smaller declines were recorded in health and beauty (by 32% year on year) and grocery (by 14% year on year). The household category recorded a 3% increase in turnover in May compared to the last year.
The warehouse market in Poland remains in good condition, as tenants' activity is still strong. According to preliminary demand estimates, approximately 1.3 million sq m of warehouse space was leased in the second quarter of 2020, a result which if finally confirmed will be the second highest take-up result recorded (in a quarter) in the Polish warehouse market. The largest transaction was signed by an e-commerce company for 200,000 sq m as part of the planned BTS investment in Świebodzin located in the western part of Poland. Developers’ activity is still robust, but we are currently observing a narrowing of speculative investments which in turn will leave the overall vacancy rate and rents levels stable in H2 2020.
Total leasing activity in Q2 2020 in Warsaw exceeded 190,600 sq m which represents a drop by 26% in comparison to Q2 2019 and an increase by 41% in comparison to Q1 2020. The largest transactions conducted on the Warsaw office market in Q2 included pre-let agreement signed by PZU in Generation Park Y (46,500 sq m), new lease signed by DSV in DSV HQ (20,035 sq m) and renewal of lease agreement by Poczta Polska (19,010 sq m) in Domaniewska Office Hub. Total office stock in Warsaw in Q2 2020 stood at 5.69 million sq m and increased by 100,100 sq m in four office buildings. Despite nearly full commercialisation of projects completed in Q2, the vacancy rate in Warsaw in Q2 increased by 0.4 pp. to 7.9%.
Shopping centre footfall is systematically improving. Eight weeks after reopening average footfall ranged from 77% to 81% comparing to the same period last year (PRCH). Most of the customers have got used to the sanitary regime and feel safe in shopping centres. Renegotiations between tenants and landlords are underway, and most of the tenants have already signed new lease contracts. There are, however, retailers which have terminated their lease agreements. Vacated units in prime shopping centres might be tempting for retailers that have not had an opportunity to build their presence in attractive locations so far.
The preliminary take-up figures in Q2 remained positive and exceed the amount of space leased in Q1. We registered the largest transaction on the Warsaw office market in Q2, PZU - the largest insurance company in Poland decided to lease approx. 47,000 sq m in Generation Park Y developed by Skanska. Despite temporary delay of some office projects due to coronavirus pandemic, the preliminary supply data for Q2 shows completion of 4 office buildings with total office area of 122,000 sq m.
The warehouse market in Poland remains in good condition due to further growth of the e-commerce sector, gradual return to normal activity of manufacturing companies and further shift of investment activity towards the logistics sector. Developers’ activity remains strong; however, we expect a lower number of speculative developments due to increased market risk and recent changes in terms of banking financing conditions reflecting required pre-let ratio which has increased from 30% to 40% and the LTC ratio decreased from 70-75% to 60% of total development costs. Despite the increase in restrictive policy, banks are still able to provide financing for developments without prelease or with low prelease against corporate guarantee of a reputable sponsor.
The reopening of shopping centres significantly influenced the May results of e-commerce in Poland. According to the Main Statistical Office the share of e-commerce in retail sales decreased by 12.7% in comparison to the previous month and amounted to 9.1% in May 2020 (comparing to 11.9% in April 2020). In the sixth week after the reopening of shopping centres (June 8-14), average footfall ranged from 65% to 95% comparing to the same period last year (PRCH). Most of the customers (81%) feel safe in shopping centres (according to the survey by PRCH and Inquiry).
It’s the fourth week since most of the lockdown restrictions were lifted and the epidemic situation in Poland is still improving. Most office workers still work from home as the number of desks in offices has been decreased to meet social distancing rules.
Nevertheless, we are observing a growing number of companies which have already opened their offices and even decided to increase the number of desks available for employees from the minimal number to a level which still allows them to keep 2 metres distance between workstations.
It is the third week since most of the lockdown restrictions were lifted and the epidemic situation in Poland continues to improve. Most office workers are still working from home as the number of desks in offices has been decreased to meet social distancing rules. Nevertheless, we see more and more companies deciding to reopen their offices and provide a limited number of workstations for employees use.
With shopping centre restrictions successively lifted since early May, the Polish retail market is now entering a phase of a gradual return to a new reality. The average daily footfall in shopping centres in the fifth week after reopening (1-7 June) amounted to 77% of the footfall recorded in the same period last year (PRCH). Slightly better results were noted in smaller and medium-sized schemes, on average by several percentage points higher than the results of large and very large shopping centres. The conversion rate has improved in small and medium-sized cities, which may indicate that customers go to shopping centres for a specific purpose and plan purchases in advance.
The warehouse sector is going through the COVID-19 crisis in a relatively good condition, supported by the strengthened development of e-commerce as its share in retail sales increased to 11.9% in April compared to 5.6% noted in February 2020. The most affected sectors such as light manufacturing, automotive, furniture and machine production hit from closures and supply chain disruptions are gradually recovering, but at a later stage their scale will largely depend on changes in demand in foreign markets, especially in CEE region and western Europe. We expect the speculative supply to decrease due to the current market uncertainty, however in some locations it will still be continued (on a smaller scale). Developers will consider more carefully whether they implement new projects and the need to commercialise their investments that are, at least partly, in progress.
It is the second week after most lockdown restrictions were lifted and the epidemic situation in Poland is continues to improve. We are observing an increasing trend of reopening offices by tenants. Office premises have now adjusted to the new reality and social distancing rules. From the demand side, we have registered signing of lease transactions during the lockdown. However, the total leasing activity for the last 3 months will be only be visible at the end of the second quarter.
The average footfall in shopping centres has been on a steady growth trajectory since the reopening, with small and medium-sized shopping centres reporting higher footfall numbers. In the fourth week after reopening (25-31 May 2020), the average footfall accounted for 68-93% of the footfall recorded in the same period last year (PRCH). The share of e-commerce in retail sales increased from 5.6% in February to 11.9% in April.
The warehouse sector stays in relatively good shape as it goes through COVID-19 crisis, supported by the growth of the e-commerce sector. The manufacturing sector is experiencing major problems with a record decline in output recorded during April (-24.6% y/y). The most affected sectors are cars, furniture and machine production, hit from closures and supply chain disruptions. Despite a strong decline in industrial activity, it is expected to rebound dynamically in Q3 2020 and increase by 4.6% next year.
According to the data gathered by PRCH the footfall in shopping centres in the third week after reopening continuously grows and ranges on average between 73% to 79% y/y. The figures reflect reopening of food & beverage as well as hairdressers and beauty salons, which took place on 18 May. On 30 May limitations on the number of people in stores was lifted; the opening of cinemas and fitness centres has been announced for 6 June.
Due to the current situation, over the last 2 months some tenants have adopted a ‘wait and see’ approach and have postponed decisions regarding their office premises. This will affect the demand side of the market which will be visible in the data in the months ahead. Nevertheless, as the epidemic situation in Poland improves, the signals from the market are more and more positive and we can expect transactions to resume in the near future.
The warehouse market seems to be relatively stable, likely to further improve. Although the first half of 2020 is still ongoing and the overall change in demand is not yet known, a further easing of economic activity will benefit the market. The most affected sectors, such as automotive, furniture and machinery, which had been holding back new projects, are gradually returning to negotiations, with a stronger rebound expected in the third quarter.
In the second week after the reopening of shopping centres, the average footfall figures remained at 60-68% y/y (according to the data gathered by Polish Council of Shopping Centres). Compared to the first week after reopening the number of visitors on Saturday was 10% higher and amounted to 60%. The next update will show footfall figures after food & beverage as well as hairdressers and beauty salons reopened on 18 May.
The reduction in physical retail sector caused by COVID-19, has accelerated online sales, which has had a positive effect on demand for logistics space. On the other hand, there are companies and industries more exposed to the negative effects such as manufacturing or automotive, hence some tenants are holding back their investment decisions and focusing on current processes. The future of the industrial market will depend to a large extent on how quickly the domestic and international economy will return to normal.
As the epidemic situation in Poland is improving, building owners and office tenants are continuing to adapt office spaces and common areas to the principles of social distancing which improve H&S conditions in the workplace. This includes preventive measures such as special signage showing recommended flow and distancing between employees, additional use of disinfectants or touchless access to gates, doors and elevators.
According to data gathered by the Polish Shopping Centre Council, the daily footfall level in 90 shopping centres from all over Poland in the first week after reopening ranged from 53% to 68% compared to the same period of 2019. Small and medium-sized shopping centres recorded an average of 72% of footfall, while large and very large centres recorded 63% year on year. Very positive data from Credit Agricole and PKO BP Research (credit cards and Blik payments) shows that their customers spent in retail schemes the same as, or more than, before COVID-19 restrictions, which indicates a high conversion rate (turnover to footfall).
The improving epidemic situation in Poland allows for a gradual return of employees to offices. On 18 May, Cushman & Wakefield reopened all offices in Poland, including its headquarters in Warsaw and subsidiary offices in regional cities. Cushman & Wakefield offices have been adapted to the Six Feet Office guidelines, which ensures compliance with the principles of social distancing for all users of the office space.
The e-commerce sector growth is influencing the development of last mile delivery facilities. It is also generating additional demand for warehouse space especially from the food sector, FMCG and related logistics operators. On the other hand, the decline in industrial activity, including the automotive sector, may be a negatively influence on market development in the coming months. The next stages of loosening the restrictions on economic activity in Poland bring optimism, although the situation in the industrial market is still very dynamic.
As the pandemic situation in Poland gradually improves, we observe further easement of regulations such as reopening of shopping centres and hotels.
Shopping centres have been able to open since 4 May with strict hygiene rules in place. Early figures from the first day of reopening (mobile data, Placeme) show footfall down by ca. 50% in larger cities. In smaller cities the situation looks more positive where declines were limited to around 20% compared to the pre-pandemic period. Most of the tenants decided to reopen their stores in shopping centres, however some retailers terminated their lease contracts.
Although work from home is still the dominant style of work in most companies, more and more occupiers are deciding to reopen their offices. Maintaining a safe distance between employees and providing mandatory safety equipment are the key measures to provide a maximum level of security to employees.
Despite challenges related to ensuring safety of employees, the warehouse sector in Poland is doing quite well. Tenant activity remains stable, largely powered by the accelerated growth in e-commerce sales. Some companies have seen their business hit hard by the current situation and have asked landlords for some temporary support in the form of reduced or deferred payments. Such requests are carefully reviewed by landlords on a case-by-case basis. Support is temporary and involves postponement of payments or lease extensions.
Restrictions on shopping centres, contrary to earlier announcements, are lifted not in the third but as early as in the second stage of defrosting the economy, i.e. on 4 May. Stores in shopping malls can reopen under a strict sanitary regime. Cinemas, gyms and fitness clubs as well as beauty salons are still closed. Restaurants are only allowed to offer delivery or take-away meals.
There is still a big question mark over the process of reopening shopping malls. Managers and owners need to quickly implement many security measures related to providing customers with safe shopping conditions. On the other hand, it is difficult to predict how customers will behave in this new reality, and whether they will, if at all, quickly return to their old shopping habits. Examples from other countries show that the process will be rather slow.
Key market indicators for the office sector as of Q1 2020 are positive which proves strong market fundamentals. Together with the general softening of restrictions introduced by the Polish Government, we firstly observe that tenants are making the decision to re-open their offices.
Despite very positive first quarter results for the industrial market in Poland, the current COVID-19 situation remains difficult for both tenants and property owners. In some sectors like manufacturing, tenants are struggling with enormous business difficulties and trying to keep afloat. Some companies are growing and developing at a much faster pace than ever before, largely powered by the accelerated growth in e-commerce sales.
According to the Central Statistical Office, retail sales in March 2020 were 9% lower than last year and at the same time by 3.3% lower than in February this year. On the other hand, e-commerce increased - in March the share of online sales increased to 8.1% compared to 5.6% in February. Retail sales in April may decrease further, however, in the long run, much will depend on consumer sentiment and the pace of defrosting the economy.
As expected, Q1 2020 ended with positive results for the industrial market in Poland. Total leasing activity amounted to 960,000 sq m, which is almost the same as in Q1 2019 and vacancy rate remained at a low level of 7%. Although the COVID-19 pandemic negatively impacts investment decisions for some occupiers, especially in automotive and manufacturing sectors, the demand for large BIG-BOX warehouse units and urban logistics space should remain relatively unchanged in the medium term, due to growing volume of e-commerce.
The current situation has had a relatively limited impact on the key office market metrics in Q1 2020 - total take-up amounted to almost 350,000 sq m, representing a 33.5% increase year-on-year and the vacancy rates are at a low level. Office buildings in Poland remain open and there is no legislation limiting construction works in Poland. However, a supply gap in 2022-2023 may emerge from planned projects being put on hold, possible construction delays resulting from protracted administrative procedures (among other issues) and limited labour availability.
Since 20 April, the first stage of easing of restrictions on public life has taken place. All shops allowed to operate and which are up to 100 sq m can serve four customers per till, while larger stores can have one customer per 15 sq m.
The second phase foresees the opening of DIY stores at weekends, as well as hotels and other accommodation places. The third phase will include the opening of stores in shopping centres, F&B outlets, beauty and hair salons, while the fourth phase will see the opening of gyms, fitness clubs, massage salons and solaria, cinemas and theatres. The dates for moving forward to the next phases have not been given yet and will depend on the spread of the coronavirus.
The COVID-19 pandemic will accelerate the development of e-commerce in Poland. Many retailers have introduced online stores, social media selling and promotions. Shopping centre landlords and managers have started to work on health and safety improvements, which will be necessary after their reopening.
Q1 2020 on the warehouse market ended with good results, however, there are already the first signs of a decrease in activity. Whereas tenants associated with the e-commerce industry are experiencing short-term growth, many other industries are already starting to feel the overall slowdown.
Key statistics for the office market in Poland in Q1 2020 are positive, both on the supply and demand side. However, the ongoing activity of occupiers is slowing down, as many companies adopt the wait and see strategy and put on hold their relocation / expansion decisions.
According to the latest information, the Polish Government is already planning to loosen some of the restrictions in order to stimulate economic activity, however, no details have been released yet.
As for now, all previously implemented restrictions regarding shopping malls have been maintained and extended until 19 April. Retail is one of the most pandemic-affected sectors of the economy, however, it will be one of the first to stimulate the economic recovery once the restrictions are lifted.
Key statistics for the Warsaw office market in Q1 2020 are positive as the total leasing activity reached a similar level as in the first quarter of 2020, which resulted in a further decrease of vacancy rate. However, the ongoing activity on the office market is affected by the COVID-19 pandemic as a large proportion of tenants are in the wait and see position and some of them have already put their decisions on hold.
Data coming from the warehouse market confirms that Q1 2020 will end with good results from the demand and supply side. However, the first half of April has already seen signs of a decrease in activity. Tenants associated with the e-commerce industry are experiencing short-term increases, but many other industries are already beginning to feel the general slowdown. Some tenants are already negotiating the possibility of rent reductions.
The first data summarising the Q1 2020 on the office market in Poland is relatively positive as most of transactions planned for Q1 were closed on schedule.
Nonetheless, there is a certain level of uncertainty regarding tenant activity in the next quarter due to the ongoing COVID-19 pandemic. According to GFK survey, approx. 49% respondents which are office-based employees in Poland currently work remotely. This situation is affecting the ongoing transactions processes because of availability of clients, difficulties in conducting viewings or negotiating lease agreements.
Shopping centre landlords, tenants and the entire retail sector are suffering major losses due to the COVID-19 pandemic. The changes in retail will depend on the length of the pandemic and national lockdown. As customers avoid stores and crowded public places, retailers that are able to fulfill online orders through home delivery are doing better than those that cannot.
Overall, the warehouse market remains relatively stable. At present, the adjustment processes dominate - securing the health of employees and adjusting the level of inventories in order to secure the liquidity of supplies, especially in terms of essential products.
We expect take-up numbers in Q1 2020 to remain positive as the result of high tenant activity in the period preceding the outbreak in Poland.
However, further effects of COVID-19 are difficult to predict in the medium term as Poland is in the early stages of the pandemic.
Since 14 March all shopping centre operations have been limited to stores only selling essentials or providing essential services, including grocery stores, pharmacies and launderettes.
On 25 March Poland went into full lockdown with the public banned from leaving homes except for essential reasons. Restaurants are only allowed to offer delivery or take-away meals. Standalone DIY markets remain open. The Polish Government adopted the assumptions of an ‘anti-crisis shield’ according to which lease agreements in shopping centres should be suspended for stores that are not allowed to operate. Both tenants and landlords are taking the initiative to incorporate the interests of both parties in the new regulations.
We are currently observing adaptation processes in the warehouse market in Poland, especially visible on the demand side, as the development processes started last year are still ongoing.
Companies from the e-commerce, food, FMCG, pharmaceutical, hygiene or cleaning products sectors are looking for solutions to meet the sudden increase in consumer demand. Tenants are increasingly interested in short-term leases, due, in part, to the bullwhip effect thanks to recent consumer stockpiling.
In the first quarter of 2020, tenant activity in the Polish office market was at a relatively stable level. Nonetheless, since mid-March approximately 5-10% of transactions are on hold due to general uncertainty caused by COVID-19. Currently there is no legislation limiting construction works in Poland and most of the office construction sites continue.
Total investment volume recorded by end of March 2020 in Poland exceeded €1.1 billion and it has been mostly driven by the industrial sector (€800 million). We can observe that deals in advanced stages are still pushing ahead and closing, however most investors have taken a ‘wait-and-see’ position. We expect further slowdown of investor activity as we come into Q2.
Credit activity has partially slowed down. Banks are taking a different approach to financing specific sectors, with most optimism directed at logistics property.