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GDP growth - 2014 (E) = 3.3%, 2015 (E) = 3.5%. Household consumption improving due to low oil prices, strong wage growth and improved employment prospects. Impact of c700,000 Polish mortgages denominated in CHF expected to be contained.

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Confidence - manufacturing PMI (Jan-2015) = 55.2 – rising again.

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Inflation - CPI -0.9% YoY (Dec), negative since Jul-2014.

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Interest Rates - 2% since Oct-2014, lowest on record, but further cuts expected.

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FX - at mid-point of recent (since 2010) range of PLN 4.3/ €1 - PLN 4.1/ €1. Expected to strengthen vs €.

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Euro Malaise - Poland should benefit indirectly from Eurozone QE. Is still not expected to adopt Euro until after 2020.

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Politics - General Election in Oct-2015. Result forecast to be another centrist coalition.

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COMMERCIAL PROPERTY: 

Transactions in 2014 - c€3.2bn (2013: €3.4bn). Foreigners (mainly German, UK and US) once again accounted for c90% of volume.

OFFICES:

Occupational market - total take-up exceeded 1 million m² in 2014 with 445,000 m² leased outside Warsaw. Vacancy rates from 6% in Krakow to 16% in Szczecin. Warsaw = 13% (and rising).

Investment market - prime yields unchanged at c6% in Warsaw and 6.5% in regional cities.

Supply - expanded by 600,000 m² in 2014, forecast to expand by >700,000 m² in 2015. Total supply = 6.8 million m² of which >4 million m² is in Warsaw.

RETAIL:

Occupational market - rents stable to falling. >20 new international retailers entered Poland in 2014.

Investment market - prime yields = c5.9% for shopping centres, c7.5% for retail warehouses. Demand spreading out from Warsaw to smaller assets in regional cities.

Supply - 41 new retail schemes under construction plus 8 shopping centre extensions, amounting to 770,000m². Total retail space in Poland = 12.4 million m² of which shopping centres account for 8.8 million m² (up from 3.8 million m² in 2004). Shopping centre density increased in 2014 to 229m²/ 1,000 residents, forecast to increase to 248m²/ 1,000 residents in 2015. Western European average = 260m²/ 1,000 residents.

INDUSTRIAL:

Occupational market - record take-up in 2014 - >2.5 million m² leases signed, 71% of which for new deals, 29% for renewals. Vacancy rate reduced by 5% over 2014 to end at 5.5%.

Investment market - prime yields tightened to c7%.

Supply - 1 million m² of new space delivered in 2014 (2013: 400,000m²). Total supply of modern industrial space in Poland = c8.8 million m².

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Banks - well capitalised and willing to lend.

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GDP growth - 2014: +2.6% (E), slightly less than expected. 2015 (E) = +2.7%.

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Confidence Jan-2015 - manufacturing PMI = 53 (>50 since Apr-2013), construction PMI = 59.1, services PMI = 57.2. All up vs Dec-2014.

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Inflation - CPI fell to 0.5% yoy in Dec-2014, its lowest since May 2000. RPI fell to 1.6%.

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Interest Rates - 10-yr Gilts at new low of c1.5% p.a.

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COMMERCIAL PROPERTY (All UK Property):

Volume (2014): £65bn, surpassing 2006’s peak of £62bn and up 16% on 2013. But investors much less reliant on debt finance this time.

Rental value growth (2014): +2.7% (2013: +0.6%), led by Central London offices. Q4 +1.3%, highest since Q3 2007.

Capital value growth (2014): +12.9% (2013: +4.6%).

Total Return (2014): 19.7% (2013: 11.5%).

All Property average yield now at 5.6%.

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OFFICES:

Rental value growth (2014): +5.3% across UK and +8% in central London.

Capital value growth (2014): +16.5% across UK and +18.4% in central London.

Total Return (2014): 22.7%

Planning - awaiting result of govt consultation to determine whether relaxation of Permitted Development Rights (PDR) will be extended to 2019.

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RETAIL:

Rental value growth (2014): +0.5% across UK

Capital value growth (2014): +8.8% across UK

Total Return (2014): 15.4%

INDUSTRIAL:

Rental value growth (2014): +3% across UK

Capital value growth (2014): +17.8% across UK

Total Return (2014): 25.8%

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RESIDENTIAL:

House prices rose by 2% m/m in Jan, largest monthly gain since May-2014. Record low mortgage rates, rising real earnings and SDLT cuts from Autumn Statement expected to result in continued price rises.

Mortgages - approvals rose in Dec-2014, first rise since Jun-2014.

Help to Buy - >77,000 buyers aided by scheme so far, 41,533 via equity loan element (equity loan av £42k each, 94% outside London, 83% to first-time buyers).

First time buyers - 326,000 in 2014, highest since 2007, with average deposit of £29,218. New “Starter Home Initiative” (in consultation phase till mid Feb-2015) - whereby first-time buyers <40 yrs old to be offered 20% discount on 100,000 new homes to be built on under-used or unviable brownfield land. Planning costs and levies to be waived in return for a promise from housebuilders of such discounts. >30 house builders including Barratt, Persimmon, Taylor Wimpey have pledged their support, as well as several local councils.

Supply (housing starts, England) - forecast by RICS to rise in 2015 to c155,000 (2013: c125,000, 2012: c100,000) - encouraging trend but still insufficient to address the more rapid growth in population.

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Illiquid market.

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Potential ill effects of overly loose monetary policy - asset values inflated.

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General Election in May-2015.

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Interest rate rises (although timing becoming more distant).

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Global currency wars.

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Investment - targeting higher yielding commercial property to generate a minimum IRR & ROE of 15% p.a. (geared).

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Investment - targeting all property classes to generate a total return of 7% p.a. (ungeared);

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Development - targeting vacant/short lease office properties for conversion to residential use.

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Minimum 7.5%+ net initial yields;

 

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Cities with catchments of 50,000+;

 

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Fully or partially let with or without asset management angles;

 

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All sectors considered - focus on offices, retail and mixed-use;

 

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Lot sizes of €5m+ with no ceiling.

 

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2. Development Property:

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Offices & Office Parks - vacant/ short leases;

 

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UK wide but ideally Greater London/ the South;

 

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Any lot size.

 

Jeremy Barkes

Director, Business Development

 

+44(0) 20 7340 0270

Richard Digby

Analyst

 

http://www.fprop.com