Kamil Kowa, Member of the Board at Savills Poland talked to Property Forum about the rapid development of the Polish private rental sector, its attractiveness for investors and the current state of PBSA industry.
The private rental sector in Poland is at a very early stage of development, but for some analysts, Polish apartments for rent are already the main investment asset. Why?
We have a strong economy, an established commercial property sector and virtually no institutional PRS supply. Moreover, we have one of the highest housing deficits and most overcrowded apartments in the EU. As elsewhere in CEE, homeownership is high but most of the stock is dated and unattractive for many customers. So fundamentally, considering the limited supply of quality stock in major cities, new PRS projects are an attractive and cost-efficient alternative for multiple groups, from students and young professionals to families.
The PRS offer in Poland is still tailored mostly for young professionals – singles and couples with no kids. Do you think that the offer will expand for families in the foreseeable future?
I think so. Surging flat prices and growing interest rates make homeownership unaffordable for many families. In the last few months, average borrowing power fell by nearly a third, and with expected further interest rate hikes, it will likely halve. I think that more and more families will be looking for an attractive alternative in the PRS market.
Families are also attractive tenants for PRS investors as they reduce churn rates and make returns even more sustainable.
Foreign investment funds are lately blamed for inflating the prices in the residential market by buying large portfolios of residential properties and therefore reducing their market supply. What is your opinion on these claims?
It is a common perception but is far from reality. Unfortunately for the funds, the core business of selling the units to individuals has been so far too attractive for most residential developers to consider alternative channels. The price inflation came out from the undersupply and low interest rate environment which pushed many individual investors into the residential sector.
The share of institutional PRS in major cities is marginal and will be just over 1% in 2023, far too low to impact the prices. Moreover, many projects are built on commercial sites, so they are actually increasing the overall residential stock, as these units would not be sold to individuals anyway.
More and more „regular” residential developers like Develia or Ronson are announcing their entrance to the PRS sector. Why now? Can we expect a cooldown in the for-sale segment of the residential market?
For the first time in the last decade, the sales of new flats dropped in Q4 vs Q3. And this happened even before the interest hikes we have already seen in Q1 2022. So yes, I think that some developers will look for alternative sales channels. Some of them should consider partnering with residential funds as their company structures are not prepared for building their own rented platforms.
Private student apartments are something even newer on the Polish property market. Will it be „the next big thing” among the investors?
Actually, PBSA was established earlier in many cities than institutional PRS, with brands like Student Depot, Basecamp or LivinnX opening their schemes a few years ago. Because of the pandemic, some investors focused on their core markets and only recently started to look again at CEE. We expect more of them to come to Poland as the pandemic stabilizes.
Has the PBSA market in Poland recovered completely from the effects of pandemic shakedown?
Generally, the sector weathered this storm very well except for a few projects opened during the first waves of the pandemic and had to stabilize occupancy in these challenging conditions. But even these projects are now reaching full occupancy. Interestingly, PBSA is often described as counter-cyclical in nature. Still, probably very few investors expected to tackle a global health crisis rather than a “typical” economic downturn.
Poland is still waiting for the law allowing the creation of local REIT trusts. Do you think that such investment vehicles could compete with foreign players in the developing Polish PRS market?
Polish REITs would compete with foreign investors, and I do not understand why this is taking so long to pass this law. There is massive demand from individual investors for residential assets, which they perceive as a safe haven for their equity. They are forced to buy individual units as they do not have an instrument to invest in consolidated projects. It causes all sorts of challenges, from operating inefficiencies on the micro-level to ESG challenges on the macro-level. Residential REITs would help structure the market and improve the quality and efficiency of rented stock, thus maximizing shareholders’ value. Residential REITs could also be an essential part of our pension system as they provide regular income, capital appreciation and protect against inflation.
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