by Michał Poręcki | Office

Top Polish developers believe that in 2021 the real estate market will normalize and the vaccine will help it shake off the pandemic effects. They discussed investment markets trends at the online edition of Property Investment Forum 2020, organised by Portfolio in partnership with Property Forum.


The second wave of the COVID-19 pandemic has hit the Polish real estate market in October, emptying shopping centres and sending thousands of employees back to the home office system. It is much stronger than the first wave – in the beginning of November, more than 27,000 infections have been reported daily, while in spring, the record was a mere 600. However, the government firmly states that there won’t be another total lockdown and the economy will function without any breaks. Recently developed vaccines are to be distributed by the first weeks of February. Top Polish commercial and residential developers also see the upcoming months with a slight note of optimism.

„Despite the home office phenomena and lots of vacant office buildings, the whole segment is being resilient so far and the largest occupants are still maintaining their plans for locations, office occupancy and so forth. There is a strong desire to come back to the office, the home office system causes productivity to go down, remote communication and online meetings are not sustainable over long periods of time. As for the shape of development companies, we have not seen distress situations so far. Key players have learned a lesson from the previous crisis in 2008 and did not stretch valuations or LTV and kept sufficient liquidity for rainy days like these. So we haven`t seen cheap bargains and acquisition opportunities so far - investors are watching and waiting for the effects of the vaccine, hopefully in the middle of 2021”, says Yovav Carmi, CEO of developer and investor GTC.

It is cheaper to build

From the developer’s point of view, one of the positive effects of the virus` second wave are shrinking construction costs. „We have seen that construction prices have gone down by 7 to 10 per cent. As for today, we contract a lot of work in the residential sector because the prices in it are very, very competitive”, says Nicklas Lindberg, CEO of Echo Investment. „Also, the złoty has weakened to the euro recently, so the production costs in Poland are going down as well. It really helps us out, as we are about to start some major developments. We have recently acquired the Tesco land portfolio – four large scale plots in Warsaw, Łódź, Kraków and Poznań - which we plan to develop into new residential destinations. If you look at the hotel business, there is also a lot of opportunities, although difficult ones. Hotel properties can be converted into rental apartments. We are very interested in this sector with our Resi4Rent platform - by 2025, we want to deliver 10,000 apartments for rent per year. I believe that 2021 will be very challenging, but with the vaccine, comfort will come back to the market. A lot of construction permits were issued in 2020 and they will be used in 2021”, adds Lindberg.

Offices will have to undergo major changes

One of the main concerns in Western office markets is that demand for office space will fall down and 10-15% of the workforce will be working from home in the long term. How will developers manage new and already existing office projects? Will they reduce the worker density, make more breakout areas and social spaces? It seems that the home office system, which has become quite liked by office employees in Poland, will have to stay with us indefinitely, at least partially.

„People will probably be allowed to work at home for a day or two a week. But as I said before, the productivity is much lower in the home office system, many people have no proper Internet connection at home and working from a kitchen table is only good for a while. I agree that we will have to make more social areas, but I don`t fear of the shrinking demand”, says Yovav Carmi. „Large international tenants tell us that they do need to lower costs and one way is to lay off employees in the branches in the United States, UK or France and to move the activity to this part of Europe. The workforce in Poland is still cheap. The country is well-connected, education is on a very good level, as is fluency in English. Prague, Budapest or Warsaw are modern cities, very appealing to the young people at the age of 25-30. We have seen this phenomenon before COVID, but now it will be even more accelerated. Laying off in Western Europe doesn`t mean layoffs in Eastern Europe”, adds Carmi.

Nicklas Lindberg of Echo Investment is of the similar opinion: „In Polish offices, there was about 6 sqm of space per person, I think now we will need to make it 10 sqm per person like in Western Europe. As for the home office, I believe that people will be allowed to work from home, but have to be in the office three or four days a week. There will be a need for more social, integration areas and more flexibility. Our coworking business will flourish – we see the tenants take less permanent space, and more and more often they demand flexibility that goes with the coworking. A lot of companies interested in our offices simply require to have a coworking space of 2,000 sqm or bigger in their building”.

Hiccup, not a collapse

Polish developers agree that the second wave of the pandemic will not cause any major crisis on the local real estate market. „It is just a slowdown”, says Michał Melaniuk, Head of Residential Development Poland at Cordia Group. „Pandemic is causing not only problems but also creates opportunities. Even if it is not an investment opportunity or a completely new project, maybe it is just a time to revise your strategy, to add some new talent to your team or improve your know-how. It is just a temporary pause”, adds Melaniuk. His opinion is shared by Yovav Carmi of GTC: „A hiccup, not a collapse. Some trends have emerged and some have been accelerated by COVID, like e-commerce and logistics development. We have to adapt our business to these trends - for example, in our shopping centers we need to change the tenant mix, as we have noted that retail locations in residential districts are recovering faster than those located in central districts. I agree that many things will change: there will be fewer business flights and more Zoom calls because it is cheaper. Allowing people to work from home will have to be accounted for. But I believe we are involved in a sector that will make good business in the near future”.