Macroeconomic situation

Due to the coronavirus outbreak and the full domestic lockdown introduced by the Polish government in March, Poland’s economy is expected to enter into recession in Q2 2020 for the first time in its history. According to Oxford Economics, consumer spending is likely to fall, but it will rather be deferred than lost completely, and the labour market will suffer despite efforts to cushion the negative effects. Also, although no lockdown was imposed in the manufacturing sector, industrial output fell sharply.

According to Oxford Economics, with containment measures gradually lifted from early May, economic activity is expected to rebound in H2 2020 and in 2021.

Office market

In Poland, there is no legislation placing office buildings into lockdown in response to pandemic risks. Nevertheless, social distancing rules have considerably reduced the number of workstations available for use and companies recommended remote work to all or a substantial proportion of their employees. According to a survey by Cushman & Wakefield and Antal, only 21% of respondents worked in the office during the pandemic. As the epidemiological situation was gradually improving across Poland, returns to offices got underway with organisations having to adapt office space to new standards and to ensure employee safety.

Some office tenants have adopted a wait-and-see approach and put their lease decisions on hold in the last two months. This will undoubtedly impact take-up statistics for this quarter and the coming months. However, market indications are increasingly positive and some transactional processes are expected to resume in the near future. Completion of some office projects underway is being delayed due to protracted administrative procedures, construction labour shortages and potential disruptions to supply chains. In the long term, the current situation will lead developers to postpone their decisions to commence projects planned for 2022-2023, which may result in a supply gap in these years.

According to Cushman & Wakefield, approximately 50% of the total global office workforce will probably follow various flexible working practices and office space will shift from the traditional office in a single location to a hybrid model combining typical office space, flexible spaces and remote work in varied proportions. Office downsizing will not be possible - even despite fewer people being permitted in the office at any one time - due to the need to maintain social distancing.

“COVID-19 and the lockdown have had a major impact on the commercial real estate market. In the office sector, this naturally meant testing the remote work model on an unprecedented scale. Some organisations performed better than others, depending on their technological readiness, but regardless of test results, the test itself provoked many discussions about the future of offices and the work environment. Leaders of the largest organisations and employers agree that the transformation of the work environment into a more flexible and hybrid model combining remote and office work will most likely accelerate, with a reduction in office workstations while maintaining social distancing – both balancing out office space requirements. Uncertainties still exist on the market alongside some extreme views. But we are certain about one thing - COVID-19 will significantly accelerate the ongoing transformation of the work environment in the direction of flexibility and mobility and hybrid models combining various work models. We also anticipate that some trends and preferences will change, with more focus for example on decreasing rather than increasing office density, decentralization and building dispersed ecosystems of offices as comfortable meeting and teamwork places. There is no doubt that many organisations will continue to hastily modify and revise their strategies in the coming months,” says Paulina Misiak, Partner, Head of Tenant Representation, Cushman & Wakefield.

Retail market

As shopping centre restrictions were lifted during the second, not the third, stage of the economy reopening, retail schemes had to prepare for the reopening at short notice while ensuring adherence to all customer safety rules. It was a huge challenge that increased the operating costs of retail schemes.

Despite previous speculations about the demise of shopping centres, a vast majority of tenants (90% on average) reopened their stores. In addition, 81% of respondents of a survey “Polish People Return To Stores After The Epidemic” conducted by the Polish Council of Shopping Centres (PRCH) and Inquiry said they felt safe in shopping centres. The average footfall has been on a steady growth trajectory since the reopening of shopping centres, with small and medium-sized shopping centres reporting higher footfall numbers. In the fifth week (1-7 June 2020), the average footfall accounted for 72-99% of the footfall recorded in the same period last year (PRCH).

According to Cushman & Wakefield’s experts, format changes and restructuring of store chains are to be expected. New technologies and touchless customer service will gain in importance across shopping centres, and e-commerce will complement brick and mortar retail, particularly in fashion and accessories. Vacancy rates are likely to rise, leading to lower rental income amid rising operating costs of shopping centres due to additional safety measures. The entertainment industry which has remained in lockdown the longest is set to suffer the biggest losses. The firm’s experts anticipate that marketing will be stepped up to stimulate consumer demand and that shopping centres will serve an increasingly important social function.

“It has been clear since day one of the lockdown that the retail market will transform and look different in the post-pandemic world. Changes will affect both tenants and landlords. As much as a third of tenants are likely to withdraw from the market to a varying extent or change distribution channels or formats, thereby vacating space in shopping centres. Many will be vacating prime locations across shopping centres and a period of bargain hunting is likely to follow. Tenants who have not entered the market so far will now have an opportunity to build a presence in attractive locations. They will include discount concepts that were not hit too hard by the pandemic,” says Beata Kokeli, Partner, Head of Retail Agency, Cushman & Wakefield.

Warehouse market 

The warehouse market is relatively resilient to the pandemic crisis and is being supported largely by the growth of e-commerce driven further in the early weeks of the pandemic by restrictions in the retail sector and the shift of some shopping activity to online channels. E-commerce sales currently amount to PLN 50 billion and are likely to double by the end of 2020, reveals Unity Group.

The rapid growth of e-commerce is driving demand for warehouse space and transforming the market. Due to the growing expectations as regards delivery times and post-sale services, the logistics network is expanding to include projects developed close to end consumers, in large cities or in their immediate vicinity (for example, near city ring-roads). There has also been a rapid growth in such concepts as Small Business Units, City Logistics or City Flex, which fits in with the trend of last mile logistics growth on such markets as Warsaw, Łódź, Wrocław, and Tricity. Developers are also delivering BTS (build-to-suit) facilities tailored to individual requirements of tenants, including cross-dock spaces that are popular with courier and logistics companies. Meanwhile, larger regional logistics centres and central warehouses being the first distribution link of supply chains will be increasingly equipped with modern automatic systems to ensure fast order picking and reduce headcount.

According to Cushman & Wakefield’s experts, it is too early to predict the ultimate consequences of the coronavirus pandemic on the industrial sector. Some companies and industries that are struggling with serious problems are likely to reduce their demand for warehouse space in the near future. On the other hand, the lost demand will be considerably offset by the growing activity of e-commerce and logistics.

The gradual easing of restrictions and an outlook for a return to economic growth in 2021 are positive indications. In addition, Poland is likely to benefit as a manufacturing location in the medium and long term. The current crisis may push manufacturers, among other things, to reduce the risk of having a location put under lockdown, to diversify locations and to hold more inventory in European countries.

“Regardless of the rapid developments taking place in recent months, Poland is expected to continue to cement its position as a link of the global supply chain in the long term. The industrial market’s growth will continue to be driven largely by the quick expansion of e-commerce, which has gained in importance further in the current unprecedented crisis,” says Joanna Sinkiewicz, Partner, Head of Industrial & Logistics, Cushman & Wakefield.

Investment market

As expected by Cushman & Wakefield’s experts, in April and May 2020 the market witnessed a limited number of transactions compared to the Q1 volumes, which were almost unaffected by the pandemic. Transactions closed in the second quarter were predominantly for offices and industrial assets and were commenced in the pre-pandemic environment.

Logistics properties remain the least affected asset class continuously enjoying strong investor appetite and purchase offers are being submitted despite the pandemic. Opportunities are being thoroughly analysed in respect of tenant covenants, COVID-19’s impact on particular industries, payment performance and physical presence in the premises. Retail and hotel assets are attracting weak investor interest and alternative asset classes (such as Private Rented Sector (PRS), student houses and senior houses) remain marginal in Poland despite a positive outlook.

“We expect diminished investment volumes in Q2 and Q3 based on the continued “wait-and-see” approach of a large proportion of investors, transactions prolonging, travel restrictions and lack of consensus regarding post-COVID-19 pricing. Due to the dependence on overseas investors who have historically accounted for over 90% of volumes, the investment market may rebound with a few weeks’ delay vis-à-vis other European markets as the flight restrictions are to be eased in mid-June/early July. Once the economy returns to a growth path in H2, the Polish investment market is expected to rebound strongly as investors will continue to enjoy better yields than in Western Europe combined with robust occupational demand,” says Marcin Kocerba, Associate, Capital Markets, Cushman & Wakefield.