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Valuation Report: Wilanow One Project
Valuation Report: Wilanow One Project
Valuation Report: Wilanow One Project
Wilanow One Project: three apartments, three penthouses and eleven garages
located in existing buildings as well as undeveloped land of 178,723 sq m
designated for residential and commercial purposes.
Przyczolkowa, Sarmacka, Branickiego Sts., Warsaw, Poland
TABLE OF CONTENTS
1 EXECUTIVE SUMMARY
2 VALUATION REPORT
3 PROPERTY REPORT
PROPERTY DETAILS
LEGAL CONSIDERATIONS
MARKET COMMENTARY
VALUATION CONSIDERATIONS
OPINION OF VALUE
4 APPENDICES
2
CONTENTS
TABLE OF CONTENTS
1. EXECUTIVE SUMMARY 4
EXECUTIVE SUMMARY 5
2. VALUATION REPORT 8
VALUATION REPORT 9
SCOPE OF WORK & SOURCES OF
INFORMATION 16
VALUATION ASSUMPTIONS 16
3. PROPERTY REPORT 23
PROPERTY DETAILS 24
LEGAL CONSIDERATIONS 31
MARKET COMMENTARY 36
VALUATION CONSIDERATIONS 79
OPINION OF VALUE 85
4. APPENDICES 87
3
APPENDICES
A. LOCATION AND SITE PLANS
B. PHOTOGRAPHS
C. FLOOR AREA SCHEDULE AND
LAYOUT PLANS
D. TENURE DOCUMENTS
E. PLANNING DOCUMENTS
F. VALUATION PRINTOUTS
G. INSTRUCTION LETTER
4
1
EXECUTIVE
SUMMARY
EXECUTIVE SUMMARY 5
EXECUTIVE SUMMARY
The Property
Address: Przyczolkowa, Sarmacka, Branickiego Sts., Warsaw
Main Use: Wilanow One Project: three apartments, three penthouses and
eleven garages located in existing buildings as well as
undeveloped land of 178,723*) sq m designated for residential
and commercial purposes.
NB. * Wilanow One Sp. z o.o. is no longer the owner of the plot
no. 2/65 of 981 sq m however, we have been asked by the
Client to take into account the above plot in the valuation.
Tenure
Wilanow One Sp. z o.o. has the perpetual usufruct right to the land until
27th September 2089 and owns the freehold of the buildings.
Purpose of valuation
The valuation was commissioned by the Client for internal purposes.
Valuation Date
30th June 2013
EXECUTIVE SUMMARY 6
Comments
Positive
Prestigious location close to the Wilanow Palace within a fast developing residential
area consisting of new, low-rise residential buildings;
Regular shape of the site;
Proximity of recreation areas such as Natolin Park, Marysin Park and the Kabacki
Forest;
New Master Plan currently under approval procedure.
EXECUTIVE SUMMARY 7
Negative:
Located in the suburbs of the city, with a significant distance to the city centre;
Average accessibility with respect to public transport (only bus lines serve the area);
Subject of perpetual usufruct right;
Large size of the site (17 ha);
Mixed use (residential, office and educational project);
Large scale of the project - together with numerous planned/pipeline residential
estates within the district may keep apartment prices at a low level.
VALUATION REPORT 8
2
VALUATION REPORT
VALUATION REPORT 9
VALUATION REPORT
Rondo ONZ 1
00-124 Warsaw
Poland
Subject and Scope of The subject of the valuation is three apartments, three
Valuation penthouses and eleven garages located in existing
buildings as well as undeveloped land of 178,723* sq
m designated for residential and commercial purposes,
located in Warsaw, Wilanow District at
Przyczolkowa/Sarmacka/Branickiego Sts.
VALUATION REPORT 10
Variation from No
Standard
Assumptions
Market Conditions The values stated in this report represent our objective
opinion of Market Value in accordance with the
definition set out above as of the date of
valuation. Amongst other things, this assumes that the
properties had been properly marketed and that
exchange of contracts took place on this date.
Going forward, we would draw your attention to the
fact that the current volatility in the global financial
system has created a significant degree of turbulence in
commercial real estate markets across the
world. Furthermore, the lack of liquidity in the capital
markets means that it may be very difficult to achieve a
sale of property assets in the short-term. We would
therefore recommend that the situation and the
valuations are kept under regular review, and that
specific marketing advice is obtained should you wish to
effect a disposal.
Independence The total fees, including the fee for this assignment,
earned by CBRE Sp. z o.o. from the Addressee are less
than 5.0% of the total revenues.
Disclosure The principal signatory of this report has not been the
signatory of valuations for the same addressee and
valuation purpose as this report. CBRE Sp. z o.o. has
not continuously been carrying out valuation instructions
for the addressee of this report.
Reliance This report is for the use only of the party to whom it is
addressed for the specific purpose set out herein and no
responsibility is accepted to any third party for the whole
or any part of its contents.
VALUATION REPORT 14
Publication Neither the whole nor any part of our report nor any
references thereto may be included in any published
document, circular or statement nor published in any
way without our prior written approval of the form and
context in which it will appear.
T: 22 544 80 21 T: 22 544 80 79
E: maciej.wojcikiewicz@cbre.com E: agnieszka.wierzchowska@cbre.com
Repair and Condition For the completed apartments, we have not carried out
building surveys, tested services, made independent site
investigations, inspected woodwork, exposed parts of
the structure which were covered, unexposed or
inaccessible, nor arranged for any investigations to be
carried out to determine whether or not any deleterious
VALUATION REPORT 17
Titles, Tenures and Details of title/tenure under which the property is held
Lettings and of lettings to which it is subject are as supplied to
us. We have not generally examined nor had access to
all the deeds, leases or other documents relating
thereto. Where information from deeds, leases or other
documents is recorded in this report, it represents our
understanding of the relevant documents. We should
emphasise, however, that the interpretation of the
documents of title (including relevant deeds, leases and
planning consents) is the responsibility of your legal
adviser.
VALUATION REPORT 18
VALUATION ASSUMPTIONS
Capital Values The valuation has been prepared on the basis of
“Market Value”, which is defined by the Property
Management Act dated August 21, 1997 with later
amendments as below:
“Market Value of the Property constitutes the most
probable price, likely to be achieved on the market,
established with the consideration of transactional
prices and based on the following assumptions:
1. the Parties had each acted in an arm's-length
transaction, without compulsion and having the
firm intention to conclude an agreement;
2. the Property was exposed to the market for a
sufficient period of time to negotiate the terms
of an agreement.”
A similar definition of “Market Value” is included in the
PFVA’s Valuation Standards (KSWP 1), in the
International Valuation Standards Committee (IVSC)
and adopted by the RICS Valuation – Professional
Standards (2012) – VS 3.2) as well as by TEGoVA
(European Valuation Standards 6th edition - S 5).
“Market Value” is defined as:
Key Valuation Dates If it was not specified otherwise, the date on which a
property value was established is identical to the date
on which a property condition was determined.
Rental Values Rental values indicated in our report are those which
have been adopted by us as appropriate in assessing
the capital value and are not necessarily appropriate for
other purposes nor do they necessarily accord with the
definition of Market Rent.
Legal and Factual Below we present a list of legal and formal bases, upon
Basis which our valuation has been based:
Civil Code, Law of 23rd April 1964 (Dz. U. No. 16
item 93 with further amendments);
Building Law of 7th July 1994 (Dz. U, No. 243 item
1623 of 2010);
Law of 21st August 1997 Act on Property
Administration (unitary text Dz. U. No. 102, item
651 of 2010) with further amendments;
Council of Ministers Ordinance 21st September
2004 on the detailed principles of preparing
property valuations and of conditions and
procedures of preparing valuation surveys (Dz. U.
No. 207 item 2109 of 2004) with further
amendments
RICS Valuation – Professional Standards (2012).
Professional Standards for Property Valuers, PFVA.
2007;
General National Valuation Principles, PFVA.
Energy Performance We have been informed that the buildings where the
Certificates penthouses and apartments are located all possess a
current Energy Performance Certificate.
Title, Tenure, Unless stated otherwise within this report, and in the
Planning and Lettings absence of any information to the contrary, we have
assumed that:
VAT All rents and capital values stated in this report are
exclusive of VAT.
PROPERTY REPORT 23
3
PROPERTY REPORT
PROPERTY REPORT 24
PROPERTY DETAILS
Location
The subject site is located in southern Warsaw, in Wilanow District, between
Przyczolkowa and Sarmacka St., south of the intersection with Branickiego St.
Rzeczpospolitej Ave., which is currently under construction, is some 200 meters west
from the property is the one of the district’s main exit roads running from intersection
with Herbu Korczak St. up to the crossing with Wilanowska Ave. In the near future an
extension of Rzeczpospolitej Ave. to the south to Sarmacka St. and then further on to the
Warsaw Southern Bypass road is planned. The city’s road scheme planning also includes
the construction of a viaduct over Wilanowska Ave. that will serve as a direct connection
between Rzeczpospolitej Ave. and Sobieskiego St and will improve car access to the city
centre.
Wilanowski Palace – a historic monument and one of the major Warsaw tourist
attractions is situated about 1 km to the east from the subject site.
Kabacki Forest Reserve – one Warsaw’s major recreation areas is located 6 km south of
the subject property. Further south, there is Konstancin Jeziorna town, where a health
park and luxury villas are located.
Accessibility
Car and pedestrian access is enabled from Sarmacka and Branickiego Sts. as well as
being facilitated from the planned Uprawna St. to the south and supported with internal
access roads.
Public transport is currently secured with two bus lines (217, 422) with stops at
Rzeczpospolita Ave, approximately 200 m from the property as well as numerous
running along Przyczolkowa St. and Wilanowska Ave respectively 0.5 km and 2 km from
the property.
There is a bus depot located at the crossroads of Wiertnicza St. and Wilanowska Ave,
some 1.5 km north from the property.
Situation
The immediate neighbourhood comprises of residential developments as well as
undeveloped land.
The property borders:
Sarmacka St. and further multi-family residential developments from the west. There
is a hospital building located at Rzeczpospolitej Ave approximately 200 m west from
the property;
PROPERTY REPORT 25
Przyczolkowa St. and further single and multi-family residential developments to the
east;
Branickiego St. to the north and further multi-family residential apartments to the
north and north-west as well as undeveloped land to the north-east;
Undeveloped land and further on the planned southern ring road to the south.
A site plan is attached at Appendix A.
Site Description
The development site has a total area of 178,723 sq m and consists of the following
plots:
Schedule of plots
Plot No Precinct Real Estate Register (KW) Plot area (sq m)
Number
2/66 1-10-37 4,254
2/77 1-10-37 2,534
2/67 1-10-37 2,321
*)
2/65 1-10-37 981
2/80 1-10-37 168,633
Total 178,723
Source: Land Register
NB. * Wilanow One Sp. z o.o. is no longer the owner of the plot no. 2/65 of 981 sq m
however, we have been asked by the Client to take into account the above plot in the
valuation.
The site is close to rectangular in shape. Its longer sides are adjacent to Przyczolkowska
St. (to the east) and to Sarmacka St (to the west). Its shorter side is adjacent to
Branickiego St. (to the north).
The plots presented in the table above are not developed and are planned for the
development of the future phases of the Wilanow One project.
The plot nos. 2/78 (WA2M/00474968/7) with a total area of 10,223 sq m and 2/79
(WA2M/000474974/2) with the total area 4,976, sq m, not listed above, have been
developed with the buildings in which the valued apartments, penthouses and garages
are located.
Project Description
The site of 178,723 sq m is planned for the development of a mixed use residential,
office and educational project in following phases:
PROPERTY REPORT 26
Accommodation
Areas
Due to the property currently being undeveloped we have relied on the schedule of floor
areas provided to us by the Client, as described in the “Project Description” section
above.
With regard to the existing penthouses, apartments and garages we have also based our
valuation on the information provided by the Client as presented below:
PROPERTY REPORT 28
Schedule of garages
Building Garage number
A1 145
A1 158
A1 182
A1 201
A1 183
A1 202
A1 94
A2 1
A2 23
A2 54
A2 74
Fit-out office
The planned high quality fit-out of the building and office areas is assumed as follows:
Raised floors to a height of 15 cm above the flooring slabs in the tenants’ areas,
finished with carpeted flooring;
Floors in common spaces (circulation routes, entrance lobbies and lift lobbies)
finished with stone flags and ‘gres’ tiles;
PROPERTY REPORT 29
State of Repair
CBRE has not undertaken a structural survey, nor tested the services. We have not been
supplied with any survey report. We have undertaken only a limited state of repair
inspection for valuation purposes.
According to our limited inspection for valuation purposes the two existing buildings
completed in 2008 and 2009 are in a very good condition. No major repairs are
required or planned.
Environmental Considerations
We have not been instructed to undertake any investigations in relation to the presence
or potential presence of contamination in land or buildings or the potential presence of
other environmental risk factors and to furthermore to assume that if investigations were
made to an appropriate extent then nothing would be discovered sufficient to affect
value. We have not carried out any investigation into past uses, either of the property or
of any adjacent lands, to establish whether there is any potential for contamination from
such uses or sites, or other environmental risk factors and have therefore assumed that
none exists.
Total 157,276
Town Planning
There is a valid Master Plan for the area where the subject property is located, issued on
January 18, 2001 (the resolution no. 405 approved by Warszawa-Wilanow Commune
Council). According to this Plan, the site is coded as 19UM and is designated for a
services function with accompanying residential.
Based on the Plan, a development has to meet the following basic requirements:
Biological active area: minimum 30% of undeveloped site area;
Built-up area: 70% of a site area;
Maximum height of buildings: 4 floors above ground, maximum 16 m with
admissible dominant of 5 m;
Building density ratio: 1.1 ;
Roof slope: 30o to 45o.
Each area of land designated for the development process should be checked for
potentially difficult soil and water conditions, especially in the region of the Warsaw
Escarpment.
Part of the plot is subject to the Heritage Supervisory protection and requires
archaeological research.
According to our verbal enquiry the new Master Plan for the area where the subject
property is located was issued by the city council on 11th July 2013. According to the
provisions of the new Master Plan the site is coded as: MW(U) – multi-family residential
with services on the ground floor, MW(ZP) – multi-family residential with green areas,
UH/U – retail and services, ZP (green areas) and UO – educational services.
Based on the new Plan, a development has to meet the following basic requirements:
Biological active area: minimum 10% (UO), 30% (MW/U, UH/U), 40% (MW/ZP), of
undeveloped site area;
Built-up area: 70% (MW(U), UO), 65% (UH/U) 60%(MW(ZP), of a site area;
Maximum height of buildings: 5 floors above ground, maximum 18 m (MW(U),
UH/U); 3 floors above ground, maximum 12 m (UO);
Building density ratio: 1.3 (UO), 1.8 (MW(U), MW(ZP), UH/U);
Roof slope: 25o to 45o.
We have been provided by the Client with a copy of the Occupancy Permit
no. AM-BK/7353/956/07-08/WR dated 29th April 2008 for the multi-family residential
development located on part of the land B1.
We have been provided by the Client with a copy of the Occupancy Permit
no. IV-OT/7/U/2009, PINB/IVOT/AJ/7357/9895/08 for the multi-family residential
building with underground car park , issued by the Building Supervisory in Warsaw on 1st
January 2009.
Having regard to the above information, we are not aware of any issues which would
adversely impact upon the value of the property.
PROPERTY REPORT 31
LEGAL CONSIDERATIONS
Tenure
Our tenure information has been based upon the following electronic access to the Real
Estate Registers Nos. WA2M/000196355/4, WA2M/00474976/6,
WA2M/000496681/1 (undeveloped land) and WA2M/00474968/7,
WA2M/000474974/2 (3 penthouses, 3 apartments and 11 garages) on 15th July
2013.
Separate Real Estate Registers for the valued apartments and penthouses have not been
created yet.
Below we present a summary of the Real Estate Registers.
Chapter I-Sp (Rights) Perpetual usufruct right to the land till 27th September 2089.
Chapter II (Ownership)
Perpetual usufruct Wilanow One Sp. z o.o. in Warsaw has the
right holder perpetual usufruct right.
Chapter I-Sp (Rights) Perpetual usufruct right to the land till 27th September 2089.
Chapter II (Ownership)
Perpetual usufruct Wilanow One Sp. z o.o. in Warsaw has the
right holder perpetual usufruct right.
Chapter III Land easement on the plot no. 2/80 in the form of use right of
(Burdens and Limitations) communication infrastructure on the plot 2/80 providing an access right
to the plots nos. 2/78, 2/79.
Chapter I-Sp (Rights) Right of use of communication infrastructure on the plot 2/80 in favour
of the owner of the plot no. 2/79.
Chapter II (Ownership)
Perpetual usufruct Wilanow One Sp. z o.o. in Warsaw and co-
right holder holders has the perpetual usufruct right.
Claims relating to the exclusive use of the home gardens for the benefit
of several owners of premises.
Land easement on the plot no. 2/79 in the form of free ride and
passage and a use right for communication infrastructure providing an
access right to the plots no. 2/78, 2/79.
Land easement in the form of free ride, passage and use of a recreation
area on the plot no. 2/79 to the benefit of every perpetual usufruct right
holder to the land and each owners to the building of the plot no. 2/78
Chapter I-Sp (Rights) Right of use communication infrastructure on the plot no. 2/80 in favour
of the perpetual usufruct holders of the plot no. 2/78
Chapter II (Ownership)
Perpetual usufruct Wilanow One Sp. z o.o. in Warsaw and co-
right holder holders have the perpetual usufruct right.
Land easement on the plot no. 2/78 in the form of a free ride and
passage and use right of communication infrastructure providing an
access right to the plots nos. 2/78, 2/79.
Land easement in the form of free ride, passage and use of recreation
area on the plot no. 2/78 to the benefit of every perpetual usufruct right
holder to the land and each of the owners to the building on the plot no.
2/79
Chapter II (Ownership)
Perpetual usufruct No entries.
right holder
NB. * Wilanow One Sp. z o.o. is no longer the owner of the plot no. 2/65 of 981 sq m
however, we have been asked by the Client to take into account the above plot in the
valuation.
PROPERTY REPORT 36
MARKET COMMENTARY
Introduction
We set out below an overview of the Polish economy together with a detailed analysis of
the Warsaw residential market. Where possible we provide details of market transactions
comparable to the subject property, completed within the last two years.
Macroeconomic Overview
Poland has a population of 38.5 million inhabitants. Warsaw is the capital city as well
as the most significant political and economic centre of the country. The city is also
an administrative hub of the Mazovian Voivodship, one of 16 voivodships in Poland.
Currently, the major concern for the country’s economy is associated with the recession
in the Eurozone countries fuelled by the budgetary instabilities. However, the extent
of influence of the recession is not predicted to be profound, as the potential slowdown
has already been accounted for by market participants. Furthermore, the recent decision
of the European authorities in introducing a coherent buyout plan of the distressed
countries’ governmental bonds has been generally accepted by economists, who claim
it should give the most problematic economies enough time to introduce savings
programs, aimed at reducing public debt, which is considered as the most significant
problem of the European economy. If the outcomes of the plan match up to the
expectations, the current slowdown might be overcome in the near future.
Nevertheless, one of the biggest threats concerning Polish short-term economic
expansion is the possibility of a second wave of economic instability in the European
Union, which could again increase pessimism throughout the financial markets.
However, since the middle of 2012, the attitudes of the market participants have seemed
to improve.
The recent economic indicators in Poland confirm the general slowdown well observed
across Europe. Although 2011 GDP growth exceeded analysts’ expectations and
amounted to 4.3%, the GDP growth in 2012 decreased to 2.0%, indicating a
deteriorating trend. The deceleration of the Polish economy is affecting most of the
components of GDP growth. After the EURO 2012 championship the level of
construction diminished as a number of public investments had already been completed.
Industrial output and domestic consumption have also been affected by the slowdown.
However, although the PLN has recently appreciated against the EUR Polish goods still
remain strongly competitive in Europe, especially among Western European countries
whose inhabitants who are being put under pressure to limit their spending.
Although signs of a slowdown are evident, Poland remains perceived as one of the most
stable economies in the CEE region. Forecasts for the upcoming years predict a further
slowdown of GDP growth, which however, should remain positive and amount to 1.3%.
PROPERTY REPORT 37
6%
5%
4%
3%
2%
1%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013*
Source: Central Statistical Office; *Oxford Economics forecasts
The Consumer Price Index (CPI) which registered a slight increase over the whole of
2011 did however decrease in 2012. In April 2013, y-o-y CPI amounted to 0.8% which
represented a significant 3.2 % point decrease in comparison with April 2012. Owing to
the constant volatility of the CPI index and signs of rebound in the global economy, the
Polish monetary authorities signalled a new monetary tightening campaign at the
beginning of 2011. After a number of increases in 2011 and one in 2012, the base
interest rate reached 4.75% at the beginning of May 2012. Although the level of
inflation remained initially above the National Bank of Poland target of 2.5% +/- 1%,
the Monetary Policy Council started to loosen its policy and cut the level of interest rates.
The slowdown of GDP growth together with a decrease of CPI determined a
continuation in the easing policy that started in November and December 2012. After six
decreases in 2013 the base interest rate now stands at 2.50%.
10
0
2013F
2004
2005
2006
2007
2008
2009
2010
2011
2012
2005
2006
2007
2008
2009
2010
2011
2012F
According to the preliminary data published by NBP, the total inflow of foreign direct
investment (FDI) into Poland reached almost 2.8 billion in 2012 showing a significant
decrease when compared to 2011 (EUR 13.5 billion).
The interest in Poland, showed by foreign investors, attests the good condition
of the Polish economy. According to the PAIiIZ (Polish Information and Foreign
Investment Agency), the key motives behind the decision to invest in Poland include
the size and absorptive capacity of the market (with over 38 million people Poland ranks
as the largest country in Central Europe), relatively low labour costs, good business
environment, growing integration into the global economy and the success of Poland’s
privatisation programme.
PROPERTY REPORT 39
As at May 2013 the Polish Information and Foreign Investment Agency was running
more than 157 projects worth almost EUR 3.9 billion. These projects are to generate
nearly 29,800 job positions. The majority of the investment comes from the US (44
projects worth EUR 0.9 billion), Germany (20 projects worth EUR 0.48 billion), China
(12 projects worth EUR 0.24 billion) as well as the United Kingdom (10 projects),
Switzerland (9 projects) and Sweden (7 projects). The most popular sectors are BPO (38
projects, EUR 37 million), automotive (24 projects, EUR 1.34 billion) and R&D (15
projects). In 2013, the Polish Information and Foreign Investment Agency closed 18
projects (EUR 0.48 billion)
In order to attract new investors, the Polish government and local authorities have
implemented a number of programs offering different incentives for newcomers. The
most popular schemes are tax exemptions, support in terms of co-financing of the
adjacent infrastructure and others, including direct funding in Special Economic Zones
(SEZs).
Currently there are 14 SEZs located in different regions and cities. They differ in terms of
size, location, business profile, land development conditions, road and technical and
telecommunications infrastructure. The zones are to operate until 2017, with the
exception of the Katowice SEZ (until 2016) and Euro-Park SEZ in Mielec (until 2015).
The zones are mainly focused on supporting manufacturing industry, but some of them
also include a number of office buildings (e.g. in Katowice and Lodz). An entrepreneur
who establishes a business within a SEZ may draw on regional support in the form of
income tax deductions or direct grants. The type and amount of the support usually
depends on the value of the capital expenditure incurred or the number of new jobs
created.
The most prosperous economic sectors connected with new foreign investment in Poland
include: automotive, aviation, biotechnology, BPO, domestic appliances, electronics, IT,
mechanical industry, metal industry, R&D and renewable energy.
The unemployment rate in Poland in March 2013 stood at 14.3% (compared to 13.3%
in March 2012), indicating an increasing trend. The rise of unemployment is caused
by the conservative attitudes of companies, which seem to reflect European uncertainty.
In line with long term forecasts, despite the strong fundamentals of the Polish economy,
the unemployment level may gradually increase till the end of Q2 2013.
PROPERTY REPORT 40
18% 16 000
15 500
15%
15 000
12%
14 500
9%
14 000
6%
13 500
3% 13 000
0% 12 500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013F
2014F
Source: Central Statistical Office; F – Oxford Economics forecasts
After a rapid growth of average gross salaries in the enterprise sector in 2007-2008, the
growth of wages started decelerating post 2009. Nevertheless, in 2011 it turned out to
be still positive, amounting to 3.2%, and exceeded 4% in 2012.
Average gross monthly salary in the enterprise sector in Poland and selected
voivodships - March 2013 (EUR)
1 200
1 000
800
600
400
200
0
Podkarpackie
Wielkopolskie
Dolnoslaskie
Lubuskie (Gorzow
Poland
Pomorskie (Gdansk)
Slaskie (Katowice)
Lubelskie (Lublin)
Lodzkie (Lodz)
Mazowieckie
Małopolskie (Krakow)
(Wroclaw)
(Warsaw)
(Rzeszow)
(Poznan)
Wlkp.)
Microeconomic Overview
Location
The area of Mazowieckie region covers 35,600 sq km and is home to 5.37 million
inhabitants i.e. 14% of the total population in Poland. According to the latest studies,
Warsaw has 1.7 million registered citizens plus the estimated 250,000 of unregistered
persons living within the city followed by another 500,000 travelling to Warsaw on a
daily basis. That adds up to almost 2.5 million inhabitants in total. The city covers an
area of 517 sq km and has a population density of 3,300 people per 1 sq km.
The River Vistula divides the capital into west and east sides, with central Warsaw largely
situated on the west side of the river. The city is divided into 18 districts, 11 of which are
located on the left bank of the Vistula and the remainder on the right.
Commercial developments are located mostly to the west of the river in Srodmiescie,
Wola, Ochota and Mokotow districts. Industrial space accounts for 5% of the city’s area
and is situated mainly in Bialoleka, Targowek, Ursus, Bielany and nearby the Warsaw
Frederic Chopin Airport in Okecie. The green areas in Warsaw cover 38% of the city’s
surface with the biggest share in Rembertów (80%), Wawer (80%) and Bialoleka (45%).
Infrastructure
Warsaw Frederic Chopin International Airport is located just 10 km away from the city
centre. With over 320 international and domestic flights a day and over 9.5 million
passengers in 2012 it is by far the largest airport in Poland. In 2008 and 2011 the
airport underwent an expansion program. During the first phase of expansion a new
terminal was added. As a result of the second extension, the number of gates was
increased from 15 to 27. Future plans concerning the area of the airport involve the
construction of a multi-use area known as Chopin Airport City. Apart from a park and a
small public plaza, it will comprise 150,000 sq m of usable space and consist of a
business park, conference centre, a shopping mall, hotels and a fitness centre. The
planned budget of the investment is estimated at EUR 2.5 billion.
The main railway station in the city is Warszawa Centralna. As a result of the UEFA
EURO 2012 sport event that was held in June 2012, it has recently been renovated. The
station is the main railway hub connecting Warsaw with the majority of Polish regional
cities and European capitals. In Warsaw, there are also 5 additional major train stations
and a number of smaller stations for suburban lines. Currently the Polish Railway (PKP) is
working on a strategy to develop and refurbish a number of railways and stations
throughout the country in cooperation with private investors.
Warsaw is Poland’s main road, rail and air transportation hub; however it lacks a good
circular road system. Currently, two ring roads as well as the second metro line are
being constructed. Improvement to the existing bridges and development of new ones is
also under way. One of the most important improvements in the near future will include
the completion of the S2 route, being a part of the Warsaw ring road. In 2013 the part
of the route connecting the A2 highway and the Warsaw Airport should be delivered.
The Warsaw metro is one of Europe's newest metro systems and the only one in Poland.
It consists of a single north-south line that links central Warsaw with its densely
PROPERTY REPORT 42
populated northern (Mlociny, Bielany) and southern suburbs (Kabaty). The first section
was opened in 1995, with the final section being completed in October 2008. Around
580,000 passengers are transported during an average working day by the current
metro line.
The construction works of the second line, crossing the city from east to west, were
commenced in September 2010. Its first, central section will consist of 7 stations: Rondo
Daszynskiego, Rondo ONZ, Swietokrzyska, Nowy Swiat, Powisle, Stadion and Dworzec
Wilenski. It will pass under the Vistula River between the Powisle and Stadion stations.
The vast part of the financing for building this section has been secured from the
European Union’s funds. The original plan to finish this section in time for Euro 2012
appeared to be overoptimistic. Currently, the central part of the second line is
announced for delivery by the end of 2014. The construction works are being carried
out using a modern boring technology which should allow for much faster construction
compared to the first line. The remaining part of the second line, which will consist of 28
stations in total, will be built later on.
The long-term plans concerning the metro line involve a short third line, which will
eventually connect central Praga with its southern part.
Target Express Road System in Warsaw
Source: CBRE
PROPERTY REPORT 43
Education
Warsaw has 78 centres of higher education with circa 295,000 students. It is by far the
largest academic centre in the country. The most important universities in Warsaw
include:
University of Warsaw (UW), the biggest university in Poland, with 60,000 students;
Warsaw School of Economics (SGH) educating over 18,000 students;
Warsaw University of Agriculture (SGGW) (30,000 students);
Technical University of Warsaw (PW) with 31,000 students; it is one of the largest
universities of its kind in the Eastern Europe.
Wilanow District
Wilanow is one of the 18 Warsaw districts and is located on the west bank of the Vistula
River. It occupies an area of 36.7 sq km and is home to around 19,600 inhabitants.
The district is famous for the Wilanow Palace, the summer residence of the King Jan III
Sobieski. Interesting landscapes, easily accessible cultural monuments and the great
number of lakes constitute the district’s main qualities. The assets of Wilanow are its
large green areas, the possibilities of recreation in Natolinski Park and in Kabacki Forest,
Marysin which is situated by the eastern edge of the Palace Park and a charming area by
the Vistula River. The district also benefits from the largest number of bicycle trails in the
capital, ca. 8 km.
Wilanow also disposes of significant investment potential. The local preferences for
investments have included inter alia housing, villa residences and apartment complexes
accompanied by commercial and services functions. Construction of the first large retail
project known as Wilanow Shopping Centre of aproximately 60,000 GLA has been
announced by GTC.
The district’s dynamic development both in terms of residential schemes supported by
infrastructure (extension of main exit route: Rzeczypospolitej Ave. and the other main
district artery of Wilanowska Ave.) and commercial investments (eg. Wilanow Office
Park, the above mentioned retail project by GTC) each year attract new inhabitants
seeking a quiet, undisturbed and convenient place to live.
16 000
12 000
8 000
4 000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Central Statistical Office
Bemowo
11%
Others
27%
Bialoleka
14%
Bielany
7%
Zoliborz
5%
Wola Mokotpw
10% Praga 12%
Pld
9%
Srodmiescie Ochota
2% 3%
Further analysis of the projects reveals some additional aspects related to the
characteristics of this market:
projects were largely rather small in size with the number of apartments usually not
exceeding 50 (Residences: Opera, Sea Eye, Villa Monaco) with a maximum of just
over 70 (Residence Multico);
diversified apartment sizes with, in the majority, large premises of more than 100 sq
m, with a complementary range of small apartments of 60 sq m. The number of
smaller apartments was rather limited with those of less than 50 sq m present only in
single projects where (such as Opera Residence, Sea Eye, Mondrian House) the flats
were not very large. Apartments of more than 200 sq m are usually only common for
penthouses on the top floors often provided with large terraces;
in the years 2006 - 2008, a significant increase in housing prices in all segments,
including luxury, prompted developers to begin more new projects of a higher
standard with asking prices often exceeding PLN 20,000 per sq m.
In addition to small projects from a few to several dozen apartments, new investments of
a much larger scale started to emerge on the market (Atelier Residence or Restaura
Gorskiego). The availability of financing meant that even projects with a low level of
sales had a chance to start and continue. This led to a situation where when the
financial crisis of 2009 began, there were many projects finished or in an advanced
stage of construction with a large number of homes available that could not find buyers.
This difficult situation forced the following changes to the offer of premium class
apartments:
offer prices, after a year of stagnation witnessed slow, gradual reductions. Only the
most attractive flats were purchased and those that had prices which were really
competitive, often decreased further because of the financial problems of the
developer;
lowered prices forced developers to abandon the costly add-ons offered to enhance
the prestige of the investments such as : pool, sauna, exercise room;
reduced offer levels for apartments finished to a "turnkey" standard were not
considered as very popular by clients. Some projects abandoned the offer of turnkey
finishing that had been initially available.
As a result of the changes detailed above the recent characteristics of upper class
projects can be characterized as follows:
high-quality finish of the building remains as a standard, including stone, wood and
glass finishes, protection and monitoring in selected projects with a reception in
single projects. The turnkey standard is now offered only in individual projects and it
is being replaced by external companies cooperating with the developer that
undertake the finishing works according to individual housing arrangements in line
with the customers’ preference;
an air-conditioning system or the technical preparation of the building installation for
mounting individual devices within homes is increasingly popular.
PROPERTY REPORT 48
Competition for new projects still remains for luxury apartments on the secondary
market, finished to a very high standard and in the most prestigious locations.
Despite the crisis, prices of luxury apartments remain at a relatively high level especially
in the most prestigious locations.
Demand
The situation on the market relating to the financing of apartments has been changing
dynamically during the last few years. At the end of 2009 banks started to loosen their
restrictive mortgage policies (easier access to financing, increasing the LTV ratio to even
100%). The changes were trigged mainly by the high level of savings accumulated
in the banking sector as well as by the stabilization on the global and local markets.
This trend was continued in 2010 but changed by mid 2011 as a result of the worsening
situation on the international financial markets, compounded by banks further risk-
limiting procedures. Due to the increasing bank requirements, by the end of 2011 the
offer of mortgage financing for residential properties was severely limited and available
almost only in Polish currency.
The second half of 2011 and the beginning of 2012 also brought changes in the legal
regulations concerning developers’ businesses, the banking sector and borrowers, which
noticeably influenced the availability and methods of property financing. The major
changes included a Developers’ Law (in force since 29th April 2012) and Commission
of Financial Supervision recommendations (in force partially since mid-2011
and partially since mid-2012).
The Developers’ Law limited the possibility of new project development financing
with financial inputs from future purchasers and obliged developers to keep an escrow
PROPERTY REPORT 49
account – to accumulate the future purchasers’ inputs. The law also introduced the
necessity of widening the information policy relating to developers (an obligation of
issuing a prospectus) as well as concluding pre-sale agreements in the form of Notarial
Deeds.
As a result of the state of Polish public finance, a further increase in the VAT rate is
probable. Assuming its steady growth in the next few years it may reach the level of 10%,
which would lead to increased prices and could limit demand on the primary residential
market.
Due to the significant budgetry burdens as of 1st January 2012 the program “Rodzina
na swoim” supporting the purchase of residential apartments by young families was
closed. According to the program the State Treasury financed up to 50% of the
mortgage interest for the first 8 years. The total amount of mortgage loans supported by
the program in 2011 and 2012 amounted respectively to 10.2 and 7.9 billion PLN.
Currently there are on-going plans for another program “Mieszkanie dla młodych”,
supporting citizens who are purchasing their first apartment by increasing their cash
deposits for apartment purchases. The program is scheduled to be launched at the
beginning of 2014.
350
24%
300
20%
250
16%
200
12%
150
8%
100
50 4%
0 0%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
V 2013
The unstable economic situation on the global financial markets, caused mainly
by the economic problems of major European countries including Greece, Ireland,
Spain, Portugal, Italy or Hungary has had a negative impact on the perception by
investors of the whole Western and Central European region; this may result in a
drop in foreign direct investment in Poland and consequently may have an impact on
the capital outflow from the Polish market. The described situation would negatively
influence the Polish economy as well as the real estate market including its residential
segment.
PROPERTY REPORT 50
Prices
Residential apartment prices – Poland
According to a survey of redNet Consulting, at the end of April 2013, the average
transaction price of residential units sold reached a value lower than the average asking
price of apartments available on the market. The largest price differences for apartments
sold and the asking price per apartment offered was recorded in Katowice and Gdansk
(-8.0%); in other Polish cities the negative difference between asking prices of available
and sold apartments shows a declining trend (8% in February, 6% in March and 5% in
April – the average for 7 agglomerations). Only in Lodz have the average asking prices
for sold apartments been higher than those recently offered on the market (1.6%
difference). The largest increase in prices of units sold in April 2013 compared to the
previous month was recorded in Gdansk (3.0%) and was smaller in Wroclaw, Katowice
and Warsaw (between 0.2 -0.5%). Taking into account the seven largest
agglomerations, the average price of sold apartments increased by 0.7% compared to
the previous month.
Average asking prices of sold apartments within the primary market in the
seven largest agglomerations in Poland - April 2013
Asking prices Asking prices - sold apartments
7 314
7 281
7 049
7 012
8 000
6 153
6 048
5 962
5 889
5 775
5 745
7 000
5 386
5 309
5 145
5 136
5 118
4 896
4 680
4 669
4 670
4 665
6 000
5 000
4 000
3 000
2 000
1 000
0
The average asking price of an apartment in Warsaw city, in April 2013, was at the level
of 7,591 PLN / sq m and was about 4.2% higher than the gross price of new apartments
sold in a given period (an average of 7,281 PLN / sq m). The average asking price of
sold apartments in the whole Warsaw agglomeration in April 2013 was at the level of
7,249 PLN / sq m with little difference when compared to March 2013 (7,049 PLN / sq
m).
Below is a graph illustrating the asking prices in Warsaw city and the Warsaw
agglomeration over the last few years.
Average asking prices for apartments on the primary market: Warsaw and
Warsaw Agglomeration – historic data.
Asking price Asking price - sold apartments
9 380
8 934
8 751
8 321
8 303
8 210
8 189
8 195
10 000 8 008
7 874
7 707
7 663
7 614
7 591
7 548
7 439
7 367
7 354
7 298
7 281
7 249
7 196
9 000
7 012
6 914
8 000
7 000
6 000
5 000
PLN/sq m
4 000
3 000
2 000
1 000
0
Warsaw Agglo. IV
Warsaw XII 2008
Warsaw IV 2013
Warsaw Agglo. XI
2011
2013
2008
2009
2010
2012
Source: redNet Consulting
From the above graph it is possible to note the slow downward trend in the asking prices
of apartments offered on the primary market over the last few years.
Factor Values
Factor Values
Below we present apartment prices in selected residential projects which are currently
under construction in Wilanow district:
Source: CBRE
PROPERTY REPORT 55
Source: CBRE
PROPERTY REPORT 57
The majority of the standalone buildings are usually located in the City Centre
and the surrounding area, while the business parks tend to be located in the fringe
of the city or in the post – industrial areas such as Sluzewiec Przemyslowy in Mokotow
(US) or along Lopuszanska St. and Jerozolimskie Ave.
Source: CBRE
Currently, the preferred locations for the majority of office occupiers are the Central
zone, the South-West and Upper South parts of Warsaw including Mokotow and Okecie
districts. These particular locations have already encountered a dynamic development
activity. Additionally, there are also many older office buildings located around the
aforementioned locations, which may effectively compete with the new stock, once
refurbished.
PROPERTY REPORT 58
80 000
70 000
60 000
50 000
40 000
30 000
20 000
10 000
0
US SW Core Fringe of SE N LS E W
CC
The current economic situation has had a strong impact on development activity. The
market is strongly influenced by the banking sector, which introduced more restrictive
and risk aware credit policies in the time of economic slowdown. The access to
financing, which has been strongly limited during the recent years, is still being
restrained, due to the uncertainty caused by the fiscal problems of the Euro area. A
standard practice for the bank is to ask for at least a 5% pre-let for each instalment of
the loan (in total up to even 40%). Moreover, banks expect their own contribution to be
at the level of at least of 30% of the value of the project.
2008
2009
2010
2011
2012
2013F
2014F
2015F
Only those projects for which construction should start by the end of the H1 2013
should be considered as likely to be delivered by the end of 2014. The relatively high
level of new office space expected for delivery in 2013-2015 corresponds with the
strong level of demand recorded since the market’s recovery registered in 2010.
PROPERTY REPORT 59
Currently, there is around 608,000 sq m of modern office space being built in Warsaw
in 38 projects. Most of them are being developed outside the City Centre (circa
468,000 sq m), representing some 76% of total office space under construction. Only
32% of the currently developed office space has already been pre-leased. In comparison
to other European cities, Warsaw is one of the most active in terms of the amount of
constructed new stock.
As a result of the turmoil on the world’s financial markets, developers have been quite
cautious with regard to their strategic decisions. Currently however, their attitudes seem
to have become more optimistic, fuelled by the strong performance of tenants over the
last two years. Below we present the biggest projects, currently being developed in
Warsaw.
At the same time there are a number of planned projects on the Warsaw investment
map, including high towers in the City Centre as well as business parks in a number of
Non-Central locations. The most significant projects (over 30,000 sq m) at the planning
stage, for which delivery is scheduled within the next 3 years, are presented below. The
given year of delivery is based on rough estimations.
PROPERTY REPORT 60
Selected existing modern office buildings in Warsaw South East and Lower
South submarkets (>5,000 sq m), Q1 2013
Source: CBRE
Source: CBRE
We present below the details of the existing and planned office projects that offer space
for lease and are in our opinion most comparable to the subject property:
Demand level
For years, the demand for modern space in Warsaw has been characterised by stable,
strong growth, fuelled by the strong performance of Poland’s economy. A single year of
slowdown was registered in 2009, caused mainly by external factors associated with the
global financial crisis. However, in 2010 the market returned to its previous growth path.
In the last year, the total office take-up in Warsaw amounted to 608,500 sq m, of which
28% was attributable to the Central locations, while the rest was registered in Non-
Central locations, mostly in the Mokotow and Jerozolimskie area. The results of Q1
2013 confirm that the demand for office space in Warsaw remains healthy.
The demand for modern offices throughout 2013 should remain strong. Companies and
investors have become accustomed to operating within uncertain circumstances and are
much better prepared for any foreseen general slowdown than three years ago.
The long term economic forecasts relating to the level of employment in the Financial
and Business sector in Warsaw suggest that companies will need more office space in
order to expand their operations and to create additional working places for new
employees.
As with the previous quarters, the demand in Q1 2013 was triggered mainly by
companies from the manufacturing, business services and the financial sector. In Q1
2013, the largest deals included the renewal of BNP Paribas (11,000 sq m) in Trinity
Park II, renewal and expansion of Play (9,600 sq m) in Marynarska Business Park and
the pre-lease agreement of Konsalnet (8,200 sq m) in Jana Kazimierza 53/55.
PROPERTY REPORT 64
4% Financial Services
1%
Unknown
14%
14% Computers / Hi-Tech
Public Sector
Professional Services
Source: CBRE
Warsaw, as the capital of Poland will undoubtedly develop in the future, attracting new
investors. A simple way to estimate the future demand for office space is to analyse
predictions regarding future employment levels, as this has a direct impact on office
take-up. However, it is important to note that many other factors (such as GDP and FDI
growth) also influence the level of demand for office space and all the possible demand
drivers form a very complex structure. Therefore demand forecasts may differ in different
market scenarios. According to the Oxford Economics data the employment levels in
sectors generating demand for office space (services, finance, business services, and
public services) should grow by at least 50,000 till 2017. Assuming that the average
office space required for one employee is around 12 sq m, we can forecast that the
market absorption within the next 5 years should reach at least 120,000 sq m per year.
The most intensive increase should be observed in business, financial and other services.
Public administration is forecasted to decrease in terms of employment, in line with the
debt reduction efforts.
The total take-up figure includes expansion of existing space, pre-lets, owner-occupied
space, lease renewals and new transactions. The share of renegotiations amounted to
almost 37% of the total leasing activity in Q1 2013. Around 38% of the take-up volume
was attributable to new deals in existing buildings. The share of pre-let transactions
totalled a significant amount of 19%, thanks to a number of large pre-lease
transactions: the biggest pre-lease was closed by Konsalnet (8,200 sq m) in Jana
Kazimierza 53/55 developed in the West zone by Laris, followed by a deal of Schneider
(7,000 sq m) in Park Rozwoju. The third biggest pre-lease was Alior (6,100 sq m) in
Lopuszanska Business Park II (South West zone). The scheme, which is developed by
Ghelemco is scheduled for delivery at the end of 2013.
PROPERTY REPORT 65
600 000
500 000
400 000
300 000
200 000
100 000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
While in the Western markets built-to-suit agreements in offices are quite common, in
Poland pre-construction transactions are scarce, even if the pre-let take-up share has
been claimed to be high. For many market players the phrase ‘pre-let’ does not always
mean the same, as there are three types of pre-lease agreements in the markets: Built-
to-Suit, Pre-construction and Pre-completion leases. From the financing point of view,
the most important are the first two cases, when developers manage to secure tenants
for the buildings, before bearing the major costs of the construction. In total, since
2003, only 20% of all pre-let and 4% of lease transactions volume in Warsaw were
signed prior to the construction. That situation has greatly improved since the beginning
of 2011 with a number of large pre-lease transactions being registered, including
Orange (43,700 sq m), T-Mobile (27,000 sq m) and Frontex (14,600 sq m). As the
historic figures show, many office buildings in Warsaw and in other Polish cities as well,
were delivered empty, on a speculative basis.
250 000
200 000
150 000
100 000
50 000
0
2006
2007
2008
2009
2010
2011
2012
Q1 2013
PROPERTY REPORT 66
Since the beginning of 2009 the market has been dominated by small lease
transactions – the size of average deal oscillates around 1,000 sq m. The largest deals
concluded in 2013 are presented in the table below.
Size
Q Zone Building Tenant Type
(sq m)
1Q US Trinity II BNP Paribas 11,000 renewal
1Q US Marynarska BP Play 9,600 renewal +
expansion
1Q W Laris Konsalnet 8,200 pre-let
1Q US Park Rozwoju Schneider 7,000 pre-let
1Q SW Lopuszanska Business Park Alior 6,100 pre-let
1Q CBD Warsaw Financial Center CMS Cameron McKenna 5,000 renewal
1Q CC Warsaw Trade Tower Avanssur 4,200 renewal
1Q US New City II Eniro Polska 3,900 pre-let
1Q US Iris Dago Centrum 3,600 new
1Q US Mokotów Nova Cegedim 3,400 new
1Q SW Eurocentrum Office Randstad 2,700 pre-let
Complex Beta
1Q US IO-1 Ciech SA 2,500 renewal
1Q CC Sienna Center Nextira One 2,400 new
1Q CC Sienna Center Witualna Polska 1,850 renewal
1Q US Konstruktorska Business HB Reavis 1,800 owner
Centre occupation
1Q CC Focus Samsung 1,800 expansion
1Q CC Warsaw Trade Tower American Express 1,700 renewal
1Q LS Light II (aka Lighthouse) SCA 1,500 renewal
Vacancy Rates
As a result of low levels of new supply and accelerating demand in past quarters, the
overall Warsaw office vacancy rate has been declining since 2009. In 2011 it hit a
cyclical low at 6.7% in Q4 2011. However, due to the growing amount of speculative
completions, the vacancy rate entered a growth path at the beginning of 2012.
Nevertheless, the increased amount of vacant office space should be gradually absorbed
in the longer run.
The lowest availability ratio at the end of Q1 2013 was recorded in the South-East (5%),
Northern (7%) and City Centre (9%) zones. The highest vacancy rate was registered in
the Lower-South (16%) and Eastern (12%) zones.
At the end of Q1 2013 the vacancy rate in Warsaw amounted to 9.9%, with the level of
9.6% registered in the City Centre and 10% in Non-Central locations.
PROPERTY REPORT 67
0% 0
SW
LS
City Centre
Core
Total Warsaw
SE
W
US
N
Source: CBRE / WRF, Q1 2013
In Non-Central locations, the existing buildings offering the most vacant space (over
5,000 sq m) are listed below.
Existing office schemes with a vacancy rate over 5,000 sq m (Q1 2013)
Asking Rent Q4 2012 (mth/sq
Building Address Zone Vacancy (sq m)
m)
Konstruktorska BC Konstruktorska 11 US 35,403 15.00 EUR
Ilmet Jana Pawła II 15 CBD 10,340 16.00 EUR
Poleczki Business
Poleczki 33/35 LS 8,231 15.00 EUR
Park II
Millennium Plaza Jerozolimskie 123A CC 7,235 16.00 EUR
Iris Cybernetyki 9 US 6,769 14.00 EUR
Chmielna 134
Chmielna 132/134 CC 6,670 16.25 EUR
(Aktyn)
Concept Tower Grzybowska 87 W 6,464 18.00 EUR
Oxygen Park I Jutrzenki 137 SW 6,099 15.00 EUR
Lumen Złota 59 CBD 6,069 23.50 EUR
Wolf
Marszalkowska 89 CC 5,799 27.00 EUR
Marszałkowska
Sienna Centre Sienna 73 - 75 CC 5,775 18.50 EUR
Nowa Praga Brechta 7 E 5,585 13.00 EUR
Equator II Jerozolimskie 128a SW 5,332 16.75 EUR
Empark Orion Postepu 18b US 5,110 12.50 EUR
Platan Park I Poleczki 21 LS 5,013 11.50 EUR
Source: CBRE / WRF , March 2013
Net absorption (understood as the new space leased on the market) in 2012 accounted
for almost 170,000 sq m, i.e. 28% of total take-up. The average level of annual
absorption registered since 2009 is lower than the amount of office space that is
expected for delivery in the next two years. That should translate into increased vacancy
levels in the nearest future.
PROPERTY REPORT 68
As most of the companies are applying a conservative strategy towards their future
expansion plans, no significant increases in the level of absorption should be expected in
the near future.
In the end of Q1 2013 prime headline rents in Warsaw amounted to EUR 26 – 27/sq
m/month in the City Centre and to EUR 15 – 16 in Non-Central locations. Average
headline rents in modern office buildings located within the City Centre range from
EUR 20 to 22/sq m/month, whereas in Non-Central located office buildings rents vary
between EUR 14 and 15/sq m/month. Due to the increasing amount of modern office
space under construction in Warsaw, no rental increases should be expected in the
nearest future.
Source: CBRE
As the amount of speculative office space that will be delivered to the market in the near
future remains significantly high, the average rental level might decline gradually during
the next 12 months. However, prime rental levels remain relatively high as the availability
of office space in the most desirable locations is still limited. Therefore, the prime rental
level for those office buildings located in the CBD should remain stable throughout
2013.
30
25
20
15
10
5
0
2013F
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Q1
Source: CBRE, F - forecast
6 000
5 000
4 000
3 000
2 000
1 000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
OFFICE RETAIL INDUSTRIAL OTHER
Source: CBRE
Investor demand is relatively strong and focused both on the prime assets as well as the
value-add opportunities. The interest in Polish assets remains viable mostly due to the
political and economic stability of the country, accompanied by the sound performance
of tenants in all sectors of the commercial property market. Moreover, the market
fundamentals and the economic forecasts are relatively positive for Poland, which should
sustain investor demand in the long run. However, due to a general scepticism caused
by the uncertainty over the economic performance of the European Union, the
investment volumes in Poland are being put under a gradual downward pressure,
particularly in the retail sector.
European investors are the most active group of purchasers in Poland. German open-
ended and close-ended funds are considerably important in this regard, being
responsible for 40% of transaction volume in 2012. A significant, 19% share has also
been registered by American investors. A visible trend is the increasing activity of
domestic buyers recording a level of 10% in 2012.
1%
3%
10% Germany
France
9%
40% USA
UK
Poland
19% Other
Austria
18%
Source: CBRE
PROPERTY REPORT 73
Strong investment demand in the few last years has been clearly noticeable and has had
a direct impact on yields. Moreover, it has not been subject to any downward pressure in
Q1 2013. It is estimated that since 2002 prime office yields in Warsaw gradually
declined from 10% to the level of 5.40% - 5.50% in the end of 2007, when the
observed compression stopped. Since 2008 yields began to grow, especially in the office
sector. The global financial crisis resulted in a shortage of money supply and the
increase in interest rates which were the reasons for the yield decompression in all CEE
countries.
In Q1 2013 prime office yields in Warsaw were estimated at circa 6.25% for the best
performing buildings. With the limited evidence of office investment transactions outside
of Warsaw, the prime office yields in regional cities are estimated at around 7.3% for the
best schemes. It is expected that the gap between prime and secondary yields will
increase through to the end of 2013.
PROPERTY REPORT 74
Prime schemes in Poland are still considered as very desirable by investors and their
availability remains limited. What is more, some investors have already started indicating
interest for value-added opportunities in prime office locations in order to pro-actively
prepare for the anticipated increasing vacancy.
16%
14%
12%
10%
8%
6%
4%
2%
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: CBRE
Alongside France, Germany and the UK, the Polish market is still a preferred destination
for numerous investors. German funds, investors from the USA and France, as well as
local entities, are active here. Even so, 2013 poses other challenges to investors due to
the turbulence in the Eurozone. For instance, average transaction closure periods have
become more protracted, with restricted bank policies in terms of access to credit lines,
revealing the relatively high risk aversion of investors.
Land Market
After a significant decrease of land values since late 2008 and a fall in demand,
currently there is a positive influence on the market brought about by decreased
construction costs, increasing investment activity and availability of finance.
Demand is focused on prime sites designated for small and mid size projects, mainly
driven by the high level of equity required , in comparison to previous years,
The key market features that affect land values are as follows:
location – distance to city centres, presence of green areas and access to services
(shops, schools, kindergartens);
car and public transport access;
surroundings – quality and character of neighbouring developments;
planning situation (if the site benefits from a valid Outline Building Permit, Master
Plan or Building Permit);
density of potential development – the larger the building that can be developed on
the site the higher the value;
PROPERTY REPORT 76
size and shape of the site – prices for large sites are usually lower than for smaller
sites;
access to infrastructure (water, central heating, electricity and sewerage);
tenure – sites held on a perpetual usufruct basis are usually cheaper than these hold
on freehold basis due to the fact that annual RPU fees can be substantial and
influence total development costs.
Usually the strongest impact on land values is the location and presence of planning
permits. The factor which has the weakest impact is title to the land (freehold/perpetual
usufruct).
Due to the size of the subject property and lower supply and demand for such sites we
decided to analyse Notarial Deeds of sites located not only in Wilanow District but
generally in Warsaw.
Below we present selected sales transactions concluded between 2011 and 2013 for
sites above 10,000 sqm located in Warsaw:
Below we present selected sales transactions concluded between 2011 and 2013 of
sites below 10,000 sq m located in Warsaw, Wilanow District:
The most attractive sites are those situated in well recognized residential locations and
benefitting from a valid planning permit (Outline Permit, Building Permit or Master Plan).
Currently land prices, outside the city centre of Warsaw, range from approximately 503
to 1,100 PLN per sq m of site.
We have also analyzed the offers of large areas of investment land designated for
residential and services currently offered on the market. Below we present selected recent
offers of land of above 20,000 sq m available on the market outside the city centre of
Warsaw.
Wilanow, 22.200 21.159.000 770 Master Plan, plots designated for residential
and services developments;
Close to planned ring road;
Infrastructure on site;
Mokotow, 57.300 51.480.000 730 Master Plan, plots designated for multi-
Siekierki, family residential and services developments;
No Infrastructure on site;
Wilanow, 30.000 10.500.000 285 Master Plan, educational services;
Powsin, Maximum height of developments 15m;
Zakamarek
St.
PROPERTY REPORT 78
Source: CBRE
For the purpose of the valuation of the site designated for educational purposes (symbol
5UO) we have collected details of transactions for sites of a similar designation. Bearing
in mind that such sites are very rarely the subject of market transactions we searched for
such transactions not only on the Warsaw market but also in other major cities in
Poland. Below we present selected recent transactions of land of above 1,000 sq m
designated for educational services:
VALUATION CONSIDERATIONS
Market Value of the undeveloped site of 178,723
sq m under Special Assumption (1)
This is Market Value of the undeveloped site of 178,723 sq m under the Special
Assumption that the new Master Plan has been approved.
In calculation of this Market Value we have assumed that the site will be developed as a
whole, i.e. as one mixed use office and residential project, without division into five
separated sub-projects according to the new Master Plan.
Valuation Methodology
We detail our main methodology and market assumptions relating to the subject
property. We bullet point our main comments and assumptions below:
We have based the valuation on the following areas and assumed the following
timing and construction costs:
Site UO (symbol 5UO) – there is no architect concept with regard to development of this
part of the site.
The area of the plots designated for roads has been divided between all 5 phases
proportionally according to their share in 178,723 sq m;
Based on the evidence presented in the Market Commentary section we have
assumed the following Market Rental Values for the office accommodation:
Function Rent (PLN/sq m or space/month)
Office 60
Car park 270
Source: CBRE
Bearing in mind that there is no architectural concept with regard to the development of
the part UO (symbol 5UO) designated for educational purposes we have calculated its
value using the sales comparison method.
After analysing the comparable land transactions as well as taking into account
attributes of the subject property, in our opinion, the Market Value of the subject site is
PLN 356 per sq m of the site of 14,568 sq m i.e. 5,186,000 PLN. The site of 14,568 sq
m consists of 12,400 sq m plus a share in the road plots.
We have based the valuation of the garages on the schedule of garages provided by
the Client as below:
Garage Net Market Value
Building Market Value (PLN)
number (PLN/garage)
A1 145 20,000 20,000
A1 158 20,000 20,000
A1 182 20,000 20,000
A1 201 20,000 20,000
A1 183 20,000 20,000
A1 202 20,000 20,000
A1 94 20,000 20,000
A2 1 20,000 20,000
A2 23 20,000 20,000
A2 54 20,000 20,000
A2 74 20,000 20,000
Total 220,000
PROPERTY REPORT 85
Sensitivity Analysis
Below we detail our main assumptions with regard to sensitivity analysis:
Market Value: EUR 156,113,187 (rounded: EUR 156,113,000)
ERV change: +/- 10.00% (percentage)
Construction Costs: +/- 10.00% (percentage)
Yield change: +/- 0.25% (fixed)
Sale Price: +/- 500 PLN per sq m (fixed)
PROPERTY REPORT 86
OPINION OF VALUE
Market Value of undeveloped site of 178,723 sq m
under Special Assumption (1)
Market Value of the undeveloped site of 178,723 sq m under the Special Assumption
that the new Master Plan has been approved as of 30th June 2013 is:
PLN 156,113,000
(ONE HUNDRED AND FIFTY SIX MILLION ONE HUNDRED AND THIRTEEN THOUSAND
PLN)
The above value is net of purchaser’s costs and VAT.