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Investment land market in Warsaw

The past year has brought significant changes to the investment land market for multifamily housing in Warsaw. The total value of transactions has been successively decreasing for three years. However, there has been an increase in the concentration of contracted land where prices were lowest, indicating a more strategic approach by investors looking for more accessible and affordable locations to minimise risk and maximise potential returns. The INWI team analysed recent transaction data in the capital’s investment land market. What has the experience of the last two years shown? What are the prospects for the multifamily sector? These questions are answered by the experts of INWI, a company that is a leader in the land, residential, logistics and retail real estate sector.

Declining market dynamics

It is noteworthy that the shortage of investment land has been steadily worsening for several years. According to INWI data, the number of transactions in Warsaw in 2023 is down by 8% on the previous year. This is reflected in the total area and the total value of transactions, which declined adequately year on year. In 2021, the transaction area of land for multifamily development was in the region of 800,000 m2, a year later it fell to just over 500,000 m2, while in 2023 it amounted to only 350,000 m2. However, the declining dynamics signal a stabilisation of market conditions. Investors are more informed and predictable in their decisions, which encourages more sustainable development. In addition, the lower number of transactions suggests a greater focus on long-term investment goals, which have more potential for the long term. The decline in market dynamics presents an opportunity to implement new investment strategies. Development companies and investors can focus on the qualitative aspects of investment, carefully analysing projects and minimising risks, which should bring significant benefits in the long term. The natural consolidation of the market also provides an opportunity for companies with stable foundations, increasing the prospects for long-term success and consolidating their position in the market.

‘We are observing a decline in the number of investment transactions in the capital. We interpret this as a signal of a stabilisation of market conditions and a greater focus of investors on long-term goals, which may bring benefits in the long term,’ says Mariusz Urbanski, Development Director at INWI.

Land price dynamics and spatial differentiation

In the first half of 2023, INWI experts observed a clear decrease in the average price per square metre of land compared to the corresponding period in the previous year. It amounted to PLN 2,211 per square metre, which is almost PLN 800 per square metre less than in the first half of 2022. The second half of 2023 brought an increase in this price to PLN 3,500 per square metre, which is, however, more than 500 per square metre less than in the second half of 2022. In average terms, in 2023, the value of land stood at PLN 2,908 per square metre, and in the previous year at PLN 3,370 per square metre. However, the thirteen per cent drop in land prices did not go hand in hand with the change in prices for residential floor space, which had remained at a very similar level for two years.

The district with the lowest price for land and PUM was Białołęka, where these prices amounted to PLN 1 082 and PLN 1 033 respectively. This was a particularly attractive area for investors, as confirmed by the number of transactions carried out, amounting to 21 in 2023 and 22 in 2022. The highest price per square metre of land was recorded in a single transaction in the Warsaw district of Ochota – PLN 19,272. The price per PUM for this transaction ranked very high at PLN 12,144.

Developers’ activity

The report prepared by INWI analysed the activity of developers operating in the capital, of which there were more than 40 in 2023. Each of them was compared based on three categories: total transaction area, total transaction value and total PUM on contracted sites. In terms of transaction area and PUM size, Dantex ranked first with just over 80,000 m2 of land purchased, which accounted for almost 24% of the total transaction area in the capital. The total PUM on these sites amounted to 47,373 m2. The largest purchase in terms of price was made by Dom Development, acquiring land in Mokotów and Bemowo for over PLN 125 million. Other noteworthy developers active on the Warsaw real estate market were Profit Development, Develia or Marvipol, who, ranked in the top five in terms of transaction volume and value and PUM size.

ABOUT INWI

INWI operates in the real estate sectors including land, residential, office, retail and logistics properties. It actively seeks land and buildings for its own investment plans and in cooperation with leading investors in the market. The company also participates in sale and leaseback transactions. To date, INWI has completed more than 50 projects and the value of completed transactions exceeds EUR 700 million. For more information, visit www.inwi.pl .

The owners of large plots of land usually wonder whether they can consider their land to be an “investment plot”.  It is generally believed that this type of real estate is desired the most by investors. What is an investment plot and what types of it can be distinguished? How to determine the price of an investment plot? The article below explores these subjects.

Definition of an investment plot

Investment plots are real properties which, in accordance with the local development plan or development conditions decision, can be used for an investment project related to conducting business activities. These can be factories, warehouses, manufacturing or logistics halls, office and commercial buildings. No residential buildings can be erected on this type of land. Buildings used for business activities are often very burdensome for local residents; therefore, investment areas are mostly located at suburbs or outside of the cities, in the vicinity of trunk roads, express roads or motorway junctions. Exceptions include office and commercial buildings, which are erected in well-connected places inside the cities.

What can be built on an investment plot

This depends mainly on the size and location of the plot, as well as the provisions of the local development plan (or development conditions decision) and the state of access roads. Different types of buildings can be erected on an investment plot depending on the combination of the above-mentioned elements. These include mainly:

Warehousing parks

Large-area warehouse developments used by more than one tenant. This type of real properties are located in the vicinity of large cities, although mostly just outside their boundaries, along the largest communication routes and near motorway junctions.

Big-box warehouses

Large facilities located in the area of the largest urban agglomerations, mostly 10–50 km away from city boundaries, with access to express roads and motorways. The main tenants of big-box warehouses are e-commerce companies, retail networks, distributors and logistics companies.

Small business units

SBUs are smaller warehouses with the area from 500 to 5000 sqm. Such facilities feature warehouses and offices, and sometimes light production. This type of real property is mostly selected by the tenant who, except for perfect location, cares for visual and aesthetic qualities of the building. Small business units are located in the industrial urban districts located close to city centers.

Manufacturing facilities

The plots intended for manufacturing facilities are usually determined in detail in the local development plan. Complicated parameters and detailed requirements mandatory to construct this type of buildings limit the possibilities of land usage – not every plot meets the provisions for manufacturing facilities.

Data center

This type of building is intended for storing IT infrastructure, as well as processing and distributing data. It is characterized by very high electricity demand, and location far away from the main roads, but in a well-communicated area.

Office buildings

This is one of the most active investment property sectors. At the end of the third quarter of 2022, the total volume of office investments in Poland reached the level of 1.8 billion euro. Naturally, such investment projects are implemented in large cities, such as Warsaw, Wrocław, Kraków.

Retail park

The demand for plots of land intended for the construction of large-area commercial halls, so-called retail parks, is still high. This type of investments are implemented throughout Poland, both within and outside of the boundaries of large cities.

How to check whether a plot of land belongs to the investment category

The most important legal act which can help to determine the status of a plot is the local development plan. This document contains information which set forth the requirements applicable to the particular area. Pursuant to Article 4 item 1 of the Spatial Planning and Management Act, the local development plan provides for “determination of the intended purpose, deployment of public utility investments and identification of the development and its conditions for the land.” The local development plan not only sets forth what can be built on a particular land, but also describes the parameters, such as building height. The data on the actual status of the land plot can be found on the Internet or at municipality offices. If a real property is not subject to any local development plan and the investor plans to change its development manner, they can apply for a development conditions decision to be issued. The development conditions decision can be issued when several conditions are met, such as the presence of at least one adjacent plot accessible from the same public road, developed in a manner allowing for the determination of requirements for new development.

How to determine the price of an investment plot

To fairly determine the price of an investment plot, you need to first answer the question: what part of the plot area can be used for an investment. This type of analysis will help to estimate the initial price, which will be appropriately specified in detail after the technical parameters determining the investment potential are established. The most important of them are set forth in official documents issued by the self-government bodies at level of municipality, poviat or voivodship (e.g. local development plan). Based on the available documents, the useable surface area can be calculated, which will provide the answer to the question asked in the first sentence. This is one of the parameters necessary to determine the value of a land plot. If a plot is subject to additional conditions (it is located in a restoration zone, the real property has been entered into the list of heritage sites, it is located in a downtown development area or infrastructural investments are planned nearby) or an environmental decision is required, more documents will need to be obtained. Using a specialist support to obtain a reliable and accurate valuation report is recommended.

Warsaw investment land market 2022 H1

A comprehensive report from INWI reveals that the value of transactions in the Warsaw land market (total land transactions value) shrank by 28% in comparison to the first half of 2021 and 2022. There was also a reduction in the contracted land area. In the first half of 2022, the volume of land transactions covered 0.4 million square meters, which constituted a 51% drop in comparison with the same period last year.

The average price of land in Warsaw was PLN 2163 per square meter. Expressed in apartment usable area (PUM, powierzchnia użytkowa mieszkania), the prices fluctuated around the level of PLN 1950 per square meter, which translates to an increase of more than 26% year-over-year. In the first half of 2022, transactions concluded based on local development plans dominated among land transactions, making up almost 57% of all transactions. Land prices and prices expressed in apartment usable area were the lowest in the Rembertów District.

“In 2021 low land availability in Warsaw motivated investors to make swift purchases, as they feared losing the opportunity to another buyer. The year 2022 brought about a new reality – we are observing the current situation in the Warsaw land market with great interest and can draw conclusions that although the number of transactions is noticeably lower, their total annual value will be a surprise,” says, Mariusz Urbański, an INWI development manager.

A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments.

Since October 2021, during ten monthly meetings, the Monetary Policy Council has raised the benchmark interest rate by 640 basis points. The recent increase was announced on 7 July 2022. Are interest rates going to increase even more? Most certainly the next increase in interest rates will be announced during the decision-making meeting of the Monetary Policy Council scheduled for 7 September 2022 (the meeting scheduled for 23 August has a non-decisional status, although that National Bank of Poland might change it). This is a good time to consider the advantages of sale and leaseback as a form of business financing that is independent from WIBOR.

Interest rates have been increased since October 2021 as follows (by dates of the Monetary Policy Council meetings):

on 6 October 2021 the reference rate was increased to 0.50%

on 3 November 2021 the reference rate was increased to 1.25%

on 8 December 2021 the reference rate was increased to 1.75%

on 4 January 2022 the reference rate was increased to 2.25%

on 8 February 2022 the reference rate was increased to 2.75%

on 8 March 2022 the reference rate was increased to 3.5%

on 6 April 2022 the reference rate was increased to 4.5%

on 5 May 2022 the reference rate was increased to 5.25%

on 8 June 2022 the reference rate was increased to 6.00%

on 7 July 2022 the reference rate was increased to 6.50%

In July 2022, according to the Statistics Poland flash estimate, CPI inflation reached 15.5% YOY. In accordance with the July 2022 report published by the National Bank of Poland, the main contributor to the increase in inflation was the growth in the prices of energy, including fuel and energy carriers, as well as:

• Growing dynamics of consumer goods and services prices in Poland in the first half of 2022.
• An increase in raw material prices on global markets, which has intensified after the start of Russia’s military aggression against Ukraine at the end of February 2022.
• An increase in enterprises’ operating costs (the price dynamics of sold industrial production in Poland – as in many other economies – has accelerated in recent months (to 24.7% YOY in May 2022).
• Positive domestic economic situation that facilitated the transfer of rising costs to consumer prices.
• Ongoing disturbances in global supply chains.
• The global growth in the prices of raw materials and of some goods, as well as prolonged disruptions in supply chains, have contributed to the increased dynamics of credit liabilities drawn by large enterprises. In Q1 of 2022, the growth was 6.7% versus 2.2% in Q4 of 2021 (source: National Bank of Poland “Inflation Report – July 2022,” p. 33). There is still a strong need to obtain working capital and accumulate financial resources.

A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments. When drawing liabilities with a bank, many entrepreneurs are not aware of the opportunities that are offered by sale and leaseback transactions, which may turn out to be a cheaper and faster alternative to obtaining financing than loans. As a result of signing this type of contract, the property owner sells it to the investor, and continues to operate in the same scope and in the same location. Sale and leaseback is a solution providing many companies with significant resources for development, which can be allocated for any purpose, and the funding amount reaches the market value of the property, which is a significant advantage over bank financing that requires own contribution.

Advantages of sale and leaseback:

• Full flexibility in spending the money earned on the sale – investments, liability repayment, dividend.
• Financing in the amount of the property’s market value.
• Long lease period, purchase option, service fees – at the parties’ decision.
• Monthly rent independent from WIBOR – a cheaper alternative in the time of increasing interest rates.
• Quick decision process

INWI is actively seeking real properties owned by companies with annual turnover above 100 million PLN. Feel free to contact us: mariusz.stepien@inwi.pl / tel. +48 789 046 179