Reflection on the past ready for the future? Report CRIDO and CBRE

POLISH COMMERCIAL REAL ESTATE, 20 YEARS LATER... RE FLECTION ON THE PAST. RE ADY FOR THE FUTURE?

Polish commercial real estate 20 years later...

RE FLECTION ON THE PAST. RE ADY FOR THE FUTURE?

POLISH COMMERCIAL REAL ESTATE, 20 YEARS LATER... RE FLECTION ON THE PAST. RE ADY FOR THE FUTURE?

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TABLE OF CONTENTS

Commercial real estate – introduction ������������������������������������������������9

Flying freehold ������������������������������������������������������������������������������������������������������������ 49

Investment market �����������������������������������������������������������������������������������������������������10

PRS market ��������������������������������������������������������������������������������������������������������������������50

Office market ����������������������������������������������������������������������������������������������������������������16

Perpetual usufruct ������������������������������������������������������������������������������������������������������51

Retail market ���������������������������������������������������������������������������������������������������������������� 24

Conclusion ��������������������������������������������������������������������������������������������������������������������� 52

Industrial and logistics market ����������������������������������������������������������������������������� 30

Tax – introduction ������������������������������������������������������������������������������������55

What can we expect in the future? �������������������������������������������������������������������� 36

Profit distribution �������������������������������������������������������������������������������������������������������� 56

Legal – introduction ������������������������������������������������������������������������������� 41

Financing ���������������������������������������������������������������������������������������������������������������������� 58

Free movement of capital �������������������������������������������������������������������������������������� 42

VAT on real estate transactions ��������������������������������������������������������������������������� 60

Free movement of persons ������������������������������������������������������������������������������������ 43

Reorganisations ���������������������������������������������������������������������������������������������������������� 62

Warehouse market ���������������������������������������������������������������������������������������������������� 44

The EU as an arbiter in disputes between tax authorities and taxpayers �������������������������������������������������������������������������������������� 63

Lease ������������������������������������������������������������������������������������������������������������������������������ 45

Sustainable development �������������������������������������������������������������������������������������� 46

About CBRE ���������������������������������������������������������������������������������������������������������������� 68

The need for legislative changes ������������������������������������������������������������������������ 48

About CRIDO �������������������������������������������������������������������������������������������������������������� 68

REITs �������������������������������������������������������������������������������������������������������������������������������� 48

Authors �������������������������������������������������������������������������������������������������������������������������� 69

POLISH COMMERCIAL REAL ESTATE, 20 YEARS LATER... RE FLECTION ON THE PAST. RE ADY FOR THE FUTURE?

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HOW HAS THE MARKET CHANGED FROM THE PERSPECTIVE OF A CONSULTING AGENCY? IS WORK THE SAME AS 20 YEARS AGO?

Certain market standards brought to Poland from Western Europe and the USA are still in force, and not only in Poland. It does not mean, however, that the market is static - on the contrary, it is very flexible. Agencies, combining the interests of buyers and sellers, or landlords and tenants, see upcoming changes more quickly and the only question is whether they are able to rapidly adapt their offers and services. In a market such as Poland or other countries in the region that joined the European Union 20 years ago, changes have been occurring faster and more frequently than in already stabilized European markets. When I came to CB Richard Ellis in 2007, we had seven business lines - today there are 14 and several dozen additional specializations within. This shows not only how CBRE has developed as an organization, but also how much the commercial real estate market has evolved. Employment at CBRE has increased from approximately 50 people to 570 now, our competition is also developing, the market is diversifying, and new services are emerging in response to the changing market.

DO CUSTOMERS HAVE A SIMILAR APPROACH TO 20 YEARS AGO?

Before 2010, the agent's role was often limited to associating parties and shaking hands. Currently, both in lease and sale transactions, the participation and involvement of advisors is significant and comprehensive, and the scope of consulting is much greater. The need to combine knowledge and experience from various fields and areas, which in today's world interpenetrate on many levels and may be of key importance for investments, is also gaining importance.

DANIEL BIENIAS Managing Director CEE & Poland CBRE

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HOW HAS THE MARKET CHANGED FROM THE PERSPECTIVE OF A CONSULTING AGENCY? IS WORK THE SAME AS 20 YEARS AGO?

DO CUSTOMERS HAVE A SIMILAR APPROACH TO 20 YEARS AGO? On the one hand, tax advisory is similar – one needs to have subject-matter expertise build customer trust. You need to understand the question, especially an unspoken one. Think of a solution. Answer as quickly and clearly as possible. Be ethical outside and inside the organisation. And, as a team leader, you need to develop and support your team. On the other hand, basically everything has changed. Firstly, the tax law itself. Not only it has changed drastically, but has also ‘gained’ weight in terms of its complexity and the number of regulations. Secondly, there has been a overwhelming increase in transparency and availability of information about practice, regulations and possible solutions. Thirdly, we work with different tools on a micro and macro level, whether in terms of client contact, data analysis or team management. Fourthly, these two decades have created a certain sense of stability and continuity in Polish institutions; while we are naturally still far from other countries, we have achieved a lot. And, last but not least, the most satisfactory thing for me personally is that the advisory market has expanded and the client has more options. When I joined CRIDO in 2007, I met 30 new people; today there are 450 of us on board and other growing Polish advisory firms around us. I am happy to enjoy this part of these 20 years as well. In terms of quality, expectations are on the same level or even higher. Answers to questions which in 2004 would have been considered difficult, can nowadays often be found in the Internet. In 2024, the level of complexity, multi-faceted analysis and conclusions, and knowledge of the industry have increased dramatically. What matters is the experience and the ability to apply expertise to effectively help the business. Expectations of the social standards of doing business and of connecting with the local community have certainly grown as well. As far as relationships are considered, I feel that the world has calmed down a bit and became more human. Far fewer people make business calls in the evening, far more people take calls at meetings ‘because their child is calling’. Clients do not expect full and unconditional military-like mobilisation, they understand that it is possible to combine commitment to helping clients with a personal life. I believe this is a nationwide trend, but we at CRIDO certainly have such cool clients.

PAWEŁ TOŃSKI Managing partner CRIDO

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COMMERCIAL REAL ESTATE INTRODUCTION

Poland’s 20 years in the European Union are at the same time 20 years of the most active economic growth and the growth of the commercial real estate market in Poland. The last 20 years have been a breakthrough for Polish economy. During this period, Poland’s GDP increased 3.5 times. The average GDP growth rate over those years was approximately 4%, and the highest level was achieved in 2007 (6.8%). Purchasing power also showed steady growth. In 2000, GDP per capita PPP (purchasing power parity) was $10,000, and in 2020 it tripled to $33,891. This increase in purchasing power reflects the improvement in the standard of living in Poland. GfK data for 2023 shows that the purchasing power index per inhabitant is 62 and per household 77 (European average = 100).

Despite this progress, Polish economy has faced some obstacles. While the 2008 global financial crisis contributed to it somewhat, the economy proved resilient and Poland was the only European Union country to avoid recession. More recently, the Covid-19 pandemic brought new challenges, causing a GDP contraction by 2% in 2020. However, the strength of Polish economy lies in its diversity, with a mix of sectors such as manufacturing, services, and agriculture. The country’s strategic location in Europe and membership in the European Union provide access to a vast market. Over the last 20 years, the existing office space in Poland grew by 82%, retail space by 72%, and warehouse space by 95%. We can confidently say that the market is mature, responsive, and ready for ongoing economic and social changes.

Chart 1. GDP growth chart I source: Oxford Economics, European Commission

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INVESTMENT MARKET

Already in 2004, the investment volume in the CEE exceeded EUR 4 billion, with Poland taking the largest share at over EUR 1.5 billion. At that time, the retail sector was the most popular among investors: transacted projects included, among others, King Cross Marcelin, Galeria Dominikańska, and Galeria Pomorska, but also such office developments as Crown Point and Saski Crescent, and the capital involved mainly originated from Europe (Austria, Germany, Ireland, France) and the USA.

Chart 2. Change in investment sentiment in Poland over time I source: CBRE

Sentiment towards individual investment sectors changed over time: the first large transactions took place in the retail sector, which was the most dynamically developing sector until 2010. In turn, offices (with an average 37% share in the investment volume over these 20 years) constituted a quite stable asset class and only in the last two years, has the sentiment towards this sector deteriorated mainly due to global trends particularly visible in the USA. At the same time, with the decline in investor interest in the retail sector and the dynamic development of the warehouse and logistics market, the

latter has gained the found interest of investors, and its average share in total investment volume in the last five years has reached 44%. Investment security and income stability have increased over the years, and as more developers appeared in the region and the offer of good asset classes was expanded, buyers started acting more boldly, while the origin of capital became more diversified.

Over these 20 years, vehicles from 45 different countries have invested in Poland. While before the global financial

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crisis it was mainly players from Europe and the USA (Germany, Austria, Great Britain, France, the Netherlands) and local capital invested in Poland, in the last 8 years new sources of capital emerged: from Asia (Singapore, South Korea, China), the Middle East (Israel, Lebanon), and the CEE (especially the Czech Republic, Hungary, and the Baltic states). With the currently subdued investment activity caused by the geopolitical and economic situation, in particular a high interest rate environment, many players have refrained from investing in real estate, though not only in Poland - the down trend has been observed globally. The recently announced ECB’s interest rate cut by 25 basis points may lead to a gradual rebound of the investment activity in the coming quarters.

The activity of local capital depends on existing regulations and structures. Due to the existing form of REITs (Real Estate Investment Trusts) in the Czech Republic and Hungary, local players constitute a significant share in the annual investment volume. In 2023, Polish capital accounted for 9% of the total volume, and on average about 6% of invested funds come from Poland. In 2024, the Ministry of Development and Technology launched works on the introduction of Polish REITs (SINNs - companies investing in real estate rental market), which in over the next few quarters may give the market a chance for a greater diversification and create an opportunity for private individuals to invest their savings in the form of institutional and professionally managed products.

As other European markets show, when the global investment sentiment cools off, local players constitute a significant counterweight to international capital which often suspends its activities and limits its funding of real estate investments.

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When Echo Investment started its operations in the real estate sector and made its debut on the WSE, Poland was still eight years away from joining the EU. It was a period when many in Europe still doubted the stability of the Polish transformation. Meanwhile, Poles proved that they could seize the opportunities arising from European integration. Echo Investment did the same, and EU membership undoubtedly contributed to raising the standards of the Polish market in terms of both property quality and the transparency and liquidity of the market, thus enhancing its attractiveness to international investors. Entering the EU structures created favorable conditions for developing new investments, while access to European funds helped the industry overcome stagnation. The first decade of the 21st century became a symbol of infrastructural development (highways, sports facilities) but also commercial real estate (offices or shopping centers) that elevated the Polish real estate market to a higher league which, from today’s perspective, is our natural environment. It is also worth remembering that EU membership made it possible to revitalize many neglected districts of Polish cities, significantly increasing their attractiveness, also for investments. Simultaneously, upon joining the Schengen Area Poles started travelling more often, discovering the charms of European cities. Inspirations triggered by smarter urban planning, moving away from monocultures, and focusing on multifunctional projects are an integral part of Echo Investment’s strategy today. EU membership was and still is an important engine for the development of Polish economy, and further integration steps, such as seeking ways of more sustainable development, although ambitious, are also optimistic.

NICKLAS LINDBERG

CEO Echo Investment Group

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OFFICE MARKET

In 2004, such projects as Warsaw Financial Center (1998), Metropolitan (2003), Warsaw Trade Tower (previously known as Daewoo Tower, 2000), and Atlas Tower (previously known as Reform Plaza and Millenium Plaza, 1999) towered over the centre of Warsaw. In regional Poland, the first major projects included Buma Square in Kraków (2002) and Poznan Financial Center (2001). Despite their age, some of these projects are distinguished by timeless architecture that has withstood the test of time, while others have undergone or will undergo a number of modernization or repositioning works.

Chart 3. Evolution of office space supply in major Polish cities I source: CBRE

When CBRE together with Rolfe Judd developed the second edition of Modern Office Standards Poland in 2011, such elements of the standard raised floors and green certification (LEED, BREAM) were additional aspects, and the well-being criterion (understood as the impact of the building on the well-being of its users) was not even mentioned.

for a much higher standard than the architecture of 1950s-1980s, throughout the intensive development of new locations and office hubs, to the period of the pandemic, which in fact accelerated the changes that were anyhow taking place towards the greatest possible flexibility and increasing the importance of the quality and service offered by office spaces.

Over the past 20 years, office buildings have undergone many changes, in terms of perception: from the admiration

The average age of an office building in Manhattan exceeds 70 years, and these buildings have only

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undergone various changes in function in recent years. These modernizations were introduced not only due to the age of supply, but above all to changes in the perception of the functions of buildings and the role of the office. Modern office buildings in Warsaw are currently on average 15 years old, in regional cities 11.5 years. Despite this, the owners of many of them are currently undertaking extensive modernization measures, which are dictated by the growing expectations of tenants and investors and the growing awareness of ESG aspects.

City

Tenant

Area (sq m)

The Varso Tower building

Warsaw

PZU

46,500

Warsaw

mBank

45,600

What can we expect in the next 20 years?

Warsaw

Orange

44,900

The office of the future will be like a chameleon: it will be a place flexible enough to fully adapt to the current needs of employees. It will be a centre for exchanging experiences, a space supporting community building and enabling creative work, both individual and across teams. The office will be focused on interaction: there will be spaces for team and conceptual work supported by tools that will permit displaying content in any dimension as well as discreet interaction in the metaverse. The word “office” itself no longer covers the possibilities this space can offer - maybe the time has come for a new term?

Allegro

26,000

Łódź

Infosys

24,100

Table 1. Biggest leasing transactions I source: CBRE

The largest building

Varso Tower

63,800 sq m

The tallest building

Varso Tower

310m

The oldest building

LIM Center

35 years

Chart 4. Office supply growth in the CEE region in 2004-2024 I source: CBRE

Table 2. Top list I source: CBRE

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When Poland joined the European Union in 2004, Hines had already been operating here for eight years. It was a remarkable time for the company, as the previous year saw the completion of the Metropolitan, a flagship office project in Warsaw. In 2004, it won the top MIPIM Award for Business Centres, marking the first such distinction for a CEE property in the history of the contest. In the following years, consistent economic growth and the accompanying increase in demand for commercial and residential space created favourable conditions for the development of the Polish real estate market. Hines Poland played its part in this. We opened offices and executed a number of projects in Gdańsk, Łódź and Kraków. In Warsaw, we constructed Proximo, an office complex that defined the modern landscape of the Wola district in 2016. At that time, Hines Poland Sustainable Income Fund was already in operation. Ahead of today’s trends and regulations, Hines was one of the first in Poland to launch an investment fund focused on improving the ecological efficiency of buildings. Responsible and sustainable development is one of Hines’ fundamental values. In this spirit, we aim to achieve net zero operational carbon emissions in our global portfolio by 2040. The past 20 years of EU membership have allowed Poland not only to spread its wings after the transformation period but also to mature and grow in strength. Hines Poland has matured in this environment as well, building a team of over 50 experienced and committed experts. The opportunities and challenges faced by the Polish real estate market today are different from those in 2004, but we remain ready and excited about the prospects ahead.

MARCIN WIELGUS

Chief Operating Officer Hines Poland

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Over the past 20 years, Poland’s integration into the European Union has catalyzed a period of dynamic growth for both the country and such businesses as Skanska in the region. One of the pivotal moments for us was 2009, when Skanska introduced Poland to the LEED multi-criteria building certification standards. Skanska was a trailblazer in educating the market about sustainable development. Today, these standards have become a market norm, but Skanska continues to push boundaries by adopting circular economy principles, implementing digital twins, and exploring zero-emission solutions. The transformation of workplace environments over these two decades is equally noteworthy. Office designs have evolved into health-focused, diverse settings that prioritize well-being. Skanska has always been ahead of the evolving needs of modern workers, pushing innovations in workplace approach like Activity Based Workplaces already in 2011, and flexible offices on demand as early as 2017 (Business Link). The company’s focus on integrating cutting-edge technologies such as AI and BIM in building designs has been not only improving project efficiency and safety but also ensuring that buildings are well equipped to meet future challenges and needs. We have also expanded our geographical footprint within Poland from Warsaw only, through entering regional centres in 2008 to currently operating across seven markets. This expansion marks a very dynamic time in our history, but also reflects the company’s strategy to tap into new opportunities. Additionally, Skanska has expanded with the residential sector, currently focusing also on rental properties. This move is aligned with global trends. Skanska’s journey over the past two decades in Poland mirrors the country’s broader economic and developmental strides. In terms of real estate, Poland now offers some of the highest global standards of quality and Skanska has significantly contributed to this achievement.

KATARZYNA ZAWODNA-BIJOCH

President and CEO, CEE, Skanska Commercial Development Europe, Poland

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RETAIL MARKET

This period featured the activity of such players as Apsys, Ceetrus, Echo Investment, ERE Group, Metro Group, and Tesco Polska, and the substantial number of projects (40%) fell into the category of the first generation of shopping malls, i.e. those where the service offer was complementary to a huge hypermarket. Nearly 300 international brands decided to start operations in Poland after 2004. Not all of them are still on the market, but it shows the scale of interest in our country. For some brands, the Polish currency is still an obstacle, which increases operational risk due to exchange rate fluctuations.

Others, however, are doing great in Poland, and at the same time, opening the borders and a supra-regional perspective are very helpful for Polish brands that are developing dynamically outside the country. Case in point, the largest Polish clothing company LPP had almost 1,200 stationary stores in 27 countries outside Poland at the end of 2023. The supply of retail space in the Central and Eastern European region has increased 3.5 times over the last 20 years, to almost 35 million sq m across over 3,000 commercial projects.

The retail market developed the earliest among the three traditional commercial sectors. In 2004, there were over 4 million sq m of retail space (GLA) in Poland, including such projects such as Arkadia (opened at the end of 2004), Galeria Mokotów (2000), Blue City (2004), Zakopianka (1998), and Stary Browar in (2003).

Chart 5. Retail supply in Poland I source: CBRE

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Shopping projects themselves have undergone rapid changes: ever more diverse formats appeared, and as the purchasing power of Poles increased and their habits changed, shopping malls began to expand their restaurant and entertainment offers. Moreover, the retail market began to diversify: there was a clear segmentation of the market and properties with a prime offer and projects offering fast fashion, food, and industrial discount stores. E-commerce has also turned out to be a catalyst for changes in the retail market, whose current share in retail sales in Poland is 16.4% (Euromonitor, 2024), similarly to Germany and only 4pp less than in the Netherlands. With the development of this trade segment, online and offline offers began to combine and mix in order to respond to growing consumer needs through multi-channeling.

It also significantly influenced the development of the logistics sector in Poland: e-commerce has fuelled delivery channels to such an extent that InPost itself, the leader of e-commerce delivery platforms in Europe, already has over 20,700 parcel lockers in Poland (as at the end of 2023).

Largest shopping mall

Aleja Bielany, Bielany Wrocławskie

141,000

Oldest existing shopping mall

Panorama, Warsaw 31 years

What can we expect in the next 20 years?

Table 3. Top list I source: CBRE

As a consequence of membership in the European Union, but also as a result of the growing wealth and purchasing power of the society, the coming years may witness the growth of the luxury brand segment and the development of high street locations. We can also expect further offer diversification, including an increase in the offer for seniors, who constitute an expanding purchasing group with a growing share in the turnover.

Chart 6. Retail space growth in the CEE region in the years 2004-2024 I source: CBRE

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The only constant is change. There are two words that can simply describe the last 20 years in Poland: dynamism and change. As Unibail-Rodamco-Westfield (URW), we had the privilege of being a part of this journey. At the beginning, as Rodamco in Poland, together with the GTC Group we owned Galeria Mokotów, the first third-generation shopping mall in the country. It paved the way for the shopping centre market in Poland. The idea of a large shopping mall with a cinema, a bowling alley, and a vast dining offer, located in a post-industrial area, seemed a risky concept. Luckily for us, Galeria Mokotów was the exact opposite, and proved an instant hit. Stories still circulate of retailers waiting in a line for any free unit. In 2007, Rodamco together with ING REIM & ING RED invited customers to a brand new iconic mall - Złote Tarasy, located right next to the Central Railway Station in Warsaw. After the merger of Unibail with Rodamco in 2009, we gained sufficient market share and financial standing to take over two other destinations in Warsaw, namely Arkadia and Galeria Wileńska. In 2017, we developed the Wroclavia shopping mall, with modern office space and a long-distance bus terminal fully integrated within. We are proud to see this place visited by over 17m people a year in an city of less than 1m inhabitants. This is a brief version of our story over last two decades, since Poland joined EU. The bigger the company, the bigger were our operations both globally as well as on our local Polish market. What started as partial ownership of one successful mall visited by 11m people in 2004 has become a business of 6 malls with 78m visits a year. On the one hand, our appetite for a “better” life has driven consumption habits. On the other, stability of EU membership, allowed financing to flow more freely, fuelling new investments and developments. However, there is still one thing that we have not managed to accomplish on the Polish market, namely more local capital, invested in real estate. A comparison of Polish and Czech investment markets shows some striking differences. I believe that introducing REITs, adjusted to local needs, could be a critical factor helping local investors to profit from real estate projects, while at the same time increasing liquidity of Polish real estate assets. Another factor could be joining the eurozone. It would eliminate currency risk for both real estate investors, and for retailers. In conclusion, during the last 20 years the death of malls was predicted on several occasions, but we now see that the modern consumer enjoys stability and flexibility in making choices, and we as URW will keep trying to offer customers a seamless, unforgettable shopping experience.

GRZEGORZ GRAJKOWSKI

Director of Operations Poland Unibail-Rodamco-Westfield

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INDUSTRIAL AND LOGISTICS MARKET

In 2004, the warehouse market in the CEE region offered as much space as Hungary today - 5 million sq m. Since then, it has grown thirteen times to its current size of 67 million sq m. The most dynamic development took place in Slovakia and Poland, where the increase was 20-fold.

In 2004, the Polish warehouse offer was mainly located in the Warsaw region (suburban locations), with a handful of facilities in the Silesian Voivodeship and around . At that time, the activity of warehouse developers was focused on the main cities, and basically within the city boundaries or just outside the city. With the development of the road network, which was largely influenced by EU funds, and the improvement of infrastructure, commuting time between cities, but also neighbouring countries, has significantly shortened. Currently, Poland’s road communication with the rest of Europe, combined with its strategic location, has contributed to the emergence of other locations for industrial and logistics business. Very rapid growth was visible in the West Pomeranian, Lower Silesian and Wielkopolskie voivodeships, but also in the east in the Lubelskie Voivodeship.

How many times did the market increase?

Country

1 Poland

20

2 Romania

16

3 Czech Republic

14

4 SEE region

12

5 Baltics

6

6 Hungary

6

7 Slovakia

6

Table 4. Growth of warehouse space in the CEE region in 2004-2024 I source: CBRE

Chart 7. Development of industrial and logistics space in the CEE region I source: CBRE

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In addition to the infrastructure development, a strong and stable economy, high-quality resources, and a competitive labour market make Poland and other countries in the CEE region, especially the Czech Republic, Slovakia and Romania, the target of many production and logistics companies. The Polish logistics market now encompasses of 32 million sq m and is the fifth largest market in Europe, competing with locations such as the Netherlands, Italy and Spain. In the following years, the pace of market growth will decrease slightly, but even then Poland has a chance to develop at a faster pace than the biggest markets. Our country still has relatively large land resources that permit further development of greenfield investments. Further investments in road infrastructure, including from EU (National Reconstruction Plan Funds) will enable the development of regions that are currently less connected, What can we expect in the future?

and therefore we can expect continuous growth of smaller markets.

The largest warehouse park

Central European Logistics Hub, Łódź

630,000

Individual countries in the region are also beginning to stand out through specialisation and preferential conditions offered to respective market sectors. While tenants from the automotive sector are developing in the Czech Republic and Slovakia, and the manufacturing sector dominates in Romania, the logistics and e-commerce sector rule in Poland, constituting a hub for the entire European region. We can also expect a continued expansion of supply chains through adding and diversifying the types of warehousing and distribution facilities, such as last-mile logistics. Moreover, to reduce the risk of disruptions in supply chains, we can expect a continued trend of moving production closer to sales markets, i.e. nearshoring. In addition to production itself, space for storing components and final products will also be needed, which will undoubtedly also benefit the Polish industrial and logistics market.

The longest building

A2 Warsaw Park

794m

The tallest building

Amica, Wronki

45m

Table 6. Top list I source: CBRE

City

Tenant

Area (sq m)

Świebodzin

Amazon

200,000

Bydgoszcz

Zalando

146,000

Table 5. The biggest lease transactions I source: CBRE

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The history of Panattoni in Poland began almost simultaneously with our country’s entry into the European Union. As a company, we commenced operations in 2005 and since then, we have observed and participated in the dynamic development of the commercial real estate market. Joining the EU was a powerful impulse for the Polish economy, attracting foreign investors who found a safe and strategic location for their investments here. Poland’s attractiveness dynamically increased, along with the progressive modernization of transport infrastructure and the construction of highways and expressways. This, in turn, resulted in an increase in investments in modern logistics centres and warehouses, which began to meet international standards. By 2010, Panattoni had achieved the status of the largest developer of industrial spaces in Poland and has maintained this status to this day. So far, we have built nearly 15 million square meters of modern warehouse space in the country, which accounts for almost half of all such resources in Poland. Our facilities not only support local economic development but are also a key element in the supply chains of international companies. Furthermore, our spaces are modern and increasingly environmentally friendly and people-friendly, which is a result of the EU’s Green Deal policy aiming for climate neutrality across Europe by 2050. Membership in the European Union has also facilitated Panattoni’s expansion beyond Poland’s borders. We currently operate in 19 European countries, India, and Saudi Arabia, demonstrating how local success can translate into international opportunities. Thanks to common standards and policies promoting sustainable development and innovation, we have been able to effectively develop our projects, minimizing environmental impact and increasing energy efficiency. In summary, two decades in the European Union have brought significant growth opportunities to Poland and Panattoni. The company has become a key player in the industrial real estate market, not only witnessing but also shaping the changes that have formed the Polish and European warehouse sector.

MAREK DOBRZYCKI

Managing Director Panattoni

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WHAT CAN WE EXPECT IN THE FUTURE?

THE DIRECTIONS THAT ARE ALREADY STARTING TO GAIN IMPORTANCE AND WILL DEVELOP IN THE COMING YEARS BOTH IN POLAND, AND MORE BROADLY, IN THE CEE REGION ARE:

The commercial real estate market responds relatively quickly to economic and social changes. As they mature, new sectors appear alternative to traditional ones, responding to the above-mentioned changes and at the same time giving investors the opportunity to diversify risk.

• residential for rent, • data centres, • retail parks, • student houses, • senior homes,

• BTS production projects (built-to-suit), • solar power plants, wind and solar farms.

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The first to be mentioned were apartments for rent, which - apart from a purely commercial perspective - are part of the need to fill the housing gap.

However, the growing mobility of the population and the decreasing affordability of apartments have resulted in an increase in the popularity of the rental market, as well as its sub-segments such as private dormitories or seniors’ homes. At the same time, modern assets from the Living sector are on the radar of investors looking for stable but attractive income compared to other investment options. Although all CEE countries are experiencing interest in modern investment assets from the Living sector, respective markets grow at a different pace. In Poland, the Baltic countries, and the Czech Republic, we can find both modern buildings with apartments for rent and private student dorms. Meanwhile, in Slovenia, the rental apartment market is much less developed, and the owners of rental apartments are almost exclusively private individuals. The offer of serviced apartments is quite developed, but lacks professional operators. In Slovakia, the rental market is small and dominated by private individuals. However, there are individual private student dorms in Bratislava. In many CEE countries, the private student dormitory market developed dynamically only after 2020. Its popularity has been boosted by the increasing mobility of young people as well as by an increase in the share of foreigners among students, permitted by the accession to the European Union, among other things. There are enough places in dormitories (both public and private) for a small group of people: from just over 10% of students in Poland’s largest

student centers, 19% in Hungary, over 20% of students in Ljubljana and Prague and 15-30% in the Baltic countries, which shows a lot of room for further development of this sector. Due to demographic trends and social changes, the prospects for private investments in housing for seniors are expanding. Private senior homes or nursing homes are still much less popular than public nursing homes, and their share in investment transactions in the CEE region is usually close to zero. However, international investors, developers, and operators are exploring the CEE region in search of new opportunities related to this asset lass. In response to this trend, the first international operators of senior housing entered the region and, in some regions (including the Baltic), there has even been a slight increase in the number of development projects in the field of housing for seniors. Market opening of also resulted in greater opportunities for the development of companies from the Living sector outside their country of origin. Polish housing developers implement projects in, among others, Germany, Spain, Hungary and Romania. In turn, investors and housing developers from the Baltic states are heading to Poland in droves, looking for more favourable market conditions.

The housing market in Central and Eastern European countries is characterized by high attachment to ownership. In each of the CEE countries that joined the EU in 2004, the share of the population living in their own homes is higher than 75%. In Slovakia and Hungary it even exceeds 90%. Owning a house or apartment is often perceived as a symbol of stability, security and success among residents of CEE countries. Therefore, the period after 2004 has been a time of dynamic growth for developers providing new apartments for sale. In particular, major Polish cities have become some of the largest construction sites in Europe, and national press headlines reported that as many new apartments were being sold in Warsaw as in London, a several times larger city. Foreign developers have appeared on the market, expecting rapid economic growth and an increase in the wealth of residents after accession to the EU.

Chart 8. Homeownership in the CEE region I source: Eurostat

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LEGAL INTRODUCTION

Poland’s accession to the European Union has had a significant impact on the shape of Polish legislation, both through direct implementation of EU directives and as a result of adapting the national legal order to European standards. These changes also affected real estate law. Entering the European Union allowed Poland to become part of the EU’s single market, benefiting from the four key freedoms: the free movement of goods, services, persons, and capital throughout the EU. The single market allows citizens of EU member states to live and work anywhere in the EU, while consumers benefit from a wider range of services and products.

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FREE MOVEMENT OF CAPITAL

FREE MOVEMENT OF PERSONS

Thanks to the free movement of capital, investors from EU countries have the right to acquire real estate in Poland, including commercial properties, under the same conditions as Polish entities.

On the other hand, the free movement of persons has allowed foreign companies to develop the business process outsourcing (BPO) sector in Poland due to easy access to skilled workers and a competitive market in Poland.

The influx of EU investors has brought numerous benefits to the Polish real estate market, including increased investment, higher standards, and the introduction of innovations and market stabilization. In addition to the free movement of capital, it is relevant to recognize not only the freedom to invest in real estate but also the ability to access foreign financing and investment loans. This includes the possibility of obtaining financial resources from foreign banks and subsidiaries, as well as branches of foreign banks operating in Poland.

As a result, developing the BPO services has created new jobs, often leading to the formation of international teams and, as a consequence,,contributing to the relocation of EU citizens. Kraków and Wrocław are excellent examples of cities that have benefitted from the free movement of persons in the context of developing the BPO sector, drawing many international investors thanks to their skilled workforce, good infrastructure, and attractive location. Moreover, the inflow of workers from other parts of Poland and even other EU countries has had a positive impact on the development of local economy, increasing demand for services, housing, and infrastructure.

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WAREHOUSE MARKET

LEASE

Integration with the European single market and an increased interest of foreign investors in Poland (as a distribution center for the Central and Eastern European region) have created favourable conditions for the development of the warehouse market in Poland.

Poland’s accession to the European Union also brought changes to the rental market.

Foreign companies have started to locate their warehouses in Poland, taking advantage of the country’s geographical location and well-developed transport infrastructure. Poland has rapidly become a key point in the European supply chains for many industries. The development of distribution centre has enabled companies to distribute goods to CEE markets more quickly and efficiently. The Polish warehouse sector is also positively influenced by two global trends: friendshoring and nearshoring.

The euro has become a settlement currency that is successfully used in lease agreements for commercial buildings (offices, warehouses, etc.), replacing the Polish zloty and the US dollar. Similarly, the financing of commercial buildings is mainly effected in euros, which means that rent denominated in the same currency makes it possible to avoid exchange rate risks

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SUSTAINABLE DEVELOPMENT

There have been (and will continue to be) significant changes in real estate legislation as a result of efforts to meet the EU’s climate targets.

One of the European Union’s main tasks is to promote environmental awareness and climate protection, which is reflected in the EU’s directives and programes, including the Green Deal. Therefore, Poland needs to implement the regulations that ensure, for instance, that new construction projects comply with the EU environmental standards, such as energy efficiency of buildings. In this area, the changes are aimed at achieving zero

emissions for all buildings by 2050, with all new buildings having to be zero-emission within the next few years, and existing non-residential buildings will have to be renovated to increase their energy efficiency. Subject to certain exemptions, there will also be a requirement for all new and existing buildings to be equipped with photovoltaic installations or smart systems optimising utility consumption.

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THE NEED FOR LEGISLATIVE CHANGES

FLYING FREEHOLD

Legislative changes following Poland’s accession to the European Community (mentioned only in the selected areas above), as well as the opening of the domestic market, have transformed the local real estate market. Nevertheless, national legislation in the area of real estate trading and investment still needs to be significantly improved in order to become attractive, especially for foreign investors.

In Poland, unlike, for example, Scandinavian countries or France, the issue of so-called flying freehold also remains unregulated. In simple terms, this right implies ownership of objects located one under another.

The lack of adequate regulation of the issue in question negatively affects the entire economy, as it significantly hinders investment in attractive locations, such as places with tunnel facilities, viaducts, railroad infrastructure. Today it is almost impossible to invest in these areas, which are often located in city centers. A prime example of this is the area in Warsaw along Jerozolimskie Ave. The current nature of ownership right almost precludes the “layering” of several independent investments. Potential investors, as a rule, do not (and will not) decide to erect a building without land ownership. Stipulating the possibility of separating ownership of investment from land would allow development of attractive sites and revitalization of new urban areas.

to the regulations in this regard, according to preliminary information, may be presented in the coming months.

REITS

Similarly, the Polish legislator has not yet regulated the issue of the so-called Real Estate Investment Trusts (REITs). REIT regulations would allow investing in commercial real estate through investment funds established for this purpose.

The absence of appropriate regulation of the REIT system in Poland constitutes a significant limitation for individual investors in accessing real estate investments. REITs are not only relevant for providing broader investment

opportunities but also play a key role in developing the local real estate market. Therefore, the resumption of works on REIT law by the members of the current ruling coalition of the Polish government will be welcome.

Recently government officials have announced another attempt to regulate flying freehold, and draft amendments

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PRS MARKET

PERPETUAL USUFRUCT

It also seems necessary to regulate the PRS market and clearly categorise such structures. Currently, there is no comprehensive legal regulation for these investments in Polish law.

Further growth of the real estate market in Poland remains constrained by the right of perpetual usufruct. It is a right to use land owned by the State Treasury or a local government unit.

This causes a number of significant challenges for investors, administrative bodies and users of these facilities due to existing legal loopholes that become apparent at the design, planning, and implementation stages of PRS projects. This effectively discourages some entities from investing in real estate intended for such investments. For instance, the construction of PRS facilities on lands designated for services is associated with difficulties in obtaining certificates of the independence of respective premises that are required to establish their separate ownership.

Moreover, payments in the PRS sector are predominantly made in PLN, which increases the financing costs of such investments. This is due to concerns that demanding payments in euros might be interpreted as shifting currency risk to tenants, which we believe is not entirely justified. However, we predict that the introduction of rent payments in euros in the PRS segment will become more widespread in the coming years, especially in structures primarily intended for foreign clients, such as students.

The owner of these properties grants their usufruct for a period of (usually) 99 years, subject to the obligation to pay an annual fee. Regardless of the fixed-term, nature of this right, investing in land granted in perpetual usufruct often implies difficulties at the planning and implementation stages. For example, investments implemented on such land must comply with the purpose of perpetual usufruct specified in the decision or the agreement establishing this right. Additionally, dividing such property generally requires the owner’s consent. Another problem is the owner ’s right to increase the annual fee rate for exercising the perpetual usufruct right. In recent years, significant amendments have

been introduced with an aim to eliminate perpetual usufruct of residential lands (conversion into ownership). Last year, regulations came into force granting perpetual usufructuaries (especially of commercial lands) the right to acquire ownership of the property granted to them in perpetual usufruct. However, due to numerous restrictions on the implementation of this option (e.g. it does not apply to undeveloped properties) and the fact that financial conditions for the purchase of land are not very favourable for most investors, the group of entities interested in acquiring such properties is small.