European office take up is forecast to reach 9.2 million sq m by the end of 2019, down marginally by 4% from 2018’s end year volume, according to Savills latest research. A shortage of good quality, available space across Europe’s CBDs is limiting occupiers’ choices as average vacancy rates dropped from 6.1% to 5.4% over the past 12 months.
Savills has been appointed a co-exclusive agent for leasing office space in Harmony Office Center II. The owner of the property has therefore begun the recommercialisation of the scheme.
Commercial property investment activity exceeded €8bn across Poland, the Czech Republic, Slovakia, Hungary and Romania in the first three quarters of 2019, 54% above the five year average, according to Savills latest research report.
Equiniti opens its first office in Poland. The high-tech company has just moved to Cavatina Holding’s Equal Business Park C in Krakow where it took up more than 2,350 sq m of office space. The company will create approximately 150 jobs in its new office. Equiniti was supported in its entry into the Polish market by Savills, which advised the tenant on the choice of the location.
Azora Europa has sold two office projects located in Krakow, Green Office and Avatar, to Cromwell European Real Estate Investment Trust (CEREIT) for EUR 78.2 million. Savills advised the vendor on the disposal of both assets.
The strongest occupier demand for office space in Warsaw was registered in 2018, with nearly 860,000 sq m transacted in 12 months. Occupier activity remained slightly subdued in the first quarter of 2019, but picked up significantly in the next two. Leasing volume hit almost 690,000 sq m in the first nine months of the year, Poland’s all-time high for the first three quarters of a year.
The robust level of office take-up was largely driven by occupier activity in the third quarter, which was the best-performing quarter in the history of the Polish market. Warsaw’s total leasing volume reached nearly 285,000 sq m of modern office space in the past quarter, largely boosted by two record-breaking transactions: mBank’s pre-let for 45,600 sq m in Mennica Legacy Tower and the renegotiation by Orange Polska of its lease agreement for 44,850 sq m in Miasteczko Orange.
“This year is clearly being marked by large deals. Rather than slow down, the market accelerated in the holiday season and office take-up is therefore likely to beat last year’s record. Even if this does not happen, office take-up will definitely be very high; such a robust level of occupier activity for the second year in a row is confirmation of the very good health of the Warsaw office market,” says Daniel Czarnecki, Head of Landlord Representation, Office Agency, Savills.
According to Savills, 61,700 sq m of new space was added to Warsaw’s office stock in the third quarter of 2019. The largest office completion was Wola Retro (Develia; 24,500 sq m). More than 142,000 sq m has been built in Warsaw in the year to date, bringing the capital’s total stock up to 5.6 million sq m.
As much as 120,000 sq m is expected to be completed in the fourth quarter of the year, but some projects may be delayed until 2020. According to Savills data, the development pipeline comprises 760,000 sq m, more than half of which has already been secured under pre-lets or letters of intent. The largest concentration of construction activity is in Wola district, near Daszyńskiego roundabout, where nearly 415,000 sq m is currently underway.
Warsaw’s average vacancy rate edged down to 8.2% at the end of September and is likely to continue its downward trend by the end of this year. There is however strong polarisation on the market, with Mokotów seeing a vacancy rate of 13.7% and central locations posting 5.5%.
Prime headline rents stand at EUR 22.50–25.50/sq m/month for office space on top floors of high-rise buildings in the Central Business District and the city centre, and range between EUR 13.00–15.00/sq m/month in the Służewiec district.
“Due to the record-breaking demand, landlords hold the upper hand in central locations. In addition, there is a growing occupier interest in Mokotów, which is likely to witness increased leasing activity in the coming quarters. And following a period of stagnation, Służewiec is seeing a wave of upgrades of office buildings acquired by opportunistic investors. Refurbished buildings stand a good chance of attracting tenants,” adds Daniel Czarnecki, Savills.
Source: Savills
A record high volume was achieved largely due to two significant transactions in the UK, namely the forward purchase by Riverstone Living of the Royal Warwick Square project in London and the development of four retirement villages by Audley group, who teamed up with Octopus Investments and Schroder Exempt PUT.
Outside of the UK, Savills suggests that the senior living sector is still in its infancy across mainland Europe and the market remains opaque. To date, this has been restricting the volumes of cross border investment to just 30% of the European total on average over the past five years. This compares to 40% of the total investment volumes into multifamily assets and 62% for the student housing sector.
Polish senior living sector so far has attracted only few institutional investors with Orpea Polska being a clear market leader. Orpea after take-over of Medi-System in 2016 and subsequent acquisitions currently operates 1.1 thousand beds and develops additional 1.6 thousand beds.
Kamil Kowa, Board Member, Head of Corporate Finance & Valuation at Savills in Poland, says: “The main constraints for the development of the market include relatively low purchasing power of Polish seniors compared to their European peers which induces dependence of the system on the contracts with Polish National Health Fund (NFZ). However, Polish population is one of the fastest aging in Europe and the financial foundations of the elderly should increase in line with the economy getting stronger - this makes Poland one of the most attractive markets for international investors in the sector.”
Lydia Brissy, Director, Savills European Research, comments: “Operating effectively in this sector requires strong knowledge of regulations and a good understanding of the family culture and attitudes of the elderly population, which can be very different from one European country to another. However, the demographic drivers for the sector are clear. Many European countries have ageing populations, which creates a significant need for a variety of purpose built housing, and so opportunities for private initiatives to supply housing that meets these needs.”
Savills reports that cross border investment into the sector has predominantly come from Europe, but US investors, who have made inroads in both the student housing and multifamily sectors, are now starting to look at the potential for senior living.
The Savills Senior Housing Opportunity Index indicates that Germany, France, the UK, Italy and Poland all offer excellent opportunities, with strong potential demand for senior living projects. This is based on their demographic trends, the maturity of their housing markets and the private wealth of their elderly populations.
Germany takes the top spot for sector potential due to it having the largest elderly population (70-79 years old) at approximately 7.8 million and the Germans being some of the best savers. France comes in second place on the basis that French seniors are relatively wealthy, having a high saving rate and needing to use a lower proportion of their income for housing costs than many of their European counterparts. The UK, ranked third, has the most liquid real estate market with assets being sold faster than in continental Europe, in which the residential segment is very sophisticated and not overly regulated compared to other European countries. In fourth place is Italy, which has the highest share of elderly people as a percentage of the population, and fifth is Poland, which has one of the fastest growing elderly populations and very low number of dwellings per capita, making it a great prospective country for the senior living market.
“The growing number of seniors living longer and with greater purchasing power, which they spend largely on housing, suggests the senior housing sector in Europe is backed by strong fundamentals and is bound to expand in the next decade and beyond,” explains Brissy. “Increasing investor appetite has begun to put downward pressure on prime yields but it remains competitive compared to standard residential assets or commercial real estate. The less cyclical nature of this asset type is also particularly appealing to investors.”
Savills research states that, on average, the yield discount that senior housing offers over other asset classes ranges between 100 bps over prime multifamily and 66 bps over prime CBD-offices. The prime senior housing yield currently ranges between 3.5% and 5% for direct-let, depending on the country, location and quality of asset.
Marcus Roberts, Director, Savills Operational Capital Markets: European Senior Living, Multifamily and Student Housing: “As an asset class, senior living is an increasingly strategic investment opportunity. Institutional investors have a weight of capital to deploy and as prime opportunities in traditional property sectors are becoming rare and competitively priced, they are shifting their focus towards operational–type assets with potential for long term income growth - such as senior living. As the sector is maturing, we expect further yield compression.”
Source: Savills
Morski Park Handlowy signed up another tenant. Zoo Karina, a pet shop, has leased nearly 625 sq m of retail space at the complex. Real estate advisory firm Savills acts as a property manager and an exclusive leasing agent on the park.
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