At what rate do developers think the institutional rental sector – PRS – will develop in Poland? Are investors still interested in buying buildings for rent? What are the biggest obstacles to the development of this segment? What is conducive to it? Is cooperation with the PRS sector currently profitable for development companies?
Andrzej Oślizlo, CEO of Develia S.A.:
The PRS market in Poland has good development prospects. The offer of modern apartments in good locations, rented on transparent terms from professional operators is something that has been missing from our market. We are concerned about recent announcements regarding restrictions on the acquisition of residential units for rent. There are only a few thousand units in the hands of funds, which is less than 1 percent of the rental market in Poland. The scale of investment in this area has fallen dramatically in the past year due to rising financing costs or increases in the cost of building materials. Further difficulties for investors will further reduce the volume of new projects, which are also being launched less in the retail sector due to the difficult situation in the mortgage market. This will widen the housing gap and worsen housing conditions in our country.
Edyta Kolodziej, sales and marketing director at Nickel Development:
Investor interest in the purchase of real estate for rent is at an all time high. We can see this from the structure of our clients. In light of the January announcements regarding the statutory restriction on wholesale purchases of apartments in Poland, it is difficult to forecast particularly strong growth in the PRS market. We, as well as the investment funds operating in this area, are observing the dynamic changes in the market and the legal environment, and await the clarification of the legislative situation.
However, it is important to realize that PRS market funds could significantly support the housing market in Poland and offer rentals to people who, for various reasons, currently have no chance to buy an apartment on their own. And housing needs in Poland are still very high.
Sebastian Barandziak, CEO of Dekpol Developer:
Considering the data on transactions concluded in recent years in the mentioned market, it is developing and will continue to develop. There is still a shortage of apartments in Poland, and the rates of return possible from this type of investment are attractive to investment funds. Recent reports state that the sector is expected to reach up to 100,000 professionally leased apartments in the next seven years. We would be cautious, however, in forecasting the rate of growth of the PRS market over the next few or several years. This is difficult to predict, as it depends largely on the macroeconomic environment, which in turn is beyond our control.
We see investor interest in buying buildings for rent, but recently, due to the macroeconomic environment, as well as the conflict in Ukraine, we see a slight slowdown. Investors are holding back on their purchase decisions, all the time observing and analyzing the Polish market.
As for the biggest obstacles to the development of the PRS sector, it is worth remembering such factors as currency (PLN vs. EUR), unstable rental market, conflict in Ukraine, unstable legal and tax situation, as well as unclear, inconsistent regulations.
Certainly the development of the PRS market in Poland is favored by its early stage. It is still a fledgling sector in Poland, and the housing shortage is still significant. Young people are increasingly choosing to rent. The institutional rental sector meets these demands by offering comfortable apartments, in good locations with amenities for building residents. In addition, institutional rental combines two important issues: flexibility and the sense of security guaranteed by a professional real estate operator. What’s more, the current macroeconomic situation in the country, i.e. the decline in sales associated with rising interest rates or inflation, makes developers increasingly interested in selling entire projects to institutional investors.
Certainly such cooperation can be profitable, but it is fraught with risk, if only due to changes in the price of construction materials. The margin achievable is lower than in the case of sales to individual customers, and depends on a number of factors, including the stability of prices of materials and services, the type of transaction: forward funding/forward purchase and the terms of the contract itself.
Andrzej Gutowski, vice president, sales director of Ronson Development:
At the end of 2021, we launched our own PRS project. When we decided to develop this business pillar, our main argument was that we wanted to respond to the needs of young and mobile Poles. In today’s market situation, PRS meets the needs of young families who cannot afford to buy their own apartment. The group of customers interested in institutional rental will grow, in our opinion.
To meet this need, we have created the LivinGo platform, which will handle rental investments. Our offer is being created within the framework of housing projects built so far, which guarantees high quality of implementation and competitiveness of the lease. The first pool of 121 apartments will be delivered in Q3 2023 in the Ursus Central development, and the land bank is secured for nearly 1,800 units.
Janusz Miller, director of sales and marketing at Home Invest:
We are one of the few developers with deals with the PRS fund. At the end of 2021, we signed a preliminary agreement to sell a building containing 236 units in Warsaw’s Bielany district.
We are currently observing a slowdown in the PRS market in Poland and a lower number of transactions. Investors are still interested in buying entire buildings, but they have problems with financing. On the other hand, some are holding off on decisions as they await investment opportunities in the market. However, time is working against the funds, as we are seeing an increase in interest from individual customers who want to buy apartments. In addition, the new program announced by the government may result in easier access to credit, which will translate into more transactions. Under such circumstances, developers will be more inclined to sell to individual customers than to funds.
Mariola Żak, sales and marketing director at Aurec Home:
PRS, i.e. institutional rental and the rental buildings that are being constructed for it, is still a new business model for the Polish real estate market, which is still in its infancy. However, there are many indications that it will develop rapidly in the Polish market. Experts estimate that in the near future the average annual growth of the PRS will be about 12 thousand apartments, which means that in 2028 it should reach a level close to 100 thousand rental units. Looking at institutional rentals, however, it is clear that Poland lacks infrastructure and regulations for the sector. The Ministry of Development and Technology is currently working on regulating the wholesale housing market and introducing a new tax for companies that buy apartments in bulk.
It should be remembered that there is still a shortage of about 2 million apartments in Poland. The rise in mortgage interest rates and the influx of refugees from the eastern border has resulted in very strong demand for rentals. The result was a sharp increase in rental rates in Poland’s major cities. In addition, the decline in individual sales of apartments, prompted some developers to cooperate with funds investing in the PRS.
Invariably, the dominant model in the real estate market is to buy packages of apartments from developers focused on individual sales rather than wholesale. Developers are reluctant to give discounts on package purchases, because they know that they will easily sell the apartments anyway. Our company is not currently taking steps toward institutional sales. We focus on selling apartments to individual customers, but we are not closing ourselves off to such cooperation in the future.
Marcin Michalec, CEO of Okam:
Despite the macroeconomic situation or the conflict across our eastern border, Poland remains an attractive market for investment. The PRS sector has growth prospects.
It is undoubtedly favored by the fact that the last several months or so have seen a growing interest in short- and long-term rentals in Poland due to, among other things, the increase in the number of foreigners or the difficulty many consumers have in buying their own apartment due to the policies of banks.
An additional supportive factor is the approach of younger, more mobile people who do not want to be tied permanently to any location. It is worth noting that some developers who have been externally financing projects so far are losing this opportunity, as financial institutions are not eager to do so. In addition, there is a rise in the price of construction materials or subcontractor rates. For some developers, cooperation with investment funds and entering into institutional leasing is a solution to sell projects already at the stage of development with a promise to buy after construction.
The PRS segment has some opportunity for growth also on the increasingly strong investments in Poland related to the modernization of facilities or their adaptation to new, residential functionality. A negative factor, on the other hand, are the current high rental prices, as well as legislative uncertainty – strict legislation, including additional taxation, may block the development of this real estate sector.
Source: The poll was prepared by the real estate website dompress.pl
Photo: Stacja Centrum JW Construction
