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PRS Market in Poland H2 2023: Rising Rents, Investor Challenges, and Legislative Needs

REAL ESTATEPRS Market in Poland H2 2023: Rising Rents, Investor Challenges, and Legislative Needs

Similar to the first half of 2023, the most frequently indicated challenge for investors for the next 12 months are the persistently high interest rates. However, in comparison to the results from 6 months ago, legislative changes have fallen from second to fourth place, in favor of concerns about further subsidizing the residential real estate sector. Nearly all of our survey participants agreed that 2024 will see further increases in rental prices. The supply of ready apartments increased by about 2,000 units in the second half of 2023, a result nearly twice as bad as in the first half of 2023. At the same time, the number of apartments under construction increased by 1,000 units – according to the PwC Poland report “Institutional Rental – The Future of the Market in the Light of New Perspectives. Review of the PRS Market in Poland – Summary of H2 2023”.

Existing legal frameworks allow for the implementation of PRS investments even though such projects are not ‘directly’ regulated in legal terms. When realizing PRS projects, it is necessary to “adapt” regulations relating to other types of investments. The year 2023 saw changes in law (including the reform of spatial planning and development, significant changes in technical conditions) which undoubtedly will impact the real estate market both in the short and long term. These changes should also be considered in the context of PRS investments.

The second half of 2023 did not bring an increase in the number of transactions compared to the first six months. However, this does not mean that investors have “rested on their laurels”. Negotiations regarding the purchase of new projects are ongoing, while the acquisition process has been extended and investors are acting more cautiously, not revealing the details of ongoing discussions. Optimism is evident in responses to our survey, in which over 90% of respondents announced the purchase of new projects in 2024.

“In addition to presenting the current state of the PRS market, this year’s edition of the report also writes about trends present on more developed institutional rental markets and relates them to our local reality. One of the trends identified by investors in our survey is the creation of additional value for the tenants, by building a community and organizing activities that both brings together the community and increases customer loyalty. In our report, as in previous ones, we focus on the seven most active cities. In this edition, we present an update of legal issues relevant to the PRS sector, which were included in our 2022 report” – says Kinga Barchoń, PwC Poland partner and leader of the real estate market services team.

After analyzing the statements of representatives of the real estate industry and observing the legal challenges facing investors, in our opinion, several key legislative changes should be considered. Firstly, considering the significance of changes introduced by the planning reform which took effect in 2023, it should be considered whether some regulations – especially those concerning the “transition period” – do not require adjustment. Secondly, investing in land destined for perpetual usufruct is associated with certain restrictions and additional burdens. Hence, expanding the possibilities of ‘transforming’ perpetual usufruct rights into ownership rights could positively impact the development of PRS investments. In regulating the issue of ‘conversion fee’ – attention should also be paid to the EU regulations on permitted state aid (de minimis). Thirdly, creating legal frameworks for investment vehicles in the form of REITs (Real Estate Investment Trusts) – would allow individual Polish investors to participate in real estate market investments, including the implementation of PRS investments.

“To date, no regulations have been introduced that are “dedicated” to PRS investments. However, in the second half of last year, changes were made that will impact this market segment. These changes relate to the method of adopting local spatial development plans, types of spatial planning acts and the possibility of issuing building conditions. In addition, a change to the regulation of the Minister of Development and Technology on the so-called ‘Technical Conditions’ is due to come into operation on 1st April 2024, its aim is to limit so-called ‘maldevelopment'” – says Marta Hincz, counsel and senior manager PwC Legal Poland, leader of the Real Estate Law Practice.

At the end of H2 2023, Warsaw offered about 7.5 thousand apartments for rent, with another 5.8 thousand under construction. Over half a year, the number of apartments in the capital increased by almost 1,000 units. The largest stocks of apartments are owned by Resi4Rent (over 2.3 thousand; all projects under construction last year have been handed over and currently Resi4Rent does not have any new projects under construction), Heimstaden Bostad (830 existing apartments and 811 under construction), PFRN (almost 600 existing apartments and 205 under construction), LRC Group (543 existing apartments), NREP (500 existing apartments and 757 under construction). PRS portfolio owners opt for central locations close to office centers in districts such as Śródmieście, Wola, or Mokotów.

The Wrocław market has seen little change over the last half year. The Lower Silesia’s capital continues to be dominated by two entities: Vantage Rent, which still possesses 1,149 apartments, and Resi4Rent with 962 apartments (an increase of 391 units). The rest of the market is dispersed among smaller players such as PFRN (245 apartments), LifeSpot (244 apartments), or G City Europe (138 apartments). Projects under construction are also focused on the two main players, Resi4Rent will build an additional 960 apartments by the beginning of 2025, while Vantage Rent will add 415 units in the Old Town.

By the end of H2 2023, Krakow had over 2.1 thousand apartments for rent, and 3 thousand under construction. Changes in both categories compared to half a year ago concerned the introduction of 2 investments to the market by AFI Europe, which started renting 219 apartments on Bunsch Street, and Van der Vorm, which initiated the rental of 50 apartments on Romanowicza Street. The PRS market in Krakow consists of Resi4Rent (536 apartments), Lew Invest (411 apartments), AFI Europe (374 apartments), PFRN (249 apartments), Van Der Vorm (240 apartments), Heimstaden (117 apartments), G City Europe (109 apartments), and Aurec Capital (78 apartments). Despite a slight decrease in the number of apartments under construction, Krakow has the second-largest, after Warsaw, number of apartments being built, which shows significant interest from investors in increasing their portfolios in the capital of Małopolska.

In the second half of 2023, the Tri-city region saw an increase in the number of apartments under construction by 821 units, while the number of ready-made units remained unchanged. The number of available apartments in Łódź increased by 336 units, reflecting the completion of two investments by Vantage Rent and PFRN. Simultaneously, the number of apartments under construction was reduced by the same number. The total resources available at the end of 2023 amounted to 1,564 apartments. New investments under construction will increase the existing resources by 287 units. By the beginning of 2025, Katowice should have doubled its PRS resources. In the first half of 2023, the first PRS investment was started in Lublin. The project, owned by PFRN, assumes the construction of 388 residential units and 20 service units. The planned handover should take place at the end of 2025.

Subsidized Apartments

In our analysis, we do not include apartments that are subsidized (rent subsidies from the municipalities) or which are subject to tenant selection criteria. There are approximately 2,900 such apartments, owned by PFRN, on the Polish market, and an additional 1,000 are under construction.

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