Institutional investors in Poland currently offer more than 11,600 rental units, of which more than 40 percent are located in Warsaw. In addition, another 4,400 apartments in the PRS segment are under construction in the capital, and projects under construction throughout Poland now include more than 10,000 units, according to estimates by experts DLA Piper and Savills. Poland has thus become one of the largest private rented sector (PRS) markets among CEE countries in recent years, according to the report.
“Compared to Western Europe, Poland's PRS market is still small, but growing rapidly. Four times as many rental units are currently being built in Warsaw as in Prague. This phenomenon clearly shows that the institutional rental segment in our country is gaining popularity among investors but lacks the necessary scale. Only 11,640 apartments for rent are currently available, and there are more than 10,000 more under construction, with regional cities such as Łódź, Wrocław and Kraków showing high dynamics in addition to Warsaw,” says Jacek Kałużny, director in the residential capital markets department at Savills.
Taking into account the ratio of average earnings to housing prices, Warsaw was among the four most expensive capitals in Europe, alongside Prague, Bratislava and Paris. As the report shows, the cost of buying a 75-square-meter apartment in Warsaw is equivalent to almost twenty years of average salary. By comparison, the average value for European Union countries is less than 15 years.
“In 2022, there was an unprecedented increase in rents in the housing market, which was closely linked to the increase in the cost of mortgages, the amendment of "Recommendation S", limiting the creditworthiness of those interested in buying an apartment, and the influx of refugees from Ukraine. The shift in demand toward the rental market, combined with rising rents, are encouraging more PRS funds to enter. Although this part of the market has the strongest fundamentals of all real estate segments, it is affected by similar challenges related to financing costs, construction and higher geopolitical risks. In addition, legislative uncertainty makes it difficult to forecast project profitability and make investment decisions,” says Kamil Kowa, Savills board member.
As experts have calculated, the average price of an apartment in Poland's six largest cities has risen by an average of almost 80 percent over the past eight years (2015-2022). Furthermore, while until the third quarter of 2021 the mortgage payment installment remained relatively stable and did not exceed 35 percent of the average salary, by the end of 2022 it already accounted for almost 59 percent. Meanwhile, rental rates have grown much more slowly and now account for 39 percent of the monthly salary compared to an average of 35 percent over the past four years.
Another factor driving the growth of the PRS sector in Poland is the continuing significant housing deficit. Poland is among the top countries with the highest number of young people aged 18-34 living with their parents. The percentage was over 64 percent in 2021, 15 percentage points higher than the EU average.
Despite the growing interest in rental housing in Poland and the promising prospects for the PRS market, many new investors may be holding back their decisions to enter the Polish market in the near term due to concerns over the war in neighboring Ukraine, as well as high financing costs and rising construction costs, the report's authors say. Another factor that may limit investor appetite is regulatory uncertainty and signals from the government that investors buying residential units in bulk may face additional taxes.
“Regulatory risk is permanently associated with the PRS sector. In many mature markets, the level of regulation is very high and covers both legal issues and rents. Against this backdrop, the Polish PRS market remains at a relatively low level of regulation, which, on the one hand, leaves investors and operators with a great deal of freedom to act and shape market practice, and on the other, introduces a significant element of uncertainty about the rules that will guide the market in the future. It seems that a certain level of unpredictability in this regard will continue to characterise the PRS sector in Poland for some time to come," says Michał Pietuszko, partner and head of the real estate team at DLA Piper's Warsaw office.
There are currently 20 institutional investors operating in the Polish institutional rental market, and the three largest – Resi4Rent (managed by Griffin Capital Partners), Fundusz Mieszkań na Wynajem (managed by PFR Nieruchomości) and Vantage Rent (owned by TAG Immobilien), control more than half of the market, according to the report.
Experts point out that due to the high cost of construction, some investors may consider alternative solutions, such as revitalising old residential buildings or converting office space for housing and institutional rental. Moreover, the private rented sector will also have to face rising energy costs and increasingly implement sustainable building solutions.
“Despite the macroeconomic turmoil and uncertain regulatory environment, we expect the institutional rental market to continue to grow rapidly in Poland, as well as in other major countries in the region. Investors undoubtedly face challenges that they must take into account when planning their investments. On the other hand, however, the benefits of the rental market's growth potential are very promising, giving new space for investment as well as positively influencing the quality of the rental market,” adds Wojciech Sulimierski, associate in the real estate team at DLA Piper's Warsaw office.
The full report is available at: https://www.dlapiper.com/en/insights/publications/2023/03/prs-market-in-cee