POLAND ON TOP

2016

32%UK

23%Germany

11%France

5%Sweden

4% Nether-lands

4% Spain

3% Italy

3% Norway

1.5% Ireland

1.4% Denmark

1.4% Austria

1.4% Poland

Chart 2. Prime yields by sector in the CEE region

Czech Poland Lithuania Hungary Slovakia Estonia Latvia Romania Croatia Bulgaria Slovenia Serbia Russia Ukraine Republic

Map 1. Major investment markets in Europe - share in investment volume (2015)

16% —

14% —

12% —

10% —

8% —

6% —

4% —

2% —

0% —

A solid economic background and a stable

political situation in Europe have boosted

investments in the real estate markets.

According to the Real Capital Analytics the

total volume of transactions concluded

in Europe was 23% higher in 2015 than the

year before and exceeded EUR 285bn. Nearly

41% of accounted transactions concerned

the office sector. The leading active markets

remained unchanged with UK first, followed

by Germany and France. Poland was ranked

11th in Europe in terms of investment activity

volumes in 2015 and outperformed all other

CEE countries.

In 2015, CEE countries accounted for 4% of

the volume of signed deals in Europe. The total

investment volume in CEE countries amounted

to EUR 11.5bn and noted an 18% growth,

when compared to 2014. The region of Central

Eastern Europe has drawn investors’ attention

POLAND - THE MOSTATTRACTIVEINVESTMENT MARKETIN THE CEE REGION

Chart 1. Structure of the investments in Central Europe region

51% Poland

31% Czech Republic

11% Slovakia

7% Hungary

Source: Knight Frank on the basis of RCA

1.3% Belgium

1.2% Switzer-

land

0.9%

0.9%

0.2%

Portugal

Investment level higher than in Poland

Investment level below than in Poland

Office Retail Industrial

CzechRepublic

POLAND ON TOP

primarily to the retail sector, which made up

43% of all concluded transactions in the CEE.

Being more and more courageous when

investing in Europe, global investors are an

increasingly willing to invest in the CEE region,

that is already seen in the Polish market. In

terms of alternative locations, CEE countries

became an investors’ opportunity for risk

diversification.

It is remarkable that Poland leads the way

in terms of total volume of investment tran-

sactions in the CEE region. Over EUR 4bn

transaction volume in Poland accounted for

nearly 51% of investment market in Central

Europe, followed by Czech Republic, Slovakia

and Hungary. The stable economy and liquid

market that enables the pursuit of exit strate-

gies encourages investors to allocate funds

in Poland. Roughly 50% of nearly EUR 8bn

invested capital in Central Europe was made

up by the retail sector and Poland stands out

in terms of volume of allocated funds.

2% Russia

Chart 3. Structure of the investment in the CEE region

5 bn —

4 bn —

3 bn —

2 bn —

1 bn —

0 —

Rus

sia

Pola

nd (E

UR

4.1

bn)

Czech

Repub

lic

Slovakia

Hungary

Romania

SerbiaBulgaria

Estonia

Lithuania

Cro

atiaUkra

ine

Montene

groLatvia

Office

Retail

Industrial

Other

Poland benefited mostly from German funds,

followed by the US and other European

investors. Activity in Poland was boosted by

several large portfolio deals, most notably

takeover of the majority shareholding of Echo

Investment portfolio by Griffin Real Estate, and

the acquisition of part of the portfolio by TPG

Real Estate. First transactions closed in 2016

announced a continuation of the positive

sentiment in the market. At the beginning of

2016, Redefine Properties acquired 75% of

the Echo Prime Properties portfolio worth

EUR 1.18bn. It is important to note that the

deal was the largest in the history of Polish

real estate market. Furthermore, it is expected

that demand on the investment market will

remain strong. With a few portfolio deals

planned to be completed by the year-end, the

investment volume for 2016 will reach

a comparable level to the previous year. As

the most mature investment market in the

CEE region, Poland should be distinguished in

terms of the scale of the market, the relatively

wide offer of the prime assets and liquidity of

the market.

Source: Knight Frank on the basis of RCA

Source: Knight Frank on the basis of RCA

1.3% Finland

0.3% Slovakia

Hungary 0.2% Romania

0.1% Bulgaria

0.1% Lithuania

0.1% Estonia

p

2015 turned out to be highly important in the Polish investment market. The total investment volume exceeded EUR 4bn. It recorded a 35% growth when com-pared to 2014 and was also the highest result noted since 2006. The largest share in the investment volume reached acquisitions in the retail and office sec-tors. No longer just the city of Warsaw was the attractive investment market but also other regional cities encouraged investors.

Increasing demand for retail assets

The total investment volume in retail sector

reached the highest level since 2006 and

amounted to EUR 2.2bn, accounting for 54%

of total signed contracts in Poland in the

commercial real estate market. The volume

of retail deals in 2015 was nearly three times

higher than the result recorded in 2014. The

most sought-after assets in the market were

shopping centres with leading market po-

sitions and retail parks in medium and small

regional cities.

COMMERCIAL MARKET

Chart 4. Investment volume in Poland

Transactions in regional cities prevailing in the Polish office sector

The total volume of investment transactions

in the office sector amounted to EUR 1.3bn

and accounted for 33% of all investment

deals in the Polish market in 2015. In contrast

to the previous years, the interest of investors

in 2015 was mainly focused on regional

markets. Over 66% of the Polish office

transactions volume was concluded outside

the Warsaw office market. More than EUR

880m spent on commercial properties was

a record-breaking result in the regional office

market. The dynamic growth of regional office

markets and their development potential were

reflected in both the number of transactions

and the more opportunity - seeking behaviour

of local and foreign investors.

Warehouse portfolios – the most sought--after assets in the industrial sector

After record-breaking 2014, the limited

number of properties put up for sale resulted

in decline in the volume of transactions in the

industrial sector in 2015. The volume of wa-

rehouse investment transactions exceeded

EUR 456m and made up 11% of share of

total volume in the Polish commercial market. Office

Retail

Industrial

Source: Knight Frank

Map 2. Investment volume by location 2015

POLAND ON TOP

RETAIL SECTOR € 2.2 bn investment volume

Total stock: 10.8 m sq m

Stable Growth

• Increasing retail saturation: 240 sq m/1000 citizens, exceeding the

European average density

• Strong developers activity: 600,000 sq m new retail supply in 2015,

higher than a 5-year average

• Numerous redevelopments and refurbishments of existing schemes

• Stable demand on retail space

• Low levels of vacancy rates, not exceeding 5%

• Stable asking rents with upward pressure on prime rents

OFFICE SECTOR€ 1.3 bn investment volume

Total stock: 8.3 m sq m (55% in Warsaw, 45% in regional markets)

Dynamic development

• Record breaking developers’ activity - 1.3 m sq m of space under con-

struction at the end of 2015 (44% more than a 5-year annual average)

• 460,000 sq m - an average annual new supply (2010-2015)

• Substantial take-up - 1.3 m sq m m leased in 2015, i.e. nearly 50%

more when compared with average annual volume in 2010-2014

• Increasing demand on office space as Poland became major European

destination for BPO/SSC services

• Stable asking rents

INDUSTRIAL SECTOR€ 456 m investment volume

Total stock: 9.9 m sq m

Boom in the market

• Record-breaking take-up over 5.0 m sq m leased within the last two

years

• Strong demand driven by international manufacturers, logistic opera-

tors and e-commerce sector

• Substantial new supply and development pipeline

• Increasing number of schemes on speculative basis

• The lowest rate in the history below 5% of the total supply

• Stable asking rents

Source: Knight Frank

Over €4bn - record-breaking investment volume since 2006

54% of investment transactions volume allocated to the retail sector

66% of office transactions volume recorded in regional markets

Prime yields compression:

5.50% retail

6.00% office

7.00% warehouse

6 —

5 —

4 —

3 —

2 —

1 —

EUR billion

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Tricity€ 0.4 bn

Warsaw€ 0.6 bn Poznań

€ 0.5 bn

Łódź€ 0.1 bn

Wrocław€ 0.4 bn

Katowice€ 0.1 bn

Kraków€ 0.6 bn

STABLE ECONOMY AND LIQUID MARKET

ECONOMIC BACKGROUND

8th biggest EU economy in terms of GDP

3.6% estimated GDP growth in 2015 according to

the Main Statistical Office forecast

50.4% of GDP - public debt burden, compared to

86.8% in the EU

-0.5% inflation rate (December 2015)

Decreasing unemployment rate: 7.5% in December

2015 according to Eurostat

EUR 195.8 bn European Funds 2014-2020

(the largest amount among EU members)

Growing industrial production, retail sale and domestic

demand

IMPROVING POLAND’S POSITION IN INTERNATIONAL RANKINGS

• 25th in Doing Business (World Bank) - 3 places

up y-on-y.

• 39th in the world in 2016 Index of Economic

Freedom (The Heritage Foundation and The Wall

Street Journal) - 3 places up y-on-y.

• Poland is a regional leader in the outsourced IT and

BPO services. Warsaw (25th) and Wrocław (58th), are

amongst Tholons Top 100 biggest movers and

Kraków maintains its’ 9th position amongst

the Emerged Outsourcing Destinations (1st in Europe).

• 17th in the world, 1st in CEE in Global Real Estate

Transparency Index 2014 (JLL).

• 2nd in CEE and 30th in the world in terms

of business transparency (Corruption Perception

Index 2015).

• Katowice Special Economic Zone as

the best special economic zone in Europe according

to Global Free Zones of the Year 2015.

• 20th largest receiver of foreign direct investments

in the world according to World Investment Report

2015 (UNCTAD).

• 41th in the world in The Global Competitiveness

Report 2015-2016 (World Economic Forum) –

2 places up y-on-y.

OUTLOOK

Poland has been developing as one of the most attractive

locations in the world for professional services. The gro-

wing number of jobs created thanks to FDI and investors

entering the market leads to the anticipation that this

trend will continue for the foreseeable future.

Forecasted growth in GDP and increasing domestic

demand goes hand in hand with the further growth of

the commercial market in the short and medium term.

Additionally, record-breaking demand for offices and

warehouse space accompanied by growing activity from

developers bring positive forecasts for dynamic growth of

the commercial market.

Poland is already perceived as a stable capital market. An

offer of prime assets is still being developed in Warsaw

and regional cities. The dynamic growth of the commer-

cial market and optimistic attitude towards the economy

should be reflected in the investment market. Further-

more, the probable yield compression will provide an

opportunity to increase the asset values in the future.

INVESTMENT ATTRACTIVENESS

• High supply of skilled, well-educated workforce

with university degrees and speaking foreign

languages.

• Relatively low cost of doing business

(wages and rents lower than in most EU countries).

• Geographical proximity to Western Europe.

• The Warsaw Stock Exchange - the most important

Stock Exchange in Central and Eastern Europe.

• Attractive, relatively low property prices.

• Special Economic Zones enabling tax exemptions.

• Most prospective sectors of economy: Manufacturing

(Food processing, Domestic Appliances

and Electronics, Automotive and Aviation, Pharmacy),

services (distribution, transport, storage

and communication), business services

(BPO/SSC, IT, R&D centres).

• 98% of foreign investors in Poland would invest

here again.*

*according to survey conducted by PAIiIZ, Grant Thornton

and HSBC, „Made in Poland 2016. An Investment Guide

for Manufacturing Sector Companies”

POLAND ON TOP

Contacts in Poland:

+48 22 596 50 50 www.KnightFrank.com.pl

RESEARCH

Elżbieta Czerpak elzbieta.czerpak@pl.knightfrank.com

ASSET MANAGEMENT

Monika A. Dębska - Pastakia monika.debska@pl.knightfrank.com

ASSET MANAGEMENT - OFFICES AND LOGISTICS

Bartłomiej Łepkowski bartlomiej.lepkowski@pl.knightfrank.com

ASSET MANAGEMENT - RETAIL

Małgorzata Szychułda malgorzata.szychulda@pl.knightfrank.com

CAPITAL MARKETS

Joseph Borowski joseph.borowski@pl.knightfrank.com

COMMERCIAL AGENCY - OFFICE

Izabela Potrykus-Czachowicz izabela.potrykus@pl.knightfrank.com

COMMERCIAL AGENCY - RETAIL

Paweł Materny pawel.materny@pl.knightfrank.com

PROPERTY MANAGEMENT

Magdalena Oksańska magdalena.oksanska@pl.knightfrank.com

VALUATIONS

Grzegorz Chmielak grzegorz.chmielak@pl.knightfrank.com

Contacts in London:

INTERNATIONAL RESEARCH

Matthew Colbourne matthew.colbourne@knightfrank.com

COMMERCIALMARKET

© Knight Frank Sp. z o.o. 2016This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears.

Knight Frank Research Reports are available at KnightFrank.com.pl/en/research/