City Report Q1 2019

GDP Growth Inflation, 2019* Unemployment rate 2019* y-o-y March 2019, Warsaw

PLN 6,814 1.8% 5.6%

Average salary, Retail sales, Industrial production, March 2019, March 2019 y-o-y, March 2019 y-o-y, Warsaw Poland Poland

Source: Consensus Forecasts, April 2019, Central Statistical Office, May 2019, *forecast

Investment market

In Q1 2019, the total transacted volume in Poland amounted to ca. €780 Prime office yields in Warsaw now stand at 4.75%. Core regional city yields million, i.e. somewhat higher than in Q1 2016 and Q1 2017 (Q1 2018 was an now stand at sub 5.75%. outlier due to two retail portfolios accounting for €1.3 billion). The sector split was as follows: €541 million in offices, €44 million in warehousing, €13 Within the logistics sector, the market saw only 2 single-asset transactions: million in retail, €135 million in hotels and €47 million in residential. Q1 Panattoni sold Panattoni Park Kraków IV to Aberdeen Asset Management 2019 saw an increase of investment activity in the hotel sector as well as for ca. €24.5 million at a reported yield of 6.80%, and CBRE GI purchased 7R strong performance in the office sector, including mid-size portfolios and Park Czechowice from 7R Logistics for ca. €20 million. Prime warehouse long-leased assets. Regional cities continued to perform strongly, yields stand at 6.50% with exceptional, long leased assets trading at comprising ca. 40% of traded office volumes. Given the number of on-going around the 5.50% mark and Warsaw inner city projects at around 5.25%. transactions and availability of product, we envisage that the total investment volume will reach ca. €6 billion in 2019. Retail volumes in Q1 2019 for Poland amounted to ca. €13 million, comprised of two retail assets acquired by German fund Saller: During Q1 2019, the Polish office investment market was the most active CH Max in Hrubieszów and Prima Park in Kutno. Prime shopping centre sector, which resulted from transactions that were already at an advanced yields achievable for best-in-class, dominant, major schemes in Poland stage in 2018 and finally closed in Q1 2019. Such a strong start to the year remain at the level of 4.90%, high-street assets trade at circa 4.00%, while was driven by many smaller transactions as well as the following deals, prime retail parks have recently seen yield compression to 6.80%. each exceeding a volume of €50 million: Polish hotel volumes in Q1 2019, standing at €135 million, outpaced retail • Alchemia III (Argon) in Gdańsk was sold by Torus to Philippine investor and industrial volumes combined. Most notably, the Sheraton Warsaw ISOC Holdings / Adarite Investments for ca. €92 million; located in City Centre East was purchased by Patron Capital from Benson • LRC Group acquired a portfolio of 3 office schemes in Warsaw Elliot and Walton Street for ca. €90 million. (Europlex, Irydion, Wiśniowy Business Park A) from Lone Star; • ECHO Investment sold Gatehouse Browary Warszawskie, part of a larger In the residential sector, LRC Group acquired 175 apartments in Pacific revitalised mixed-use project in Warsaw’s emerging business district in Residence (Solec 24) in Warsaw for ca. €47 million. Wola, to GLL Partners for ca. €77 million; • Cromwell (REIT) took over a portfolio of 3 office assets (Riverside & Grójecka 5 in Warsaw, Arkońska Business Park in Gdańsk), previously held by Cromwell / Goldman Sachs, with a total value of ca. €69 million.

4.90% 4.75% 6.50% 5.25%

Shopping Centre Office Industrial Residential

Poland investment volumes

million

€ 7 000 Office Retail Industrial Mixed Residential Hotels € 6 000 € 5 000 € 4 000 € 3 000 € 2 000 € 1 000 € - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Source: JLL, Q1 2019 2019

Key investment transactions, Q1 2019

Approximate sale Sector Property name Location Vendor Purchaser price (€ million)

Office BIG Kraków not disclosed Ghelamco Confidential

Zeus Capital Office Graffit Warsaw ca. 50 Hines Management

ISOC Holdings / Adarite Office Alchemia III (Argon) Gdańsk ca. 92 Torus Investments

Office K1 Kraków not disclosed Confidential FLE

Skawina Industrial Panattoni Park Kraków IV 24.5 Panattoni & Marvipol Aberdeen AM (Kraków)

Office Gatehouse Browary Warszawskie Warsaw 76.8 Echo Investment S.A. GLL Partners

Benson Elliot & Walton Hotel Sheraton Warsaw Warsaw ca. 90 Patron Capital Street

Riverside, Grójecka 5, Warsaw, Office ca. 69 Cromwell / Goldman Sachs Cromwell (REIT) Arkońska Business Park Gdańsk

Europlex, Irydion, Wiśniowy Business Office Warsaw not disclosed Lone Star LRC Group Park A

Source: JLL, Q1 2019, Note: JLL advised party highlighted in red

600,000 25% 500,000 400,000 20% 300,000 15% 200,000 10% 100,000 0 5% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019

New - Existing New - Prelet Expansion Owner Occupier Renewal Renewals share in gross take-up

Source: JLL, Q1 2019

Adjusted vacancy*, Q1 2019 • Change is a key characteristic of Warsaw. The city has entered an extremely dynamic growth period and is going through a dramatic transformation. A long-held ambition to dominate the CEE business sq m world is now a reality and the office market is keeping up with the pace. Every week Warsaw’s skyline gains a new addition, as a result of office 600,000 10% towers growing at an incredible speed. 9,1% 8,8% • The leasing market is also gaining momentum and the slightly subdued 500,000 7,3% 8% result for Q1 is expected to be bolstered by high profile deals in the next few months. Total demand for offices in Q1 2019 in Warsaw was 140,100 400,000 5,4% 6% sq m, created by companies from a variety of sectors. 300,000 • The vacancy rate remains at a low level of 9.1% in Warsaw (6.3% in 4% Central zones and 11.0% in Non-Central zones of the city). In 2019, the 200,000 downward trend in the vacancy rate in Warsaw should continue.

2% • Prime headline rents increased in the central areas of Warsaw due to the 100,000 high demand and low vacancy rate there and increasing construction costs (approximately 15–20% growth since 2012). 0 0% Excl. Excl. Excl. Overall Granular Most Long-Term Vacancy Vacant Assets Vacancy

Source: JLL, Q1 2019

* Adjusted Vacancy Rate represents completed floorspace offered on the market for leasing, vacant for immediate occupation on the survey date within the market, excluding the floorspace that can be regarded as unattractive given the current market conditions.

The rate was calculated using three different approaches i.e. either: − by subtracting from the overall vacancy the „granular vacancy” (i.e. units smaller than 500 sq m), or − by subtracting from the overall vacancy the most vacant assets, or − by subtracting from the overall vacancy the long term vacancy (i.e. units vacant for more than two years).

€11-14 €13.5-14.5 East €9.5-13 North €12.5-14

1 €20.5-24 CBD €15-19 €13.5-15 4 2 €17-21 West €10-13.5 City Centre €13.5-18 5 3 6 €12.5-14.5 Jerozolimskie €12-14.5 €10-13 corridor Mokotów €10-12.5 7

€12-14 Żwirki i Wigury €10-13 corridor €13-14 Ursynów, €12-13 Wilanów

€11-13 Puławska Source: JLL, Q1 2019 €9.5-11.5 corridor

Key completions, Q1 2019 Key leasing transactions, Q1 2019

Contract Qtr Property Submarket Size (sq m) Qtr Property Occupier Deal size (sq m) type

Q1 Spark B City Centre West 15,700 Q1 Business Garden 6 Wirtualna Polska New deal 7,000

Q1 Poznańska 37 CBD 3,000 Q1 Vector + Tenant from a public sector Pre-let 7,000 Tenant from IT products & Q1 Kaleńska 5 East 1,500 Q1 The Park 6 Pre-let 5,800 services sector Q1 Business Garden 2 Parexel Renewal 3,800

Q1 Empark Saturn Henkel Renewal 3,600 University Business Renewal & Q1 Solenis Poland 3,000 Center I expansion

Source: JLL, Q1 2019 Source: JLL, Q1 2019

sq m/ 1,000 inhabitants

800 700 600 39 110-130 9.5-12 80-90 500 400 300 495 200 Shopping centres Retail Parks High street 100 0 Wrocław Poznań Tri-City Łódź Kraków Warsaw Silesia Szczecin Density - under construction Density existing * Prime rents relate to a well located 100 sq m unit shop from the fashion and accessories category in leading retail assets in capital Source: JLL, May 2019 city (for retail parks – 2,000 sq m units).

Brand basket

In order to investigate the retail attractiveness of cities, JLL created the 60 JLL further determined whether particular brands are present in a particular Brand Basket. All of the selected brands are regarded as key tenants in their city. When investigating cities, the penetration rate was used, expressed as respective shopping centres, including retailers from the following retail the quotient of the number of brands present on a given market and the total categories: fashion, shoes, kids and maternity, household goods, multimedia, number of Base Basket brands (60). This indicator represents the direction of and health & beauty. The basket composed of lower mid, upper mid and retailer expansion in Poland’s cities to date. In addition to retailer premium brands (20 in each category) reflecting the diversity in retail market penetration, an average positioning of cities was identified (measured by the positioning. arithmetic average of the positioning of the brands present in a city, weighted by the number of stores which they operate).

All 60 of the analysed key tenant brands are only present in the Warsaw and Kraków Agglomerations.

Warsaw is characterised by the highest market positioning among the analysed markets.

*Dot size corresponds with the populations of agglomerations Source: JLL own calculations

COPYRIGHT © JONES LANG LASALLE IP, INC. 2019 Warsaw City Report Q1 2019 During the first quarter of 2019, no new retail schemes were opened within The average vacancy in shopping centres in Warsaw stood at 2.8% at the end the Warsaw Agglomeration area. Thus, the modern retail stock in the Warsaw of H2 2018, which is one of the lowest numbers among the eight major Polish Agglomeration totalled 1.9 million sq m, with shopping centres representing agglomerations. nearly 70% of the stock (1.29 million sq m). The remaining formats include Warsaw proves to be an attractive and stable market for international retail parks and warehouses (27%; 510,000 sq m) and outlet centres (3%; chains, however the pace of new entrances is slightly decreasing. In Q1 2019, 57,000 sq m). two new chains from the Czech Republic appeared on the Warsaw market. The shopping centre density in the Warsaw Agglomeration currently stands The Tescoma chain opened its first store with home accessories in Galeria at the level of 495 sq m / 1,000 residents, which is, however, still one of the Północna, while TEPfactor debuted in Blue City, choosing Warsaw as its third lowest among the eight major agglomerations. The ratio will increase location worldwide. significantly to 525 sq m / 1,000 residents at the end of May, as a result of the The most awaited debut on the Warsaw market is currently Primark, the opening of Galeria Młociny. fashion store from Ireland, with its first location in Galeria Młociny (opening is scheduled for the end of May).

Schemes under construction in the Warsaw Agglomeration

Property Format Developer Size (sq m)

Galeria Młociny Shopping Centre Echo Investment/ Echo Polska Properties 78,500

ArtN Mixed-Use Development Capital Park 24,000 Bohema Mixed-Use Development Okam Capital 16,600

EC Powiśle Mixed-Use Development White Star Real Estate/ Tristan Capital Partners 15,500

Centrum Janki extension (2nd phase) Shopping Centre Cromwell Property Group +11,000

Galeria Kupiecka in Otwock Shopping Centre Wot Invest 10,000

Retail Park in Nowe Babice extension Retail Park RWS Investment Group +6,500

Browary Warszawskie Mixed-Use Development Echo Investment 6,000

Prochownia Łomianki Retail Park Ghelamco 5,500

The Warsaw Hub Mixed-Use Development Ghelamco 5,500

Gondola Legionowo Shopping Centre Jerzy Petz +1,200

Source: JLL, May 2019

Quantum of space under construction with completion scheduled for the following years

2019 2020 2021

133,700 sq m 22,600 sq m 24,000 sq m

Source: JLL, May 2019

• Warsaw with a total existing stock of almost 4 million sq m remains the largest industrial market in Poland 7.0% (25% of total supply). 1.3% • The stock is mostly concentrated in the suburbs, as 83% of space is based there. 3.7% • New completions seen in Q1 2019 totalled 61,000 sq m. Inner City: 10.5% • Warsaw’s construction pipeline stood at almost 7.1% Suburbs: 5.0 % 250,000 sq m, which translates into almost 12% of total industrial space being constructed in Poland. • Strong gross take-up of 227,000 sq m noted in Q1 2019 places 7.3% Warsaw on the first place among Poland’s markets with 28% 4.8% 0% share in demand. • Prime headline rents remained relatively stable, noting only a minor increase in the suburbs zone. The rental rates are 5.3% anticipated to continue the growth. 4.6% • The road connectivity is rapidly improving with the 3.0% construction of the southern ring road (S2) and new exit roads S7 and S8 in the south western part of Warsaw.

Source: JLL, Q1 2019

Supply (thousand sq m) Demand, Q1 2019 Warsaw Inner City & Warsaw Suburbs zones combined

5,000

4,000 27% 3,000 294,000 sq m

2,000

1,000 73% 0 571,000 sq m 2015 2016 2017 2018 2019 Q1

Stock (thousand sq m) UC (thousand sq m)

Source: JLL, Q1 2019 Net Take-Up (sq m) Renewals (sq m)

Source: JLL, Q1 2019

4% 3% 12%

17% Warsaw Suburbs 13% 24% Warsaw Inner City 83%

16% 17%

Warsaw Central Poland Upper Silesia Poznań Wrocław Szczecin Tri-City Kraków Lubuskie Kujawy Lublin Podkarpacie Opole Olsztyn Kielce / Radom Białystok Source: JLL, Q1 2019

Net take-up by sector, 2018-Q1 2019 Warsaw Inner City & Warsaw Suburbs zones combined

8% Logistic operator 1% 2% Food 2% Retailer 7% Light manufacturing Paper or books Construction 9% 55% Pharmaceuticals Electronics 13% Archives Other

Source: JLL, Q1 2019

Key transactions, Q1 2019 Prime rents* (€ / sq m / month)

Size Deal Tenant Property Sector (sq m) Type Zone Headline Rents Effective Rent

Pepsico P3 Mszczonów 58,500 New deal Food Warsaw Inner City 4.30 – 5.20 3.50 – 4.60

Goodman Warsaw Logistics Warsaw Suburbs 2.70 – 3.70 2.00**– 2.80 ID Logistics 23,000 Renewal Logistics Centre operator

Logistics Trans-tok West Park Ożarów 13,000 New deal operator *as of end Q1 2019 ** including Błonie subzone Light Napex Hillwood Janki 10,200 New deal manufacturing

Logistics Fiege P3 Błonie 7,000 Renewal operator

Source: JLL, Q1 2019

30,000 sold on offer at the quarter-end

25,000

20,000

15,000

10,000

5,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019

Source: JLL, Q1 2019

• The number of units on offer over the last three months Structure of the current market offer decreased by 7% and amounted to 17,700 units at the end of the quarter. according to the projects' delivery date declared by the developer • Demand remained at a high level and the number of concluded transactions was similar to the results recorded in Q4 2018. • The results achieved in the last two quarters indicate that the demand has returned to higher levels of approximately 6,500 units sold per quarter. 2% 2% 4% • After a record-high number of units launched for sale in 14% the last quarter of 2018,, developers launched 45% fewer units for sale in Q1 2019. 22% • At the end of Q1 2019, the average price of units on offer exceeded 10,000 PLN / sq m for the first time in the history of the market in Warsaw. For comparison, in mid- 2008, the average asking price was 9,200 PLN / sq m. • In Q1 2019, an further increase in the offer of units from the most expensive price ranges was observed – above 13,000 PLN / sq m. • The share of units available for sale in completed 56% buildings remained at a record low level of 8%. At the end of Q1 2019, there were only approximately 1,500 completed and yet unsold units on offer in Warsaw.

until 2017 2018 2019 2020 2021 2022

Source: JLL, Q1 2019

Average prices of flats on offer 5.9 (‘000 PLN / sq m) 6.9 WESOŁA Gross average asking rent BIAŁOŁĘKA 42.4 (PLN / sq m / month) 44.9

9.8 BIELANY 7.8 54.3 TARGÓWEK 11.3 43.2 ŻOLIBORZ 12.3 6.9 61.8 PRAGA PŁN. REMBERTÓW 8.9 56.0 n/a BEMOWO 12.9 9.1 WOLA PRAGA PŁD. 5.9 48.6 20.7 WESOŁA 67.4 64.0 ŚRÓDMIEŚCIE 42.4 12.4 84.9 OCHOTA 61.5 7.3 7.4 11.1 WAWER MOKOTÓW URSUS 44.3 8.5 63.4 45.4 WŁOCHY 51.5 8.9 WILANÓW 55.8 8.9 URSYNÓW 51.1 Source: JLL, Q1 2019 Rents presented on the map are for flats in new buildings (constructed after 2004)

Price evolution

11,000 25% 10,000 10,000 20%

9,000 15%

8,000 10% 14,6% 7,000 9,0% 10,7% 5% 0,4% 1,0% 1,5% 0,2% 1,4% 3,2% 6,000 0% -7,3% -4,2% 5,000 -8,1% -5%

4,000 -10% Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019

change in the average price (y-o-y) average gross price of units on offer (PLN / sq m)

Source: JLL, Q1 2019

Mateusz Polkowski Agata Sekuła Head of Research & Consulting Head of Retail Investment CEE [email protected] [email protected]

Anna Młyniec Tomasz Puch Head of Office Agency Head of Office and Industrial Investment [email protected] [email protected]

Anna Wysocka Agata Janda Head of Retail Agency Director, Hotel Investment [email protected] [email protected]

Tomasz Olszewski Paweł Sztejter Head of Industrial Agency CEE Head of Residential Poland [email protected] [email protected]

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