Warsaw - Domański Zakrzewski Palinka

2 0 0 7
Po l a n d
THE POLISH COMMERCIAL
PROPERTY MARKET
2007
Poland
2
Warsaw
Contents
4
Chapter 1
Introduction
5
Chapter 2
Executive Summary
6
Chapter 3
Geography and Population
7
Chapter 4
Major Cities of Poland
8
Chapter 5
Economic Overview
10
Chapter 6
Office Market
15
Chapter 7
Retail Market
18
Chapter 8
Warehouse/Industrial Market
22
Chapter 9
Hotel Market
24
Chapter 10
Investment Market
26
Chapter 11
SWOT Analysis of the Current Commercial Property Market
28
Chapter 12
KOBA Market Expectations
29
Chapter 13
Legal Environment
30
Chapter 14
Taxation of Real Estate
38
KOBA Company Profile
45
Domański Zakrzewski Palinka Company Profile
46
Ernst & Young Company Profile
47
Chapter 1 Introduction
The purpose of this report is to provide an overview of the current commercial property market in Poland.
We concentrate our attention on capital city Warsaw’s commercial property market, as it features the country’s major developments and is of most interest to local and international real estate market players.
The information has been prepared using external data obtained from official Polish institutions, the opinions of market participants, internal information from real estate company KOBA, advisory services company Ernst & Young, and law firm Domański Zakrzewski Palinka.
The information provided in the report is correct to the best of our knowledge as of 1 January 2007.
The development of Poland’s commercial property market continues to be in a dynamic phase and professional advice should always be sought when investment decisions are being taken about Polish real estate.
The report is divided into 14 chapters, each of which can be read independently.
Chapter 2 describes the general market situation.
Chapter 3 provides an overview of Poland’s geography and demography.
Chapter 4 presents information about Poland’s major cities.
Chapter 5 describes Poland’s economic achievements and trends.
Chapters 6 – 9 give an overview of the office, retail, warehouse/logistics and hotel markets.
Chapter 10 describes the investment market situation and trends.
Chapter 11 presents the strengths, weaknesses, opportunities and threats to the Warsaw commercial
property market.
Chapter 12 presents KOBA’s expectations for the different commercial property market segments.
Chapter 13 presents an overview of the legal environment impact for the commercial property market.
Chapter 14 is an overview of taxation affecting the real estate business.
The Polish Commercial Property Market 2007 has been prepared by KOBA, Ernst & Young, and Domański
Zakrzewski Palinka, primarily for professional investors, leaseholders and developers taking an interest in
the Polish commercial property market.
NB! Limitation of liability
The information contained in this overview is intended solely for general information purposes and shall not be treated as professional advice or legal opinion. Any copying, distribution or
reprinting is allowed only with the express written permission of real estate company KOBA,
advisory services firm Ernst& Young, and law firm Domański Zakrzewski Palinka.
Copyright © 2007 KOBA
Chapter 2 Executive Summary
The Polish Commercial Property Market 2007 depicts a vibrant property market in an economically stable
democratic country.
Poland may be characterised by its political, economic and regulatory stability. The macroeconomic environment is sound and the investment climate is favourable. Poland is a large country with an open economy.
By now, the Warsaw commercial property market has become a typical mature market, which faces increasing requirements from active market players in terms of demand for office, retail and industrial space, attractive investment products, etc. All segments of the Polish commercial property market are seeing active
development and interest from market participants is high.
The Warsaw office market comprises around 2 million sq. m, with an evident cluster of skyscrapers in the
central part of the city. Being the financial and economic centre of the country, Warsaw hosts thousands
of companies’ headquarters, also all the major state and governmental institutions are located here. Rapid
development of modern office space is being undertaken in both the city centre and outer-city regional
centres.
Warsaw’s retail market characteristics correspond to all those of a mature market – stable rents and vacancy
levels, tough competition on the part of tenants and high interest from investors being the major ones. All
retail market segments – shopping centres, super/hypermarkets, retail parks and retail streets – are well developed in Poland’s capital city and we do not expect any significant numbers of new retail schemes.
The development of industrial premises, especially warehouses and logistics’ parks, is closely related to general economic growth, and today developments can be divided into two clear directions – modern logistics’
centres and offices are being developed close to the city and the major highways, whereas large industrial
and warehouse facilities are being constructed further from the city centre, close to the country’s major
highways. Interest from market participants – tenants, developers, owners and investors – is growing, and
has a direct impact on both quality levels and investment yields.
More and more business people and tourists are coming to the capital of Poland. An insufficient number of
high-standard and luxury hotels in Warsaw indicates the existence of considerable market potential which
has attracted the attention of world-renowned hotel operators who are either not yet present in Poland, or
own only a few facilities.
The investment market in Warsaw is maturing, however, both international and local investors continue
to be very active. Some of them have already started to transfer their investment to Poland’s secondary cities which are very promising in terms of demand for quality shopping space, modern offices and logistics
facilities. With their slightly higher yield levels, secondary cities are definitely becoming a competitor for
the capital Warsaw.
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Chapter 3 Geography and Population
3.1. Geography
Poland with its total land area of 312,685 sq. km and 8,700 sq. km of territorial sea is one of the ten largest
countries in Europe. It is situated to the north of Central Europe, with Germany to the west, the Czech
Republic to the south-west, Slovakia to the south and the Russian Federation enclave of Kaliningrad on
the Baltic coast to the north. There is a short border with Lithuania to the north-east; Belarus lies beyond
the northern part of the eastern border and Ukraine the southern. Poland has a 520 km coastline along the
Baltic Sea to the north-west. The total length of the European Union’s external border on Polish territory
amounts to 1,163 kilometres, made up of the borders with Belarus (418 km), the Russian-controlled Kaliningrad area (210 km) and Ukraine (535 km). Internal EU borders total 1,902 km, comprising the borders
with Slovakia (541 km), the Czech Republic (790 km), Germany (467 km) and Lithuania (104 km).
3.2. Population
The population of Poland is over 38 million (2006). About 97% of the population is Polish, the other 3%
being Germans (0.4%), Belarusians (0.1%), Ukrainians (0.1%) and others.
The official state language is Polish. Most of the younger people also speak English and German.
The major religion in Poland is Roman Catholicism (95%), with Eastern Orthodox, Protestant and other
religions making up the remaining 5%.
Chapter 4 Major Cities of Poland
There are five major cities in Poland: Warsaw (the capital),
Lodz, Krakow, Wroclaw and Poznan. Katowice, Szczecin,
Bydgoszcz, Lublin and Gdansk are the next five.
Warsaw
Warsaw is the capital of Poland. With a population of almost 1.69 million (2.5 million including outer suburbs),
it is not only the country’s largest city, but also the most
important economic, political, industrial and cultural centre in Poland.
Since the collapse of the Eastern Bloc, Warsaw has been
the focus of Poland’s economic restructuring with most major Polish companies and international investors choosing
to locate there. Warsaw’s economy is largely based on the
service sector, which employs more than 70% of the workforce. One of the most significant developments in this sector has been in banking and finance.
Lodz
With a population of over 770 thousand, Lodz is the second
largest city in Poland. It lies in the centre of the country and
serves as the capital of the Lodz Voivodship (province).
As a result of the inflow of foreign investment and the creation of a highly qualified labour market, today’s Lodz is
seeing rapid development of new technology industries,
food-processing plants, printing works and tourist services.
The Lodz conurbation is also an important academic centre.
Nearly 100 thousand students study at 20 colleges and universities, including 6 state universities. This puts the Lodz
region at the forefront of cities with high intellectual potential.
Krakow
Krakow, with a population of 757 thousand, is the third
largest city in Poland. It is the capital of the Małopolska
Voivodship. Until the 16th century, Krakow was the capital
of Poland, which was subsequently moved to Warsaw.
The city is located at the intersection of major trade routes,
near the Silesian conurbation and the southern border of
Poland. The city, which until not long ago was dominated
by heavy industry, is now becoming the main headquarters
for many companies specialising in the development of new
technologies. Moreover, its geographical situation and important strategic location in terms of communication and
transportation give Krakow the opportunities and incentive
to become one of the country’s principle economic centres.
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Wroclaw
With a population of over 600 thousand, Wroclaw is a
well-known industrial city. Traditionally, the major industries were the manufacturing of railway carriages and
electronics, the machinery and transport industries, metallurgical works and food-processing plants. Sectors which
are currently undergoing accelerated development include
advanced technologies in the fields of electronics, IT and
telecommunications.
Several major east-west and north-south routes intersect in
Wroclaw, what makes this city very attractive as a logistics
centre. The city is an important railway hub with direct
connections to all the capitals and major cities of Europe.
Efficient goods transportation has been assured by the expansion of the city’s rail cargo terminal.
Poznan
With a population of 570 thousand, Poznan is the capital
and the largest city of the Wielkopolska province and is
situated on the Warta River in west-central Poland. Poznan
is also one of Poland’s largest industrial and commercial
centres. Its industries include metallurgical works, chemical and furniture factories, textile mills, and food-processing plants. In recent times, it has become Poland’s second
financial centre, after Warsaw, with more than ten international banking and financial institutions based there.
Poznan is also a famous educational centre with nine state
universities, more than ten private higher education institutions and several research centres. As a result, the city has
more than 50 thousand students, a significant number with
a lively influence.
Chapter 5 Economic Overview
5.1. GDP
The Polish economy has made significant progress during the last 17 years - it had to make a transition
through the introduction of economic liberalisation and the development of the private business sector,
as well as establishing stable financial markets and reforming the health care and pension systems, education and administration, to its present status as a modern global economy under the flag of the European
Union.
Poland joined the EU in May 2004, and surging exports to the EU contributed to Poland’s strong growth
in 2004, though its competitiveness could be threatened by the appreciation of the national currency, the
zloty. The improvement of the business environment caused a decrease in investment risk, which resulted in
bigger volumes of domestic and foreign investment. In 2004, the Polish economy grew at the highest rate
in seven years, with the GDP growth rate reaching 5.4%. High levels of private consumption, significant
growth in net exports, the boom in domestic trade and a 16% boost in foreign direct investment were the
most important determinants of the GDP increase in 2004.
In 2005, the level of GDP growth rate was 3.4%. The slowdown in economic growth was related to lower
national demand, insignificant increases in domestic consumption, the lack of salary increases in real terms
and a less dynamic inflow of foreign direct investment. Nevertheless, the Polish economy developed much
faster than the Euro Zone’s (1.3% in 2005) and than the average of all 25 EU members (1.5% in 2005).
Real GDP Growth Rate (%, 2000-2007F)
12
10
8
6
4
2
0
-2
2000
2001
EU-25
2002
EU-15
2003
Hungary
2004
Czech Republic
2005
Poland
2006
2007 F
Lithuania
Source: Eurostat, 2006.
In the year 2006, dynamics of the business was maintained through increased investment and growing consumption. Economic growth amounted to an impressive 5.8%. However, although it is virtually impossible
for the Polish economy to sustain growth at the very rapid pace seen in 2006, it is more than likely that in
2007 GDP will reach a level between 4.6%- 5.5% for the complete year. The major trigger for growth is
most likely to be significant increases in investment.
5.2. Inflation
Inflation rates in the second and third quarter of 2006 amounted to 0.8% and 1.4% respectively. Lower
inflation rates, starting from third quarter of 2005, were the result of fading out of the price effects connected with Poland’s EU accession in 2004, the monetary policy pursued a few quarters earlier, appreciation
of the zloty in 2005, the rising contribution of imports from low production-cost countries and intensified
competition from producers from these countries. These factors complemented the short-term effects, such
as continuing food price decreases in annual terms.
10
CPI, YoY Change (%)
5
4
3
2
1
0
Jan
Feb
Mar
Apr
May
2004
Jun
Jul
2005
Aug
Sep
Oct
Nov
Dec
2006
Source: National Bank of Poland, 2006
Consumer Price Index (%)
2000
2001
2002
2003
2004
2005
2006
2007 F
CPI
10.1
5.5
1.9
0.8
3.5
2.1
1.0
2.5
CPI at year-end
8.5
3.6
0.8
1.7
4.4
0.7
1.4
2.4
Source: Central Statistical Office, 2006
The annual inflation figure for 2006 has positively surprised both economists and bank analysts. In December, prices were increasing much slower than expected, mostly due to oil price decreases and insignificant
growth of consumer prices. This brought the increase in CPI to an impressive 1.0% level.
Projections for 2007 oscillate between 2.0% and 2.5%. However, they are not free from all sources of uncertainty, such as the impact of globalization on inflation, the global growth of the workforce, the effect of
drought in Poland on food prices, economic policy in the coming years (increasing wage pressure on public
finance in Poland) and the exchange rate developments.
5.3. Unemployment
The most worrying sector of the Polish economy continues to be the labour market. However, since 2004
the number of unemployed people in Poland has decreased. The employment rate increased by some 1.3%
points in 2005 (comparison period: September 2004 – September 2005) and 2.0% in 2006 (comparison
period: September 2005 – September 2006). Although during the next few years it is expected to stay on an
upward trend, it still remains the lowest in the EU. The most important triggers for labour market trends
to continue improving are:
• growth of the economy;
• increasing demand for labour;
• continuing development of the services sector;
• large number of investment prospects.
In September 2006, there were 22 unemployed people for every job offer in Poland. The equivalent figure
for September 2005 was 30, and 39 a year before that. In September 2006, the lowest unemployment figures
among Poland’s seven largest cities were registered in Warsaw (4.9%), Poznan (5.3%) and Krakow (5.8%).
The highest were in Szczecin (12.5%) and Lodz (12.9%).
Unemployment Rate (Registered Unemployment)
25%
20%
15%
10%
5%
0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Central Statistical Office, 2006
The unemployment rate decline can be also partially explained by a falling participation rate, reflecting
the extension of early retirement rights and rapid growth in the number of students. Moreover, noticeable
labour emigration to the EU countries has been observed.
5.4. Wages and Salaries
The average gross monthly salary in Poland’s enterprice sector was PLN 2,627.53 in the third quarter of
2006, which means it increased by 5.5% compared to the same quarter of 2005. Statistics show that average
gross monthly salary in the enterprice sector reached PLN 2,759.65 in November 2006.
Average Gross Monthly Salary in Poland (PLN)
Salary
IQ 2005
II Q 2005
III Q 2005
IV Q 2005
I Q 2006
II Q 2006
III Q 2006
Nov 2006
2,425.80
2,469.31
2,490.37
2,668.60
2,536.99
2,582.33
2,627.53
2,759.65
Source: Central Statistical Office, 2006
The highest salaries are in mining sector, financial services, utilities sector and in public administration. The
lowest salaries are in hotel and restaurant sector, furniture manufacturing, textiles and leather sectors (average PLN 1,900).
It should also be noted that the competitiveness of the Polish labour force has increased significantly during
the last couple of years, from both a cost and qualifications perspective. Recently more and more well-educated young people have taken on responsible roles in large multinational companies.
5.5. FDI
Recent years have seen consistent amounts of foreign direct investment (FDI), which confirms the increasing appeal of the Polish market to foreign capital. Investment decisions are closely linked to the size of the
Polish market, the prospects for economic growth and the human resources available in the region. According to Polish Information and Foreign Investment Agency (PAIiIZ) data, FDI in Poland in 2005 remained
stable at the level of USD 7.86 billion. The dynamic growth of FDI in 2006 has been achieved mostly
12
through many companies deciding to reinvest their profits. There is a strong indication that the advantageous investment climate will continue in Poland for some years.
FDI Inflow to Poland (bln USD)
12
10
8
6
4
2
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Polish Information and Foreign Investment Agency, 2006
The following sectors have been identified as offering particularly good investment and export opportunities: IT and electronics, telecommunication, energy, environmental products and services, food and food
processing, financial services, transport and distribution, the security sector, leisure and lifestyle.
Investors rate Poland favourably in terms of the availability of land for investment and real estate costs.
According to the UNCTAD World Investment Report 2005, Poland is one of the most attractive global
business locations, placed in eighth position after China, USA, India, Brazil, Russia, the United Kingdom
and Germany.
Cumulative FDI in Poland (mln USD)
120,000
102,200
92,201
100,000
84,477
72,705
80,000
60,000
65,115
49,392
56,834
40,000
20,000
0
2000
2001
2002
2003
2004
2005
2006
Source: Polish Information and Foreign Investment Agency, 2006
5.6. Retail Trade
Retail sales amounted to PLN 437,4 billion in 2005. This number increased by 1% compared to the previous year. The volume of retail sales increased significantly in comparison to the results from 2003. The Polish
retail market has a unique characteristic: in 2005, small shops with an area of less than 100 sq. m accounted
for approximately 83.6% of the market.
Retail sales increased by 13.3% in October 2006 compared to the same month in 2005. Sales of motor
vehicles rose by 27.7% comparing the same months. Retail sales in the furniture, household electric appliances, radio and TV goods sector experienced an astonishing 26.2% growth and those in non-specialist
shops rose by 19.9%.
Retail Sales Value in Poland (Current Prices, bln PLN)
437,4
440
433,2
420
400,7
400
385,3
380
360
340
2002
2003
2004
2005
Source: Central Statistical Office, 2006
5.7. National Currency
Poland’s national currency is the zloty (PLN). The exchange rate is not pegged. The average EUR/PLN
exchange rate amounted to 3.89. The Polish zloty gained strength throughout 2006 as the result of the relatively stable political situation, the weaker position of the dollar in the European market, increasing demand
for European currency, significant GDP growth and the low inflation rate.
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Chapter 6 Office Market
With a population of almost 1.69 million (2.5 million including the outer suburbs), Warsaw is not only the
country’s largest city, but the most important economic, political, industrial and cultural centre in Poland.
As well as being home to many national institutions and government agencies, Warsaw also hosts a huge
number of both local and international companies. The Warsaw office market can be described as large,
dynamic and rapidly developing. The centre of the city is full of older and modern glass-covered skyscrapers,
mostly located in the vicinity of the Palace of Culture and Science. Since 2000, the office market has grown
considerably. Each year has seen a number of new office buildings brought on to the market. Initially, the
majority of office developments were in the city centre, however, later, mostly because of the lack of suitable
land, new areas were opened up by the developers and users of office premises.
Therefore, today, in terms of location, the Warsaw office market can be divided into two major parts. In
general terms, we can classify offices as being located in the city centre or outside it:
• The Warsaw Central Business District (WCBD) covers the area bounded by Solidarnosc Avenue, Towarowa
Street, Lazienkowska Route and the Vistula River. The best-known office buildings in the WCBD are
Rondo I, Warsaw Finance Centre, Warsaw Trade Tower and Metropolitan. Numerous buildings in the city
centre were built some decades ago and many of these are currently undergoing reconstruction and remodelling in line with the current needs of tenants. This area is the epicentre of commercial activity in Warsaw,
with numerous office buildings, modern hotels and where the capital’s most important arteries converge.
The majority of tenants are business consultancy, law and real estate companies and other service providers.
However, rents are higher in the city centre and this has had an impact on the decision of some tenants to
move to the other part of the Warsaw office market – outside the city centre.
• Out-of-city offices include those in areas of the Mokotow district, where significant development has been
taking place since 1997. The Mokotow district is very close to the city centre and also to residential areas; therefore, this is a very popular location to have an office. Another area of offices is in Ochota, along
Jerozolimskie Avenue, where the Ochota Office Park and other office buildings and shopping centres are
located. Telecommunications, IT, and pharmacy companies are the major tenants of these offices.
The total stock of modern office space in Warsaw is around 2 million sq. m, some of the major office buildings are listed below.
Major Office Buildings in Warsaw
Name of Business Centre
Address
Total Area, sq. m (approx.)
Rondo 1
Rondo ONZ
56,000
Warsaw Financial Centre
Emilii Plater Street
49,000
Warsaw Trade Tower
Towarowa Street
44,300
Metropolitan
Pilsudskiego Square
38,200
Trinity Park I
Domaniewska Street
18,000
Source: KOBA, 2007
Solid international and local companies, working in consultancy, pharmaceuticals, telecommunications, financial services or the IT business require a certain degree of flexibility in terms of the size of their premises,
bearing in mind their potential for future expansion. Most often, they require premises in the range of 150
to 300 sq. m. However, newly built office buildings and projects under construction are not flexible enough
in terms of such expansion options for potential tenants in the future. One of the limiting factors is the size
of the buildings which means that the only way companies would be able to expand is by vacating their
existing premises. Larger companies, requiring more than 1,000-2,000 sq. m, tend to have their premises
purpose-built.
In general, the highest current demand is for medium-sized (up to 200 sq. m) premises in the central part
of the city or in the Mokotow district. Accessibility to the centre is important, but is partly solved by a
reasonable public transport system (trams, buses and underground lines). The majority of the offices have
their own parking facilities where a certain number of spaces is allocated to tenants. The price for a public
parking place ranges from EUR 50 to 300 per month for a single space, which is not necessarily located near
the entrance of the office building.
Rents
Rental levels are quite stable now and vary mainly with location, quality of the office building and premises,
office size, lease period, etc.
Office Rents in Warsaw (EUR/sq. m/month)
Office Location and Ttype
Rent (EUR/sq. m/month)
Prime offices in the CBD
18-22
Secondary offices in the CBD
15-18
Prime offices outside the city centre
13-15
Secondary offices outside the city centre
10-12
Source: KOBA, 2007
Rents payable are usually net amounts. The tenant is additionally obliged to pay 22% VAT and service
charges which, for prime offices in the CBD, are EUR 4-5/sq. m/month and for offices outside the CBD,
average EUR 3-4/sq. m/month.
The lease period for office space in Warsaw is usually 3-10 years. Rents are paid monthly in advance. General
practice is to pay the rent in the same amount for the office area and for the common areas of the building,
calculated on the base of the add-on factor. The security deposit is usually the equivalent of 3 months rent,
together with service charges, all subject to 22% VAT.
Average Rent in Warsaw, EUR/sq. m/month
35
30
25
20
15
10
5
0
2001
2002
2003
CBD
2004
2005
2006
2007 F
Non-central
Source: KOBA, 2007
Vacancies
Overall, the Warsaw office market is maturing, and vacancy levels have remained relatively stable. Vacancy
levels in the central part of the city are close to 8-9 %, but those for out-of-city offices are even lower, reaching 7%. Vacancy levels are expected to continue to fall in the future, but at a slower pace.
16
Pipeline Projects
The future supply for 2007/2008 is estimated to be around 250,000 sq. m and should continue to grow,
but a slowing down trend is emerging as a result of the lack of suitable land. Most new schemes are planned
for construction outside the city centre. Demand is expected to remain stable or increase slightly, mostly for
small- and medium-sized offices, which are within the scope of newly established companies as a starting
point for future expansion. This however may have an influence on rental rates, causing them to remain
more or less at the same level.
Major Office Projects in the Pipeline (2007-2008)
Office Project Name
Location
Total Area, sq. m
Zlote Tarasy LUMEN & Tower
Zlota Street
45,000
Prosta Office Centre I & II
Prosta Street
34,000
International Business Centre II
Armii Ludowej Avenue
20,000
Universale International
Świetokrzyska Street
12,750
Grzybowska Park
Grzybowska Street
10,000
Aeropark
Okecie
17,800
Equator Office
Jerozolimskie Avenue
17,000
Office building (designed by P-BPA)
n.a.
60,000
Tulipan House
Domaniewska
18,000
Mokotow Point
Domaniewska/Wielicka
8,000
Total
Source: KOBA, 2007
242,550
Chapter 7 Retail Market
Since the beginning of the transition from a centrally planned to a market economy, Poland has developed
into one of the most active emerging markets, increasingly attracting the attention of foreign investors placing
their capital in the retail segment. The large size of the market, growing disposable income, membership
in the EU and continuing economic growth make it a desirable country for both local and international
retailers.
The Largest Foreign Investors in Poland’s Retail Sector
Company
Country of Origin
Metro Group AG
Germany
Tesco Plc
United Kingdom
Carrefour
France
Casino
France
Auchan
France
IKEA
Sweden
Reitangruppen
Norway
Julius Meinl International AG
Austria
Jeronimo Martins Holding
Portugal
Source: The Polish Information and Foreign Investment Agency, 2005
The country’s growing economy, decreasing unemployment and growing income of residents have had a
direct effect on the increasing interest in retail space from both customers and retailers. The increasing purchasing power of Polish people has lead to growing demand for both basic necessities and luxuries.
Today, Poland has the most developed retail market in the region, with more than 220 shopping centres,
occupying more than 5 million sq. m in total, most of them anchored by hypermarkets. Shopping centres
can now be found in all 16 Polish provinces (‘voivodships’). Mazowieckie has by far the highest number, followed by Pomorskie (Pomerania, which includes the Tri-City area), Wielkopolskie, Slaskie, and Lodzkie.
Being not only the capital of Poland, but also the country’s largest city, Warsaw is the most interesting
location for retailers to establish a shop on the high street or in a shopping centre. Therefore, this report
concentrates on the Warsaw retail market.
In general, retail market may be broadly divided into three major segments – high-street shops in the central
parts of cities, super/hypermarkets and shopping centres. Every segment has its particularities, and below we
will review the major ones of the Warsaw retail market.
High Streets in Warsaw
Despite the rapid development of the shopping-centre segment, retail high streets are still considered to be
prestigious locations by both international and local retailers. Warsaw has several streets that can be classified as high streets. The prime one is Chmielna Street, which runs from one of the major thoroughfares
Marszalkowska and ends in Nowy Swiat Street. However, its mix of boutiques and second-hand corners
shows that the street is still missing a unified concept for it to really establish itself as the city’s leading high
street location.
Other important streets are Jerozolimskie and Al. Jana Pawla II; both are subject to heavy flows of car, tram
and pedestrian traffic. These are Warsaw’s main thoroughfares, and both feature attractive retail destinations,
mostly situated on the ground floors of office, hotel or residential buildings. A very popular shopping centre,
Galleria Centrum (with international tenants such as H&M, C&A, etc.), is located on Marszalkowska.
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Nevertheless, rents in traditional high-profile street locations are higher than those in modern shopping
centres, depending on the visibility of the unit, its standard and size, the period of the lease and branch of
the lessee. Rents on Warsaw’s main shopping streets (Nowy Świat, Chmielna and Marszałkowska) are the
highest in Poland. They dropped by 10-15% compared to the previous two years to an average EUR 55/sq.
m/month with the highest prices for the best locations reaching EUR 75/sq. m/month.
Vacancy levels in Warsaw’s high streets are generally low, with those in the most prestigious areas being close
to zero.
However, more and more people are tending to choose modern shopping centres as their main shopping
destination, mainly because of the more extensive variety of shops and brands (the opportunity to do all
one’s shopping “under one roof ”), and more convenient parking. Therefore high streets are slowly becoming
restaurant, bar and cafeteria-oriented locations rather than traditional retail areas.
Super/hypermarkets
When the retail market began developing in the early 1990s, several international chains entered the Polish market. The first ones, Auchan, Carrefour and Leclerc (France), came in by opening their own shopping
centres. Later, Royal Ahold (the Netherlands), Tesco (UK) and Géant (France) arrived in a similar fashion.
At present, the major hypermarkets are Carrefour, Géant, Real (Metro), Leclerc, Auchan and Tesco.
The major supermarkets are Globi, Billa, Albert, Robert, Piotr&Pawel, Alma, Minimal, Champion and Elea.
Currently Poland’s major retailers are Metro AG, Auchan Polska, Jeronimo Martins Dystrybucja, IKEA,
Carrefour Polska, Tesco Polska, E.Leclerc and ITM.
Biedronka, Lidl and Plus Discount are amongst the most popular discount chains.
The leading fashion brands are C&A, Reserved, Cropptown, Olsen, Cubus, KappAhl, Deni Cler, Benneton,
Esprit, River Island, Wallis, H&M, and Zara.
The fastest growing chains among specialty stores and DIY-chains are Obi, IKEA, TTW Opex, Castorama,
Conforama, Praktiker, Leroy Merlin and Bricomarche. The major local chain is Komfort (with about 100
outlets).
The Largest Retail Chains in Poland
Name
Brands
Metro Group
Real, Makro Cash and Carry, Extra, Media Markt, Saturn, Galeria Kaufhof
Carrefour
Carrefour, Globi, Champion, Albert, Hypernova
Grupa Cassino
Géant, Leader Price
Jeronimo Martins Holding
Biedronka
Auchan
Auchan, Schiever
Tesco Group
Tesco, Sevia
Source: KOBA, 2007
Shopping Centres
Warsaw was the first city in Poland to experience the development of modern retail space. In the late 1990s,
shopping centres Reduta and Targowek started their operations. The first full-scale shopping centres, combining an entertainment and leisure element with retail space, appeared at the beginning of the new century,
when Galeria Mokotow, Promenada, Klif and Sadyba Best Mall were opened. At the end of 2006, the total
modern retail accommodation in Warsaw was around 1.2 million sq. m.
Main Shopping Centres in Warsaw
Name
Location
Area (sq. m)
Owner
Arkadia
Srodmiescie, Jana Pawla II Avenue
110,000
Cefic/BEG
Galeria Mokotow
Mokotow, Woloska Street
59,000
Globe Trade Centre (GTC) /Rodamco Europe
Wola Park
Wola, Gorczewska Street
73,000
Central European Retail Property Fund
Blue City
Ochota, Jerozolimskie Avenue
82,000
Singspiel
Targowek
Glebocka Street
60,000
Mainl European Land Group Holding
Reduta
Jerozolimskie Avenue
60,000
Mainl European Land Group Holding
Klif
Okopowa
25,500
PBW Real Estate Fund NV
Promenada
Praga Poludnie, Ostrobramska Street
66,000
Dawnay Day Carpathian
Zlote Tarasy
Srodmiescie, Zlota Street
65,000
ING Real Estate / Rodamco Europe
Source: KOBA, 2007
The most popular shopping galleries in the capital city are Galeria Mokotow and Arkadia. Appropriate
locations close to central Warsaw (Galeria Mokotow is located in the Mokotov district, where many offices
and residential buildings are situated, Arcadia is located on the opposite side of the city), ease of access and
excellent planning in terms of layout and mix of tenants have made these centres very popular with different
consumer groups.
New concepts such as factory outlets (located in Ursus and Piaseczno) selling discounted branded clothes
and shoes, mixed wholesale and retail schemes (the Maximus Centre in Nadarzyn), and retail parks (in Janki
and Targowek) offering electronic goods, furniture and domestic appliances, have become very well-established types of retail schemes in Poland. Rental levels in factory outlets are usually 30-40% lower than those
in traditional shopping centres.
Rents
Rental rates vary in line with typical factors: location, size of the premises, period of the lease, etc. In most
shopping centres, in addition to basic rental costs, tenants are liable for service charges, some marketing
costs and sometimes a percentage of overall turnover. An additional 22% VAT is levied on top of rents and
service charges.
The rent for a prime, in-line shopping centre unit of 100 sq. m is currently in the range of
35-45 EUR/sq. m/month. Service charges are currently 5.5-6.5 EUR/sq. m/month.
The average rents for 100 sq. m units range around 30-35 EUR/sq. m/month, with larger anchor units
(where a shopping centre is anchored by a hypermarket) costing around 8-12 EUR/sq. m/month. Rents are
usually increased by service charges of around 4.5-5.5 EUR/sq. m/month.
Rents in Modern Shopping Centres
Large retail unit (1,000 sq. m and more)
Warsaw Rent
(EUR/sq. m/month)
Major City Rent
(EUR/sq. m/month)
7.5-18
7-17
Medium retail unit (200 – 1,000 sq. m)
15-21
11-17
Small retail unit (30 – 40 sq. m)
30-60
20-45
Retail unit in a food court (up to 200 sq. m)
Max. 85
Max. 55
Source: KOBA, 2007
Retail parks’ rents are the lowest at 7-9 EUR/sq. m/month with an additional 2-3 EUR/sq. m/month for
service charges.
20
Average rents in factory outlets vary from 8 to 16 EUR/sq. m/month.
The highest rents are seen in the new project in Warsaw - Zlote Tarasy, even reaching double the amount of
average current prime rents in contemporary Warsaw shopping centres, what may be the prognosis of the
rent levels in the new generation shopping centres of which Zlote Tarasy is the first example.
The typical length of a lease period for a retail space in a modern Warsaw shopping centre ranges from 5
to 10 years. Anchor tenants usually prefer 10-year lease agreements with extension options, typically for an
additional 5 or 10-year period.
Average Retail Rents in Polish Cities (EUR/sq. m/month)
80
70
60
50
40
30
20
10
0
Warsaw
High-street
Krakow
Poznan
Wroclaw
Small (100 sq. m) unit in shopping centre
Lodz
Kotavice
large/anchor stores in shopping centre
Source: KOBA, 2007
Vacancies
Growing internal consumption has increased the demand for modern retail space, as a result, vacancies in
the popular shopping centres are almost non-existent.
Chapter 8 Warehouse/Industrial Market
Strong economic growth and increasing retail turnover are directly related to the increasing demand for
warehouse and logistics premises. Because of the transfer of production to lower-cost labour countries or the
modernisation of technological processes, some industrial premises have already been converted for logistics
use, which had a positive effect on vacancy levels of industrial premises.
Warehouse facilities, matching modern requirements, first appeared in the market in the early 1990s. In the
beginning, some older construction premises were renovated (warehouses close to Warsaw along the Gdanska route) and adopted to current needs of tenants, later new and large modern complexes started being
built. The first new development in Warsaw was Warsaw Distribution Centre and Warsaw Industrial Centre
built in 1995 on Szyszkowa Street. Subsequently, other projects located around Warsaw have been brought
on to the market: Centrum Biznesu Ozarow close to the Poznan route, Platan Park on Pulawska Street,
Diamond Business Park and Centrum Magazynowe Omar in Piaseczno, Europa Park close to the Katowicka
route, Centrum Biznesu Stolica close to the Krakowska route and in Warsaw’s Praga Polnoc district: Zeran
Park, Sanpro Centre and City Point.
In general, Warsaw’s warehouse market can be divided into two major types:
• warehouses located close to the city or within the city boundaries (these premises are usually combined
with quantity of modern office space);
• logistics complexes located close to major highways and situated further from the capital city, at a distance
between 20 to 100 km.
Nationally, the warehouse market can be divided into three types:
• Warsaw and its vicinity;
• The central part of Poland: Blonie, Teresin, Mszczonow and Nadarzyn;
• Other cities: Lodz, Poznan, Katowice and Piotrkow Trybunalski. New warehouse centres are planned for
Wroclaw and Tri-City.
The highest demand is for prime property situated in the central part of Poland, followed by Poznan, Lodz
and Katowice.
Currently, there is a noticeable increase in smaller companies taking up warehouse tenancies.
Major projects include AIG Linkoln’s Diamond Business Park in Janki (approx. 32,000 sq. m), Diamond
Business Park in Piaseczno (58,000 sq. m), Apollo Rida’s Zeran Park (50,000 sq. m), Prologis Park in Warsaw
(37,000 sq. m), Prologis Park in Teresin (150,000 sq. m), Alliance Logistic Centre (125,000 sq. m), Slaskie
Centrum Logistyczne (65,000 sq.m), Logis in Rawa Mazowiecka (38,000 sq.m).
Common features of the warehouse market include:
• new developments always require the purchase of land of the appropriate size and location,
• location choice is tightly limited by the quality and proximity of roads, highways, transit routes, railways
and airports,
• the warehouse is always just one part of the logistics process,
• warehouse use depends on the distribution system.
In most warehouse parks small-scale production is also carried out, and often the warehouses are adapted to
the needs of manufacturers.
Warehouse usage includes storage and cold-storage facilities, the warehousing of chemicals and hazardous
22
goods, FMCG, medicines, spare parts or high-turnover merchandise. Each usage type requires different
modifications and technical specifications.
For warehousing and production premises, the need to comply with environmental protection rules and to
avoid hazards to the local community should always be borne in mind.
Today, we are seeing strong demand for modern, efficient warehouse and logistics facilities with good accessibility for transport. The majority of tenants have quite specific requirements and search for appropriate
premises themselves. This is encouraging developers to consider new projects.
The major warehouse and logistics premises developers are Prologis (USA), AIG Lincoln (USA), Parkridge
(UK) and Appolo-Rida (USA), Ghelamco Group, Frans Maas Polska, Platan Group, Schrader Internationale
Logistic, Kuehne + Nagel, Emerson Sp. z o.o. and Slough Estates.
Rents
Rental levels vary mainly depending on the quality of the premises and location of the warehouse or logistics
facility, with the size of the premises and the lease period being significant factors. In general, rents vary between EUR 4.5 to 5.5/sq. m/month for premises located in Warsaw, and from EUR 2.5 to 3.5/sq. m/month
for premises located outside Warsaw, at a distance of 50-100 km from the city. Premises are usually rented
for periods between 3 and 7 years with annual indexation and additional charges for property management,
maintenance, etc., with 22%VAT being applicable to all of those.
Vacancies
Even though the new projects are delivered to the market, vacancy levels are not increasing. In this segment,
most projects are developed as purpose-built, usually for tenants with very specific requirements, therefore,
it is not as easy to rent vacant premises out as for example, in the office segment. Projects developed speculatively are usually rented out more quickly. Vacancy rates decreased sharply from 14% in 2005 to 7% in
the first quarter of 2006.
Pipeline Projects
• Logistics City in Piotrkow Trybunalski, with a total area of 450,000 sq. m on 115 ha of land – developer:
Emerson Sp. z o.o. (opening of the first phase of the complex was planned for 2006);
• Tulipan Park in Stryków, with a total area of 100,000 sq. m on 61 ha of land – developer: Slough Estates
(opening in August 2007).
Market Trends
The main trend becoming apparent in the market is the increasing sophistication of tenants’ requirements.
The new logistics parks are being developed with advanced technologies that enable the construction of
large-area, smooth surfaces with high pressure resistance to allow very high storage capacity (up to 8-12
meters). Large manoeuvring spaces and hydraulic docks are also seen as an advantage.
Tenants also have increasing requirements for fire alarm and security systems. Other important features are
top-level telecommunications systems and wireless internet access enabling truck drivers to connect without
leaving their truck.
During the last year vacancy rates have decreased, however supply will increase in the nearest future. These
trends may result in the stabilisation of demand in Poland’s warehouse market. In 2006, a small reduction
in rental levels was noticed, a trend which may continue in 2007.
Chapter 9 Hotel Market
According to the Polish Central Statistical Office, during the first half of 2006 Poland’s hotel and guesthouse
businesses accommodated 7.665 million guests, or 3.5% more than during the same period in the previous year.
The number of tourists visiting Poland annually increased from 13.7 million in 2003 to 15.2 million in
2005. Predictions for the next four years estimate annual increases of 4.5%, which means that the total
should reach 19 million by the end of 2010.
In 2005, there were 1,231 hotels in Poland of which only 16 were five-star hotels and 66 four-star.
Number of Hotels in Poland (2000-2005)
2000
2001
2002
2003
2004
2005
5*
6
6
6
8
13
16
4*
40
39
44
51
63
66
3*
333
343
355
380
425
458
2*
285
315
310
367
388
421
1*
260
263
197
177
165
151
159
172
148
119
924
966
1,071
1,155
1,202
1,231
without category
Total
Source: Central Statistical Office, 2006
Occupancy rates, both in Warsaw and nationally have been increasing since 2003, and in 2005 the occupancy rates of Warsaw hotels averaged 50.9% (rising from 48.5% in 2004).
National Occupancy Rate (%, 2000-2005)
2000
2001
2002
2003
2004
2005
5*
58.9
55.9
51.3
49.5
50.6
53.3
4*
52.0
48.9
44.8
43.3
48.0
54.8
3*
42.5
40.0
37.9
38.7
41.3
48.7
2*
36.9
34.7
34.3
32.8
36.3
49.9
1*
29.9
29.4
29.1
31.1
37.1
50.3
Source: Central Statistical Office, 2006
The Central Statistical Office suggests that most people visit Poland for business purposes (28%) and holidays (23%). The majority of international visitors in 2005 came from Germany (37%), the CIS Countries
(31%), the Baltic States (8%) and the rest of the European Union (13%).
Occupancy Rate in Warsaw (%, 2004-2005)
2004
2005
5*
54.2
51.6
4*
50.7
56.4
3*
45.2
46.1
2*
45.8
52.4
1*
57.4
61.1
Source: Central Statistical Office, 2006
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Number of Hotels in Warsaw (2003-2005)
5*
2003
2004
2005
6
7
8
4*
4
4
5
3*
17
19
20
2*
15
17
17
1*
9
10
10
without category
8
8
5
Total
59
65
65
Source: Central Statistical Office, 2006
The insufficient number of high-standard and luxury hotels in Warsaw points to the existence of sizeable
market potential, which has attracted the attention of world-renowned hotel operators who either are not
yet present in Poland, or own only a few facilities. The construction of a new five-star Hilton hotel and the
79-room Les Palais hotel in Warsaw can be viewed as good examples of this type of investment.
Poland’s Major Hotel Operators
Operator
Brands
Number of Hotels
(under construction)
Orbis/Accor (France)
Sofitel, Mercure, Novotel, Orbis, Ibis, Etap
64 (2)
Gromada
Gromada
17
E-hotel/Salvator
Hotel System
3 (5)
JW Construction
Hotel 500
5
Hotele Gołębiewski
Gołębiewski
3 (1)
Starwood Hotels (USA)
Sheraton, Westin, Le Royal Meridien
5 (1)
Qubus
Qubus
11 (1)
InterContinental Hotels (Great Britain)
Holiday Inn, Express by Holiday Inn, InterContinental
6
Marriott International (USA)
Marriott, Courtyard
2
Hyatt (USA)
Hyatt
1
Hilton (USA)
Hilton
(1)
Source: Rzeczpospolita, December 2006
Prices for three star hotel accommodation vary according to location, the additional facilities available, the
hotel operator and the time of week. During weekends, Warsaw room prices are lower by 30-35%.
Average Hotel Room Rates in Warsaw in 2006 (EUR/night)
Source: KOBA, 2007
Room category
5*
4*
Single
119-216
94-146
Double
120-220
107-159
Suite
326-856
156-187
Chapter10 Investment Market
Since the late 1990s, Poland has been one of the most successful commercial property markets of all Europe’s
emerging nations. Together with Hungary and the Czech Republic, it shares over 80% of all the international investment made into property markets in the Central and Eastern European region. It is estimated
that in 2006 this region’s real estate sector could have easily attracted investment totalling more than EUR
10 billion. Nearly half of this was invested in Poland.
In the period from 2004 to 2006, a significant amount of investment transactions was made in Poland,
most of the properties involved being located in Warsaw. The retail sector attracted the greatest interest
from investors.
Major Transactions of Retail Schemes
Project
Date of
Transaction
Seller
Buyer
Arkadia
2005
Peabody
Ivanhoe Cambridge
Wola Park
2005
CERPF
Ivanhoe Cambridge
Targówek and Reduta in Warsaw
2005
Foras
Meinl European Land
7 shopping centres (Warsaw, Kraków, Poznań, Ruda Śląska,
projects: Rybnik, Sosnowiec, Lublin)
2005
Plaża Centres
Klepierre
Galeria Kazimierz
2005
GTC
Quinlan
Sadyba Best Mall
2005
Plaza Centres
Klepierre
Hypernova (13 supermarkets in Radom, Elbląg, Bielsko-Biala,
Szczecin, Tychy, Tamów. Jelenia Góra, Piotrków Trybunalski,
Katowice, Łódź x2, Poznań x2)
2005
Ahold
Carrefour
Source: KOBA, 2007
Despite the impressive number and scope of transactions effected in 2004-2005, 2006 was also a very active
year. One of the most visible transactions made in 2006 was the sale of Klif Portfolio by Monsun BV to
PBW Real Estate fund NV for around EUR 150 million and the sale of Okęcie Park by Caelum Development to Towarzystwo Funduszy Inwestycyjnych BPH for EUR 77 million.
Major Transactions in 2006
Sector
Building
Purchaser
Yield
Price (EUR million)
Retail
Casino Porfolio
GE Real Estate
<6.0%
555
Retail
Promenada
Dawnay Day Carpathian
<7.5%
127
Retail
Alfa Olsztyn
JWK Invest
6.25%
49
Office
Rondo 1
London & Regional Properties
5.3%
260
Office
Metropolitan
DEGI
5.7%
169
Office
Raiffeisen Business Centre
Invesco
n.a.
60
Office
Renaissance
Spanish Investor
5.49%
25
Retail
Galeria Gniezno
AAIM Europe
7.0%
21
Source: KOBA, 2007
Major Market Players
When looking at players of the Polish real estate market, investors from the USA, Austria, Germany, the UK
and Spain were the most active last year. The largest investment funds investing into real estate are Apollo
Rida, GE Capital Real Estate/Heitman Central Europe Property Partners, Akron Investment, Rodamco, Meinl
European Land Limited, Europolis and Dawnay Day Carpathian.
Investment Yield
“High yields” are the magic words that attract all types of investors. In general, yields directly reflect risks
related to the market and the investment property, and are becoming lower in Poland. The Polish investment market is dominated by international investors mostly interested in compiling property portfolios
26
in Warsaw. These international investors are ready to pay a premium to acquire their desired properties and
this has limited the opportunities for local investors to invest in prime Warsaw properties.
The yields that were being achieved by Polish commercial properties have led to a steady and sustained influx
of institutional investors and initiation of innovative new developments in Polish cities (Silesia City Centre,
Zlote Tarasy, Rondo 1). The Polish economy has been significantly boosted by the success of its property
market, and foreign direct investment has been growing continuously as a result of the increasing maturity
of the market and the quality of properties available for acquisition.
The first major transactions took place in 2003, when Rodamco invested in Galeria Mokotow and Zlote
Tarasy, with capitalisation rates at the level of 9-10.5%. Since then, the investment market for contemporary
real estate has sky-rocketed in terms of the turnover, complexity and volume of transactions.
As the outcome, we can state that the majority of prime offices and shopping centres have been sold to a variety of investors (some of the properties even several times) and are no longer owned by the original owner.
The more mature the market has become, the harder is the pressure on yield levels. Since 2000, yields for
prime Warsaw properties have almost halved.
In 2005, a record-breaking year, significantly increased interest on the part of investors pushed yields to
the level of 7-8%. Currently, because of the limited number of attractive investment opportunities among
modern multifunctional schemes in Warsaw and several other cities, investors are competing strongly for
the best properties. This pushed prime yields in 2006 down to 6% and, in some Warsaw cases, even below
6%, but they remain slightly higher in other Polish cities.
Yield Dynamics in Office and Retail Segments in Warsaw (%, 2000-2007F)
13
12
11
10
9
8
7
6
5
2000
2001
2002
2003
Offices
2004
2005
2006
2007 F
Retail
Source: KOBA, 2007
The market is maturing, but both international and local investors are still very active. Some of them have
already started to shift their investment into Poland’s secondary cities which are very promising in terms of
demand for quality shopping space, modern offices and logistics facilities. With their slightly higher yield
levels, the secondary cities have certainly become a competitor for the capital Warsaw.
Chapter11 SWOT Analysis of the Current
Commercial Property Market
SWOT analysis is the most common tool in analysing the expected performance of equities. It lists the strong and
weak aspects of an investment together with its opportunities and the threats to it. It does not pretend to give an
exact answer to the “invest or not invest” question, but provides a basis to estimate expected yields and risks.
Strengths
• Demand for high quality properties in attractive locations
• Favourable financing schemes
• Secure and reliable legal system
• Growing national economy
• Strong national currency
• Big market
Weaknesses
• Strong competition among investors
• Decreasing yield levels
• Lack of projects for sale
• Lack of vacant land for development
• Saturation of certain market segments
Opportunities
• Continuing and stable growth of economy
• Stable growth of consumer purchasing power
• Decreasing unemployment levels
• Increased immigration of lower-cost labour from other countries (Ukraine, Romania, Bulgaria, etc.)
Threats
• Increasing interest rates
• Growing salaries and inflation level
• Decrease in yield levels
• Insufficient land zoned for development.
The SWOT analysis of the Warsaw commercial property market depicts the potential and risks of a typical
mature market and can be compared with other Central European countries.
28
Chapter12 KOBA Market Expectations
Offices
The growing economy has lead to companies expanding and increased demand for office space. We expect
some more developments outside the city centre, especially in the Mokotow district, while central locations are almost entirely built up with no available vacant land. On the other hand, the renovation of older
construction offices located in the central part of the city will become more popular. The transformation of
former industrial areas into multifunctional complexes with residential, office and retail sections should also
begin in the next few years. Moreover, compact, medium-sized, high-standard buildings featuring unique
technical and architectural solutions may be a new trend for one-tenant schemes attracting the attention of
high-end customers.
Retail
The growing economy also has a direct effect on internal consumption. Both retailers and consumers are interested in modern retail space. Despite the modern retail market segment in Warsaw being close to saturation, it
is quite realistic to expect some expansion of existing centres and the development of new schemes like factory
outlets or retail parks in the future. We expect some retail centres to be developed on reconverted industrial
land in city centres, as well as increasing interest in locating retail areas in historical buildings. Further development of entertainment centres, family shopping centres in the smaller cities and the revitalisation of city-centre
high streets in response to the growing demand for luxury goods may be visible trends in the coming years.
Warehouse/Industrial
Growing retail turnover is increasing the demand for modern logistics and warehouse premises. Poland’s
location gives it an opportunity to transform itself into a strategic European logistics base, especially important for distribution to eastern and southern European countries. The main barrier to this transformation
is the quality of roads. We may observe increasing interest in locations outside Warsaw, like: Slask, Wielkopolska,
Lodz and the Tri-City. The new and planned warehouse development projects will bring rental stability to the
market. Growing land prices may have an influence on the future profitability of new investments.
Hotels
More and more business people and tourists are coming to Poland’s capital. The modernisation of Warsaw
airport will allow it to handle even more incoming visitors. The increasing number of visitors has a direct
effect on the demand for hotel services. We expect new operators to come up with their own projects or to
adapt existing properties to higher standards and append additional space where possible.
Investment
The Polish investment market is becoming more like western European property markets – high competition
among investors, lack of quality products for sale and, as a consequence, decreasing yields show that the market
is becoming more mature. This is encouraging investors to look more seriously into secondary city markets,
where yields are slightly higher, and this trend is expected to be the major one in the coming years. We expect
Polish investment funds to become more aggressive and visible in the domestic capital market. Additionally,
we anticipate a higher number of re-sale transactions for the same properties, greater commitment by investors
into forward funding projects, and further development of the relatively new concept of property leasing.
Conclusion
In the coming years, the Warsaw commercial property market will become even more mature, with slower
development and stable rents and slowly declining vacancy levels. In addition, we expect to see more sale
and lease-back deals coming into the market.
Chapter13 Legal Environment
Harmonisation of the legislative acts with those of the European Union and the reform of the administrative
system in Poland has contributed to the protection of ownership, legal occupancy and investments.
The transposition of the EU Acquis Communautaire into the Polish legal system has started long before 1
May 2004, the day of Poland’s formal accession. Thus, Polish investment law conforms to the European
Union standards.
The real property market in Poland is regulated following generally accepted principles of ownership immunity and protection of rights of a just acquirer (possessor). In addition, the principles of equal treatment and
equal protection are the main principles of investment law, meaning that both Polish and foreign investors
are subject to equal business conditions, and their rights and lawful interests are equally protected by law.
General Information
Any Polish resident or a foreigner, either an individual or an enterprise, may acquire buildings, flats and
other premises in Poland. However, Polish law provides for some restrictions regarding acquisition of real
properties by foreigners as well as certain limitations on foreigners establishing enterprises.
Establishing a Polish Property Company
Types of Enterprises
The principal legal act governing business activities in Poland is the Economic Freedom Act of 2 July 2004.
It regulates opening, running and closing enterprises in Poland as well as tasks of the public administration in this respect. For the purpose of carrying on business activities, foreigners may set up companies in
Poland.
Investors from EU and EFTA countries may conduct business activities on the same terms as Polish citizens.
Investors from non EU and EFTA countries may conduct business activities on the same terms as Polish
citizens only if they hold permits legalizing their stay in Poland, which allows them to conduct business
activities.
Investors from other countries who do not hold such permits may conduct business activities by establishing
limited partnerships, limited joint-stock partnerships, limited liability companies and joint-stock companies
or purchasing and acquiring shares in such companies.
The main legal forms available to Polish and foreign investors based in EU and EFTA countries are the
following: a joint-stock company, European Company, limited liability company, limited joint-stock partnership, registered partnership, limited partnership, professional partnership, sole proprietorship, European
Economic Interest Grouping or registered partnership.
Furthermore, foreign entrepreneurs may carry on business activities as a branch and also set up representative offices in Poland.
All registration differences of enterprises of so-called ‘local’ capital and of ‘foreign’ capital have been eliminated. A new integrated Polish Register has been established for the purpose of accumulating, protecting
and providing information on all Polish enterprises and other legal entities. An enterprise should be registered in the Polish Court Register. Any changes of incorporation documents and data of the enterprise
should be also registered in the Polish Court Register.
A limited liability company is the most preferred legal structure used by foreign investors in Poland especially for investment in real property.
30
This structure is less complicated than that of a joint-stock company, therefore the legal requirements concerning its formation, management and structural changes are less stringent. Moreover, the minimum share
capital to be paid is PLN 50,000 (approx. EUR 12,500) for a limited liability company and PLN 500,000
(approx. EUR 125,000) for a joint-stock company.
Opening and Closing an Enterprise
Incorporation of a limited liability company in Poland comprises the following steps: the Articles of Association need to be drafted in the form of a notarial deed, the company’s governing bodies should be elected, the
initial capital should be paid, the company should be registered in the Polish Court Register (the registration
procedure itself may take a month or longer), entry in the Polish Court Register must be published in Monitor Sądowy i Gospodarczy, a special court journal, and other required actions should be taken to operate the
company (registration with the Tax Office, Statistical Office, etc.)
Costs to be incurred upon incorporation of a Polish company are the following: notarial fee, depending on
the company’s share capital; civil transactions tax calculated on the share capital (0.5% of its value); registration fee of PLN 1,000 (approx. EUR 250) and costs of announcement in Monitor Sądowy i Gospodarczy
amounting to PLN 500 (approx. EUR 125).
A limited liability company may be dissolved for reasons provided in the company’s Articles of Association,
upon a resolution of the Shareholders’ Meeting to dissolve the company or to transfer the registered office
or principal place of business of the company abroad, upon declaration of the company’s bankruptcy or for
other reasons provided for by law. As far as the company exit is concerned, the system is in place and operates fairly well. Polish laws allow for a fairly easy exit of companies from the market through liquidation.
Public Private Partnerships
Public Private Partnerships (PPP) projects are still a new practice in Poland. The Public Private Partnership
Act dated 28 July 2005 introduced the required legal regulations for PPP. Under Polish law, PPP structures
may be applied to various projects in the public sector involving private capital. According to law, the areas
where PPP can be applied are broad enough, including energy, healthcare, tourism, public services and other
sectors.
The most popular areas where PPP structure is applied in Poland are: energy sector, public services, real
property development, transport and environment. As the Polish public sector is under constant need for
investments, and is moving towards the more efficient management of resources and achievement of greater
value for money over the longer period of time, the number of PPP projects in Poland is expected to increase
significantly in the nearest future.
Investment into Real Property
Acquisition of Land and Buildings
Real property is defined under Polish civil law as “land which constitutes a separate object of ownership, as
well as buildings permanently attached to the land or their parts if under special provisions they constitute
an object of ownership separate from the land”.
In Poland, it is possible to purchase ownership or perpetual usufruct of real property.
Perpetual usufruct of real property is established by the state or local government for a period from 40 to 99
years in a contract executed with the first usufructuary. After the perpetual usufruct is established for the first
time, it is transferable. The purpose of the perpetual usufruct of real property is specified in a contract to establish it and, therefore, each usufructuary must use the land for the purpose specified in that contract. The
perpetual usufructuary pays an annual fee to the owner (the state or local government). It should be noted
that buildings erected on the land held under perpetual usufruct remain the property of the usufructuary,
whereas the general rule is that buildings erected on the owner’s land are connected with the land. The own-
ership of the buildings may, however, be transferred only simultaneously with the transfer of the perpetual
usufruct of the land. Market perception of the perpetual usufruct in Poland is similar to that of ownership.
Minister of Internal Affairs and Administration’s Permit
According to Polish law, foreigners are generally required to obtain a permit of the Minister of Internal Affairs and Administration to acquire real property located in Poland.
Under law, a foreigner is among others:
(a) an entity registered outside Poland; and
(b) a company controlled directly or indirectly by an entity registered outside Poland
(a company is considered to be controlled by a foreigner if such foreigner holds among others more than
50% of voting rights at the general meeting of the said company).
The permit is not needed in the following cases:
(a) purchase by a controlled corporate entity, for its statutory purposes, of undeveloped real property in
urban areas if their total area in the entire country does not exceed 4,000 sq. m,
(b) purchase of independent residential premises,
(c) purchase of real property by a foreigner who has resided in Poland for at least five years from the issuance
of a permanent residence permit,
(d) purchase by a foreigner whose spouse is a Polish national and who has resided in Poland for at least
two years from the issuance of a permanent residence permit, of real property that will become the joint
property of both spouses,
(e) purchase of real property by a foreigner if, on the day of purchase, the foreigner is entitled to statutory
succession after the assignor of the real property, provided that the assignor was its legal owner or perpetual
usufructuary for at least five years,
(f ) purchase of real property by a foreign mortgagee bank, after an ineffective auction under enforcement
proceedings, acquisition or taking up by an indirectly or directly controlled bank of shares in a company
which has a registered place of business in Poland and is the legal owner or perpetual usufructuary of real
property in connection with enforcement of the bank’s claims for banking services rendered.
Exemption from the obligation to obtain a permit does not apply to real property situated in the vicinity of
state borders and agricultural land of more than 1 hectare.
However, since 1 May 2004, foreigners being citizens or entrepreneurs of member states of the European
Economic Area have no longer been required to obtain permits issued by the Minister of Internal Affairs and
Administration to purchase real property in Poland. This does not apply, however, to the purchase of:
(a) agricultural and forest real property, for 12 years after Poland’s accession to the European Union,
(b) second house, for 5 years after Poland’s accession to the European Union.
In order to purchase real property which is considered agricultural or forest in Poland, a permit issued by
the Minister of Internal Affairs and Administration is required. The permit is issued in an administrative
decision by the Minister of Internal Affairs and Administration, with consent of the Minister of National
Defence and, in the case of agricultural real property, also with consent of a minister responsible for country
development.
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Furthermore, the Minister of Internal Affairs and Administration who issues the permit may consult local
governmental or professional organizations and institutions. The proceedings to issue a permit may take 2
– 6 months. In order to obtain the permit, the investor will have to file a relevant application together with
certain documents relating to the real property to be acquired, the corporate structure of the investor, the
planned investment project and basic information about the seller(s). The permit is valid for two years.
Privatisation
Real property may be also acquired following special procedures of privatisation of state and municipal
property. As a general rule, investors in state and municipal property are asked to assume certain contractual
obligations, which are mainly contributing to preservation and development of such property.
Two forms of privatisation are possible:
(a) indirect which is preceded by commercialisation of a state-owned enterprise, and
(b) direct which is effected without the previous commercialisation of a state-owned enterprise.
Shares are transferred on behalf of the State Treasury by the minister competent for the State Treasury matters as follows: by way of a public offer, by way of a public tender, by way of negotiations started upon a
public invitation. Direct privatisation involves the disposing of all tangibles and intangibles of a state-owned
enterprise by way of: sale of the enterprise, contribution of the enterprise to a company, giving of the enterprise for use for consideration. The same rules are provided for the municipality-owned enterprise.
Privatised property is sold by privatisation institutions such as the State Property Fund (in case state property
is privatised) or municipal administration (in case municipal property is privatised). In principle, real property owned by state or local authorities can be purchased only through an auction or tender procedure.
Financing
Real property financing is widely available. Long-term financing is generally available in zlotys, euros, Swiss
francs, and US dollars. As a general rule, a foreign investor may use in particular loans, including bank loans
to finance the investment. Polish banks use standard procedures when granting loans or credits. In the case
of loans for purchasing real property, banks may accept a security in the form of a mortgage on the purchased real property. Polish banks usually do not accept mortgages on real property abroad.
European Structural Funds
European Structural Funds will be one of the main drivers of the Polish economy over the coming years. The
funding is dedicated solely to the Polish market; therefore there are certain strict requirements for eligible
candidates for funding.
The applicant for the structural funds should have a legal establishment in Poland. However, the origin of
the capital of the Polish enterprise, which is applying for financing from the European Structural Funds, is
not of a great importance during the evaluation process of the application. This would actually allow foreign
investors to establish their businesses and operations in Poland and to apply for structural funds for projects,
which would take place in Poland.
Mortgages
Real property mortgages are common collateral on loans issued by Polish banks for acquisition and development of real property. Owners of the real property are free to mortgage their property in order to secure the
existing or intended undertakings and obligations arising with respect to land transactions, commercial loans
and other. It is noteworthy that the mortgaged property remains with the owner and does not eliminate the
owner’s rights to use and dispose of the mortgaged property taking into account the rights of the creditor.
Like other real property transactions, contractual mortgage has to be established in the form of a notarial
deed and registered. Divisions of Mortgages at the local courts are in charge of the registration of mortgages
that come into effect upon registration in the Real Property and Mortgage Register. It takes approximately
one month or longer to register a real property mortgage.
Sale Agreements
The real property sale agreement should be concluded in the form of a notarial deed. In order to conclude
such agreement, the seller should provide documents confirming its ownership title and the legal status of
the real property, such as e.g. an excerpt from the Real Property and Mortgage Register, extract from the
land register and extract from the local master plan.
The notary fee depends on the transaction value and is a percentage (from 0.5 % to 3%) of the price payable
for the purchased property. The maximum notarial fee is PLN 14,000 (approx. EUR 3,500).
Following the general principles of law, Polish law is always applied to international transactions concerning real property located in Poland. The transfer of real property has to be documented by a statement of
transfer-acceptance that is signed by the buyer and the seller.
Once the final agreement to transfer the ownership of the real property or the perpetual usufruct is duly
executed, the new owner or usufructuary should be entered in the Real Property and Mortgage Register
maintained by the appropriate court. The transfer of perpetual usufruct is effective only after it is registered
in the Real Property and Mortgage Register.
After the Second World War, the Polish government nationalised some real property which belonged to
private owners. Now the private owners have begun more and more frequently to demand that their land
and buildings be returned. Before purchasing any real property from the state or local government authority,
care must be taken to ensure that no reprivatisation claims have been asserted by the former owners.
Pre-emption Right
In some cases (it depends on the status of the real property), certain authorities (municipal or governmental
agency) have the pre-emption right concerning the real property.
According to certain Polish regulations, the municipality has the pre-emption right in the case of the sale:
(a) undeveloped land purchased by the buyer from the State Treasury or a local government unit
(b) perpetual usufruct of undeveloped land
(c) ownership or perpetual usufruct of real property located in the area designated in the local master plan
for the public purpose investments
(d) real property registered in the monuments register or perpetual usufruct of such real property.
Some exemptions from the above rules are provided in this regulation.
According to certain Polish regulations, the Agricultural Property Agency has the pre-emption right if ownership of agricultural land is sold.
The Agency/the municipality has to be informed about the conclusion of a sale agreement and is entitled
to exercise the above right by providing the seller of the real property with a relevant statement within one
month. The sale agreement is invalid if the Agency/the municipality is not informed about the planned
transaction and cannot exercise its pre-emption right. Consequently, at first the investor and the seller(s)
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should conclude a preliminary conditional sale agreement and, then, a conditional sale agreement providing
that the final sale agreement will be concluded if the Agency/the municipality does not exercise its pre-emption right (either by providing the seller(s) with its relevant statement or if one month expires). Once the
Agency/the municipality refuses to exercise the said right, the seller(s) and the investor will be entitled to
execute an agreement on ownership transfer under which the investor will effectively acquire the right to the
real property disclosed in the Real Property and Mortgage Register.
Real Property and Mortgage Register
The Real Property and Mortgage Register is a public register maintained by the court for the real property.
It contains all actual information on buildings and land plots, rights to real property and encumbrances
thereof.
Real property registration fee depends on the kind of registration and varies in a range of up to PLN 200
(approx. EUR 50).
Land Register
The Land Register is a public register maintained by the local authorities. It contains the description of plots,
buildings located on real property, information regarding arable land and its classification.
Planning and Development
The local master plan is a binding legal act of a local authority (community) which generally describes designation of whole land covered by it. Under Polish law, the purpose of the land, the layout of public purpose
investments and a specification of the methods and conditions of land development are set forth in the local
master plan.
Before acquiring real property, it is necessary to establish whether the land is intended for agricultural, industrial or construction use in the local master plan at the local municipal office. Moreover, the land register
is to be verified in order to determine the real property classification.
If a master plan exists for the area planned for the investment, a building permit should be applied for
directly on the basis of this plan. If there is no master plan, a decision on the site development conditions
must be obtained before the land development methods can be determined. This decision is issued by the
head of the municipality or town mayor and is binding on the authority that later issues the building permit. The application for a building permit should also be accompanied by design drawings prepared by an
authorised person in compliance with specific construction and technical provisions. However, the design
may be submitted for approval even before applying for the permit. In such a situation, the application for
the building permit has to be submitted when the design approval decision remains valid. This period is
specified in the design approval decision. Polish law specifies all other conditions which should be fulfilled
and the documents which should be attached to the application for the building permit. The building
permit expires if the construction is not commenced within 2 years of the building permit date or if the
construction is temporary. The construction process should end with obtaining of an occupancy certificate.
In cases where the investment is of a specific nature, atypically located or has other unique features, certain
additional decisions may be required before the investment may be properly started or completed. The next
step is to register the building in the Real Property and Mortgage Register.
There are no particular restrictions imposed on the construction activities of foreign enterprises. According
to the laws, the user of a building has to supervise its condition and perform technical supervisions. The user
of the building is obligated to timely repair, reconstruct the building and maintain the surroundings. The
municipality is entitled to control how buildings are used.
Transformation of Agricultural Land into Commercial Land
The land classified in the Land Register as agricultural or forest land is subject to special protection under
Polish law. This statutory protection can be discontinued if the real property is no longer used for agricultural production or forest purposes. A relevant administrative decision, which should be issued within two
months by a local authority, has to be obtained before a building permit is applied for. In order to apply for
the foregoing decision, an applicant has to provide a local authority with certain documents relating to the
existing type of agricultural or forest land and the planned investment project.
According to Polish law, implementation of construction projects on the land classified as agricultural or forest requires a decision of the governor of the province (after obtaining a positive decision of the agricultural
chamber and subject to application of the municipal authorities or in the case of forest land, after obtaining
a positive opinion of the director of the district state forest office) or of the Minister of Agriculture or of the
Minister of Environmental Protection to exclude such land from agricultural or forest production. However,
this decision must be consistent with the local master plan. The classification of given land is specified in
the register of land kept by the local authorities. It should be noted that where the local master plan does
not provide for the use of land for non-agricultural purposes, then the exclusion of land from agricultural
or forest production requires the change of the plan. Exclusion of land from agricultural or forest production is subject to a single fee and annual duty. The single fee that is an equivalent of specified amounts of
tons of rye differs depending on the class of land and is to be paid within 60 days of the date on which the
decision becomes final. The amount of the single fee is reduced by the fair market value of the land on the
day of its exclusion.
In practice, the single fee is unlikely to be paid since the fair market value of the land usually exceeds the
fee. Certain land may be excluded from agricultural production without obtaining the decision and paying
the above duties and fees. The local authorities, however, are entitled, to bring some of such land under the
above obligation.
Letting of Real Property
Both Polish and foreign nationals and enterprises may lease land and buildings. There is no requirement to
obtain a permit from the Minister of Internal Affairs and Administration. Real property and land in particular may also be leased from the state or local municipalities.
Any agreement for the lease of real property is to be concluded in a written form and no further approval
by a notary public is required. Polish law recognises two types of such agreements: “umowa najmu” – lease
agreement and “umowa dzierżawy” – tenancy agreement. Under the lease agreement, the lessee may use
the property only, while under the tenancy agreement the lessee may use the property and collect benefits
therefrom.
Both types of agreements may be executed for a fixed or non-fixed term. According to Polish civil law, as a
general rule, if the lease agreement is executed for a fixed term, it cannot be terminated by the parties before
the end of the lease term (except for extraordinary situations listed in the Polish Civil Code, such as late
payments, serious violation of the binding order, leased property being defective, the lessee using the leased
property contrary to the agreement or its end-use or neglecting it). In order to make it possible to terminate
this agreement early for any other reason, all such situations should be precisely listed by the parties in the
agreement. The lease agreement executed for a non-fixed term may be terminated upon contractual notice
and, in the absence thereof, upon statutory notice. The statutory notice depends on the periods, in which
the rent is paid and varies from 1 day to 3 months. In the case of the tenancy agreement, the agreement
concerning agricultural land may be terminated one year in advance at the end of the year, and an agreement
concerning non-agricultural land, six months in advance before the end of the year of tenancy unless the
parties stipulated otherwise.
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If the property leased is sold during the lease term, the purchaser is obliged to replace the seller in the relationship of lease. However, the purchaser may terminate the lease while observing the statutory time limits
for notice unless the agreement was concluded for a fixed term in writing and an authenticated date and the
property was delivered to the lessee.
Rent fee is often denominated in PLN by establishing a firm rate with euro. The quoted rent fee generally
does not include utilities and service charges and the value added tax (22 %) that are added on the rent fee.
Furthermore, both Polish and foreign entities may use real property under various leasing schemes, in particular on the basis of so-called “sale and lease back” transaction.
Investment Protection and Guarantees
The investor rights and lawful interests are secured by Polish law. An investor has the right to manage, use
and dispose of the assets he invested in and, upon auditing the company’s annual balance sheet in accordance with Polish standards and payment of the taxes prescribed by the laws of Poland, to convert the profit
into foreign currency and transfer it abroad without any restrictions. Damage inflicted upon the investor by
unlawful actions of state or local authorities is compensated according to the procedure established by law.
Property is protected from the expropriation following the generally accepted principle, i.e. expropriation of
real property may take place if it is the only means of serving certain public purpose. Expropriation might
be in favour of the State Treasury or local authorities. Expropriation is effected against compensation, the
value of which should amount to the value of the real property.
Poland has concluded investment protection treaties with 54 countries, i.e. Albania, Argentina, Australia,
Austria, Azerbaijan, Bangladesh, Belarus, Bulgaria, Canada, Chile, China, Croatia, Cyprus, the Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, India, Indonesia, Israel,
Italy, Kazakhstan, Kuwait, Latvia, Lithuania, Macedonia, Malaysia, Moldova, Morocco, the Netherlands,
Norway, Portugal, Romania, South Korea, Sweden, Switzerland, Singapore, Slovakia, Slovenia, Spain, Thailand, Tunisia, Turkey, the United Kingdom, the Ukraine, the United Arab Emirates, Uruguay, Uzbekistan
and Vietnam. The treaties provide that investments made by entrepreneurs from one contracting state will
be treated fairly and on an equally favourable basis as domestic investments in the other contracting state.
Poland is a member of the Multilateral Investment Guarantee Agency (MIGA).
Chapter14 Taxation of Real Estate
Taxation
The overview provided below focuses on the Polish taxes and their aspects relevant to the real property owners, lessees and developers and is not aimed at providing thorough coverage of Polish tax law. The overview
deals with the most important issues covering the fiscal aspects of a real estate investment:
• financing,
• investment into real estate,
• letting of real property,
• sale.
The most commonly used investment vehicle for real estate investment or development projects is a limited
liability company (Sp. z o.o.). Generally, the same fiscal characteristics have also joint-stock company (S.A.),
but it is not as common. Foreign companies are also allowed to operate as branch offices or partnerships in
Poland, becoming more and more popular after Polish EU accession.
Financing of a Polish Property Company
Equity Financing
Set up of a new Polish company is subject to 0.5% tax on civil law transactions on the amount of the share
capital. Increase of the share capital in a Polish company is also subject to 0.5% tax on civil law transactions.
This also applies to additional payments to the limited liability company’ share capital.
Loans
Generally, loans extended to Polish entities are subject to 2% tax on civil law transactions or 0.5% when the
loan is granted by the shareholder. However, there exist several exemptions from tax on civil law transactions, such as:
• loans recognized as financial activity subject to VAT;
• loans granted by foreign non-shareholders which are engaged in crediting and financing activities (e.g.,
group treasury companies);
• bank credits.
Generally, interest on loans is deductible for tax purposes when actually paid, i.e. accrued interest may
not be treated as cost until its actual payment. Compounded interest (i.e. added to the principal so that it
constitutes a basis for new interest calculation) has always been regarded in practice as paid at the time of
compounding. Hawever, based on a recent controvercial court ruling, this position may be reconsidered by
the tax authorities. Interest related to the construction or acquisition of real estate and accrued till the date
of its completion is not recognized directly for tax purposes. This interest increases the initial value of the
real estate for depreciation purposes. The above rule does not apply to the projects constructed for resale (in
this case interest is recognized for tax purposes based on general rules).
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Thin Capitalization Rules
The Polish thin capitalization rules restrict the deductibility of interest on loans:
• granted to the taxpayer by a shareholder owning at least 25% of the voting power or by shareholders owning in aggregate at least 25% of the voting power – “parent company” loans, or
• granted to the taxpayer by another company if the same shareholder holds at least 25% of the voting power
in each of these companies – “sister company” loans where debt-to-equity ratio exceeds 3:1 at the date of
interest payment. Any interest on loans in excess of the above limit is not deductible for tax purposes.
Please note that indebtedness for the purposes of calculating the debt-to-equity ratio includes not only loans
from direct shareholders or sister companies but also loans or other debt granted by shareholders of the
direct shareholders of the borrower (i.e. loans from grandparents).
The value of equity for thin capitalization purposes is the registered share capital (nominal value of the shares
issued), excluding (i) this part of capital which was not paid in (ii) capital converted from shareholder loans
(credits) and/or related interest (iii) capital covered by a contribution in kind of intangible assets not subject
to tax depreciation (e.g. know-how).
Withholding Tax on Interest Payments
Generally, interest paid abroad is subject to 20% withholding tax. However, a relevant double tax treaty may
reduce the rate provided that the Polish company holds a certificate of tax residency of the lender. After joining the European Union Poland was obliged to implement the European Interest and Royalties Directive of
3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States which one of the main purposes is to abolish withholding tax
imposed by the source state on payments of interest and royalties made between qualifying EU entities.
Poland has been granted a transition period on the application of the Directive providing for 0% withholding tax on intra-group interest payments. As a result, the following transitional provisions apply as regards
taxation of interest and royalty payments made to qualifying EU entities:
• till June 30th 2009 withholding tax imposed by Poland may not exceed 10%,
• from July 1st 2009 till June 30th 2013 withholding tax imposed on these payments by Poland may not
exceed 5%.
Foreign Currency Financing
As the foreign currency liabilities are reported for accounting and tax purposes in Polish currency, foreign
exchange differences (gains or losses) accrue in the account and tax books of the Polish company. However,
these gains or losses are recognized for tax purposes only when realized, e.g. when the related liability is paid
(in any way e.g. by compensation of debts).
As is case with interest, foreign exchange differences related to the construction or acquisition of real estate
and accrued till the date of its completion are not recognized directly for tax purposes. These differences
increase (losses) or decrease (gains) the initial value of the real estate for depreciation purposes. The above
rule does not apply to the projects constructed for resale (in this case the foreign exchange differences are
recognized for tax purposes based on general rules).
Investment into Real Property
VAT
Input VAT incurred on the purchase of real estate is recoverable provided that the Polish company performs
activities which are subject to VAT.
If the Polish company performs both taxable and VAT exempt activities, only a certain percentage of
the input VAT incurred upon the acquisition is deductible based on the ratio of taxable sales to all sales
(VAT pro-rata computation). For the real estate initial deduction should be further adjusted for 10
consecutive years.
Tax on Civil Law Transactions (Transfer Tax)
Sale of real estate is exempt from tax on civil law transactions if it is subject to VAT. 2% tax on civil law
transactions applies on the market value of real estate sold if the sale is outside the scope of VAT (e.g. sale of
an enterprise) or VAT exempt (e.g. sale of used buildings and the underlying land).
Until 31 December 2006 tax on civil law transactions obligation rested jointly and severally with both parties to the transaction regardless of the contract arrangements. However, starting 1 January 2007 tax obligation rests on purchaser in case of sale agreement.
Letting of Real Property
Corporate Income Tax
Polish Property Companies are subject to Polish corporate income tax at a rate of 19%. Taxable income
comprises all income generated from business activities (trade or services) as well as capital gains. Taxable
revenues minus tax-deductible costs form the tax assessment base. The costs are deductible if they were incurred for the purpose of generating revenues or maintaining the source of revenue. For exploitation of real
estate, the most important costs, such as interest payments, costs of exploitation, maintenance and depreciation, are regarded as tax deductible.
The standard rate of depreciation for most new buildings for tax purposes is 2.5% per year. Hence, the costs
of investment in a building are deducted over a period of 40 years. Till the end of 2006, newly acquired
buildings used for more than 5 years prior to the acquisition could not be depreciated faster than over ten
years. From 1 January 2007 the actual depreciation period for used buildings equals to 40 years decreased by
the number of years which passed from the date of putting the building into use for the first time.
Under certain circumstances it may be worth carrying a cost segregation analysis of the investment expenditures. Some machinery may - under certain (specific) regulations - be excluded from the value of the
building and be treated as separate fixed assets depreciated at higher rates (4.5% -20%). This could lead to
significant tax cash - flow savings as the costs incurred are deducted over a shorter period of time.
Polish legislation provides for carrying forward tax losses over five consecutive tax years following the year
when the loss was incurred. The amount which is utilized in any of these five years cannot exceed 50% of the
total loss. However, tax loss cannot be carried forward in certain legal transactions involving the company
(e.g. most transformations of the legal status or mergers in case of losses of entities being wound up).
Individual Income Tax
Income derived from the lease of real property located in Poland either by Polish residents or non-residents
can increase their taxable income which can be taxed at respectively 19%, 30%, 40% rate. However, it
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can also be taxed at flat rate amounting to 8,5% of revenue (revenue not exceeding PLN equivalent of
EUR 4 000) and 20% of the revenue exceeding this amount. If the lease is registered as the business activity
income can be taxed at 19% flat rate.
VAT
Rental income is subject to 22% VAT. This VAT is added to the rent due and is payable by the lessee to
the lessor. If the lessee is a regular VAT payer, it can deduct its VAT on the rent from the output VAT that
it pays to the tax authorities on its own taxable activities. If the lessee’s business activities are fully exempt
from VAT, it is impossible to deduct the input VAT on the rent. For example, banks’, financial institutions’
and insurance companies’ activities are exempt from VAT.
If the lessee performs exempt activities, as well as taxable activities, then the VAT on the rent can be deducted proportionately.
Rental of residential real estate is VAT exempt.
Real Estate Tax
Real estate tax is charged to the owner of the land on buildings and construction which are used for business
activities. The local authorities set the rates and collect the taxes. The local authorities are bound by the following maximum PLN annually rates in 2007:
• For land, PLN 0.69 for one square meter of land;
• For buildings, PLN 18.60 for a square meter of the usable area of a building;
• For construction (e.g. roads, pipelines), 2% of the value of the construction calculated according to specific regulations (initial value determined for the purposes of tax depreciation).
The local authorities may differentiate the rates for different types of activities or locations and grant exemptions for certain types of real estate.
Tax Incentives
Tax Incentives Include:
• Special Economic Zones (SEZs),
• R&D incentives,
• R&D centers.
There are 14 SEZs in Poland. Each SEZ consist of several sub-zones which are located in different places, not
necessarily adjacent to each other. These areas attract investors by offering them tax breaks, e.g. corporate tax
exemption, real estate tax exemption.
R&D incentives allows for deduction from tax base up to 50% of expenses actually paid for purchase of
defined new technologies in a given year (entities in Special Economic Zones are not eligible).
The status of an R&D center is granted to entities with income generated on sales of goods and products
and on financial operations worth at least EUR 800,000, at least 50% of which is generated on sales of
own R&D activity results (in the year prior to the year of filing the application). Apart from that there is a
requirement of no outstanding tax and social security liabilities. The abovementioned conditions must be
fulfilled each consecutive year of holding the R&D center status. The centers may create the so called “in-
novativeness funds” – up to 20% of their monthly income can be allocated to the fund and treated as tax
deductible costs for CIT purposes. The requirement that must be fulfilled in order to create the fund is that
its resources must cover expenses linked with own R&D activity. The R&D centers are eligible for real estate
tax exemption to the extent that the assets are used to conduct R&D activity (de minimis aid).
Sale of Real Property
Real estate can be sold either through a direct sale of the property or indirectly through a sale of the shares
of the company owning the property. These two types of transactions are treated differently on grounds of
the Polish tax regulations.
Direct Sale of Real Estate
The revenues of a company from the sale of real estat are subject to the standard rules of Polish corporate
income tax. Taxable revenue is reduced by the net book value of the property. Effectively, only the „capital
gain“ is taxed at the rate of 19%. The revenue from sale of real estate must be valued at the price set in the
sale contract. If, for other business reasons, real estate is transferred to a related company for a price lower or
higher than the market value, the tax authorities may challenge the valuation and make adjustments for the
seller or the buyer, respectively. Adjustments not only trigger higher tax but also penalty interest (currently
11% per annum).
The sale of land is generally subject to VAT at the standard rate of 22%. However, the sale of undeveloped
land other than building land and land designated for development projects is VAT exempt.
Generally, the sale of buildings is also subject to 22% VAT. However, the sale of residential buildings and
separate apartments by developer is subject to a reduced 7% VAT rate till the end of 2007 (the reduced rate
also applies to the land on which the real estate is situated).
If the building qualifies as a used good (when it has been used for an unbroken period of at least 5 years) and
the owner (the user) is a taxpayer who was not entitled to recover any input VAT connected with the initial
acquisition, then the subsequent sale of such a building is exempt from VAT (along with the underlying
land). The exemption is not applied,however, if the seller incurred improvement expenses (and was entitled
to recover related input VAT) in the value exceeding 30% of the initial value of the building and the building was used for taxable activities for less than 5 years.
If the entire business (enterprise) of the Polish Real Estate Company is sold, this transaction is outside the
scope of VAT.
2% tax on civil law transactions applies on the market value of real estate sold if the sale is outside the scope
of VAT (e.g. sale of an enterprise) or VAT exempt (e.g. sale of used buildings and the underlying land).
Indirect Sale of Real Estate - Disposal of the Real Estate Company’s Shares
The capital gain on the sale of shares is subject to standard Polish corporate income tax at the rate of 19%.
If the selling party is a foreign shareholder, the applicable tax treaty determines the tax implications of such
transactions.
The sale of shares of the Polish Real Estate Company is subject to a 1% tax on civil law transactions (on the
market value of shares). This is irrespective of where the transaction takes place or where the parties to the
transaction have their fiscal residency. A share transaction is not subject to Polish VAT.
Individual Income Tax
In case real property was purchased by private individuals before 1 January 2007, the entire revenue on the
transaction may be generally taxed at 10% rate. If however, the real property was purchased after this date,
the income on the transaction will be taxed at 19% rate.
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Profit Repatriation
Taxation of Dividends
The Polish company may pay dividends to the shareholder out of the current year’s net financial profit.
However, dividends may not be paid out if the Polish company has accumulated financial losses exceeding
the current profits (increased by past years’ profits booked as reserve capitals).
Under certain conditions, the Polish company might pay to the shareholder advances towards the expected
dividends.
Dividends distributed by a Polish company to a foreign owner are, generally, subject to a 19% withholding
tax in Poland. This tax must be withheld by the company distributing the dividend on the dividend payment date and paid to the tax office before 7th day of the month following the month in which the tax was
withheld. The 19% rate can be reduced (to a lower percentage) if the recipient is a tax resident in a country
with which Poland has concluded a tax treaty. Poland has concluded many tax treaties and there are just as
many ways that the Polish withholding tax can be reduced. Some treaties provide a 0% withholding tax on
Polish dividends.
In addition, an exemption on dividends paid to companies from other EU and EEA Member States (and
Switzerland) applies, provided the receiving entity is taxed in other EU and EEA country (or Switzerland)
on its worldwide income and has held or will have held at least 15% of the Polish company shares paying the
dividend for at least two years (for Switzerland this treshhold is 25%).. The minimum stake will be reduced
in 2009 and will amount to 10% (except for Switzerland).
It is up to the dividend paying company to determine the applicable withholding tax rate.
A certificate issued by foreign local tax office confirming the tax residence of a foreign shareholder that receives payments from Poland must be received by Polish company in order to apply the lower withholding
tax rate. According to the interpretation of the tax authorities, the certificate must be obtained every year
and is valid for all payments made throughout this year.
The redemption of shares and the return of equity to shareholders are permitted under Polish law. For
tax purposes, redemption profits are treated equally to dividends. The same applies to the liquidation
distributions.
Transfer Pricing Rules
Polish legislation provides for an arm’s length principle to be followed in all transactions. The tax authorities have right to assess additional income on the transactions if company does not disclose any income
or discloses the income smaller than might be expected, if the parties of the transaction were not related
companies. The following methods can be used for assessing the market price in transaction between related
parties:
• comparable independent price,
• resale price,
• cost plus,
• transaction profit.
Taxpayers entering into transactions with related parties are obliged to prepare tax documentation of such
transactions. The documentation requirements apply to transactions with related companies whose aggregate value or the aggregate amount that was actually paid in a given tax year exceeds the equivalent of:
• EUR 100,000 – where the value of a transaction does not exceed 20% of the share (stock) capital, assessed
in accordance with thin capitalization provisions;
• EUR 30,000 – in the case of supply of services, sales or provision of intangible assets or
• EUR 50,000 – in other cases.
Polish transfer pricing regulations from 1 January 2007 provide for an explicit obligation to prepare transfer
pricing documentation in respect of transactions concluded by Polish branches of foreign companies.
Planning Investment
From the tax perspective, it is important to ensure the appropriate tax structure is used which usually involves a pre-transaction study and preparation of the transaction structure in accordance with the Polish
and international tax regulations. In addition, it can also include determination of the tax implications of
a future exit scenario.
Tax Due Diligence
Tax due diligence, in general, focuses on assessing material tax risks pertaining to assets or shares by reviewing the tax position of the Target company. By identifying the tax risks during due diligence, the Investor
may seek protection or indemnification from the seller.
Acquisition of Assets
In the case of an asset deal, potential negative tax consequences which may arise in the future result from the
acquirer’s responsibility for the outstanding tax liabilities of the seller. The responsibility is in practice of a
„subordinated“ nature, as even if a formal decision on the tax responsibility of the acquirer is issued, claims
against the acquirer are crystallized if the execution procedure against the seller is ineffective (claims against
the seller cannot be satisfied).
According to the tax regulations, the acquirer of assets, with the consent of the seller, may submit to the tax
authorities a request for a certificate which lists all the tax liabilities which are transferable to the acquirer.
The acquirer is then responsible only up to the value of the tax liabilities presented in the certificate. However, if the seller is not willing to grant permission, the acquirer usually performs tax due diligence as the
certificate procedure cannot be initiated.
Acquisition of Shares
In the case of a share deal, all the potential outstanding liabilities remain with the acquired company. In
consequence, the acquirer faces the possibility of incurring an economic loss on the transaction if undisclosed tax liabilities crystallize. Tax due diligence is therefore conducted to allow the acquirer to assess and
minimize this risk, as there is no possibility of administrative protection against tax responsibility in case of
share transaction.
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KOBA Company Profile
Since 1989, KOBA has striven to be a serious, competent and professional real estate consulting company,
constantly adjusting to the conditions within an ever-changing market.
Today, our organisation is composed of qualified and motivated employees always focused on the needs of
our clients. We are organised by business sector ensuring that our employees have a sound general knowledge of the property market to complement an in-depth insight into their specialist field. This enables us to
provide added value to our clients, not only as real estate consultants, but also as professional and trustworthy advisers and partners at the strategic level.
KOBA was established in Copenhagen in 1989, and opened an office in Vilnius (Lithuania) in June 2000.
In 2005, KOBA opened offices in Riga (Latvia) and Warsaw (Poland). KOBA also opened a new office in
Kyiv (Ukraine) in 2006.
Our being organised by business sectors enables us to operate in all parts of the Baltics and beyond.
Investment
Acquisition and sales of investment property. Preparation and implementation of buying and selling strategies combined with consulting services.
Valuation
Maintenance of high professional competence in valuation services related to change of ownership, property
financing, accountancy, and expert appraisals.
Corporate Services
Selling and leasing offices and industrial premises. Locating headquarters for large and small businesses.
Retail
Real estate services to chains of retail outlets wishing to acquire or sell shops, including strategic consulting
services. Letting and sales of retail shops.
Hotels
Providing market analysis, consultancy and advisory services to local and international hotel property operators, owners and investors.
Property Management
Various assignments related to property management, including collection of rent, care-taking and maintenance.
Research
Preparation of newsletters addressing the market situation, preparation of market reports, market analyses,
and continued monitoring and evaluation of market conditions.
Special Projects Group
Complex projects, highest and best use analysis, public company and large corporate projects.
Capital Markets Group
Structuring, equity and debt financing solutions, complex real estate solutions for financial institutions
– banks, insurance companies, pension funds, asset managers, etc.
KOBA A/S
Nørre Voldgade 11
DK-1358 Copenhagen K
Tel. +45 33 114644
Fax +45 33 112092
[email protected]
www.koba.dk
KOBA UAB
Konstitucijos av. 7
LT-09308 Vilnius
Tel. +370 5 2487222
Fax +370 5 2487223
[email protected]
www.koba.lt
KOBA Latvia SIA
K.Valdemara iela 21
Riga, LV-1010
Tel. +371 7 333321
Fax +371 7 333322
[email protected]
www.koba.lv
KOBA Ukraine L.L.C.
Turhenivska str. 45- 49
01054 Kyiv, Ukraine
Tel. +38 044 5603310
Fax +38 044 5693330
[email protected]
www.koba.dk
KOBA Sp. z o.o.
Tel. +48 693 463 620
+48 607 767 777
[email protected]
www.koba.dk
Domański Zakrzewski Palinka Company Profile
Domański Zakrzewski Palinka is the largest law firm in Poland. Our reputation and brand is the result of 15
years’ experience in providing legal advice to clients running business operations.
With its team of more than 100 lawyers, our firm provides services through its headquarters in Warsaw and
offices in Poznań and Wrocław. We serve clients from all business sectors, offering them comprehensive legal
advice in all areas and law specialisations. Our services are characterised by our understanding of both the
legal and the business needs of our clients. Among our clients are companies starting up operations, medium
sized firms, and international corporations and their Polish branches from almost all sectors and specialisations, many of which took their first steps to market success in Poland with us at their side.
The firm renders its services in various languages including Polish, English, German, French, Russian, Spanish, Italian and Japanese. Our network of links with foreign law firms allows us to handle our clients’ affairs
not only in Poland but also abroad.
We advise clients on:
• corporate and commercial law
• mergers and acquisitions
• securities and capital markets
• private equity funds and venture capital
• banking and finance
• project financing
• insurance and re-insurance
• foreign direct investments
• European Community law
• intellectual property protection
• anti-trust law and unfair competition
• telecommunications and IT
• e-business
• advertising and media law
• public procurement
• power and infrastructure
• public-private partnerships
• environmental protection
• restructuring/bankruptcy
• privatisation
• labour law
• real estate
• arbitration and litigation
• pharmaceutical/biotechnology market
• regulatory advisory
• constitutional law
Domański Zakrzewski Palinka sp. k.
Rondo ONZ 1
00-124 Warszawa, Poland
Phone: +48 22 557 7600
Fax: +48 22 557 7600
e-mail: [email protected]
www.dzp.pl
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Ernst & Young Company Profile
Ernst & Young, a leading international professional advisory services firm, identifies growth opportunities and helps companies to make the most of them. Over 114,000 specialists in 140 countries combine
expertise and international experience with a thorough knowledge of local markets. Our goal is to provide
innovative and practical solutions. Our integrated package of services, vast resources and global reach enable
us to serve our clients wherever they may be.
Our roots in Poland go back to the years 1933-1939, when Whinney, Murray & Co, Ernst & Young’s predecessor, provided advisory services in Warsaw. We have operated in Poland under the name of Ernst & Young
since 1990. Thanks to the combination with Andersen, Ernst & Young in Poland has become the biggest
auditing and advisory firm on the Polish market. Our total workforce in the offices in Warsaw, Katowice,
Kraków, Poznań and Wrocław tops eight hundred professional advisors and auditors.
Our cooperation with clients is not limited to assessing the current state of affairs and working out successful
business strategies; we also aim to help them adapt to the changing market environment and tax regulations
Hus giving them an advantage over their competitors in Poland and abroad.
Real Estate Services Group
The Ernst & Young Real Estate Services Group has in-house technical skills essential for decision-making
in a complex real estate environment combined with expertise in tax, transaction advisory services and accounting. Our team provides a full range of consulting services for all types of real estate including offices,
shopping centers, hotels, leisure uses, residential developments, industrial as well as agricultural.
People - Tax Advisory Services
Ernst & Young
Rondo ONZ 1
00-124 Warsaw
Tel. +48 22 557 7000
Fax +48 22 557 7001
Piotr Wieliński
[email protected]
Tel. +48 22 557 7840
Łukasz Ziółek
[email protected]
Tel. +48 22 557 7545
Michał Thedy
[email protected]
Tel. +48 22 557 7547