The Residentials After Covid-19 pandemic- an outlook

10th April 2020

CEOs of global companies are forced to have their employees work from home these days. It is increasingly common to hear that they are surprised at how well remote working works and how the productivity level and momentum has been maintained. If any issues appeared, then these were rather technical-based occurrences among small and mid-size companies. `We are still in the process of optimizing the technical setup` says one global top leader from the immediate network.

According to „Die Zeit“ with their article “Ein Land voller Stubenhocker“ 4 out of 10 employees could do their work from a home office. This number applies even more to professions within professional services industry and at the same time the necessity to rent large office areas for the companies within this industry is a huge fixed cost generating factor. On the other side there is the employee with long commuting times causing an increased demand for more flexible working models with a considerable home office share. It is quite possible that COVID-19-pandemic will show even the most hard-boiled office face time lovers the possibility of serious application of such remote working models and thus realize this potential within as a win-win situation for both -employer and employees – even after the pandemic period. After all, effective fixed cost cuttings relating to potentially reduced rental office areas have a significant importance in a forthcoming global recession.

What would this mean for the real estate world – in particular when looking at institutional investors as well as big private investors? Which projects will key market developers pursue in the future in order to be able to offer marketable products for these target groups? `Based on the first discussions with our global investor clients, it seems that Europe-wide residentials might have a stronger case and furthermore to become one of the preferred investment options for institutional investors after the COVID-19-pandemic. The thinking behind is simple but logical: residentials are and will be in demand` says Aurelia Cieślińska, CEO and owner of the L/E/I Transactions brand. `However, with regards to Poland, I see potential changes in the area of residentials that will also have an impact on the entire residential value chain`, she continues.

In order to understand the investment opportunities for an institutional (especially foreign) investor it makes sense to look at the current and estimated future attitude of people in Poland towards their housing situation, especially in terms of their preferred ownership structure: rent vs. pure ownership, their usage time horizon of an apartment, required size, location and standard level.

Rent vs Ownership – while the percentage of people who rent their homes for living purposes is in the 40-50% in the overall DACH countries area, the national average in Poland is below 20%. This is where growth potential is hidden. The growing willingness of younger generations to be mobile within the country will play a major role. People in Poland no longer have the absolute claim to „find the job for a lifetime in their hometown“. With Europe/the World growing together there is opening up to further opportunities outside the country’s borders. With the increasing willingness to be mobile, the interest in purchasing housing for personal use is declining. The potentially emerging recession could also increase this willingness of being mobile and, as a side effect, reduce the individual’s financial capability to buy and invest, which would be necessary for the acquisition. Both aspects favour the increase in demand for rental housing.

With regard to the usage time horizon of the properties, a diversified direction is to be expected. For example, there are serviced apartments (apartments with hotel service in a completely furnished apartment, which is available for short or long-term stays). This is a market that is still quite immature in Poland, but its‘ demand has been growing in popularity – although slowly – since before the COVID-19 pandemic era. For this market, we see a more dynamic growth due to the willingness of the population to be mobile and the greater need for flexibility. 

Then there is the typical not-furnished and not-serviced apartment for a longer rent period. Apart from the flexibility aspect a potentially lower creditworthiness of the individual connected to the economic outcome of the pandemic might create a higher demand for this kind of housing.

And last but not least, if companies really do recognize the remote working model as a new opportunity to reduce their overall fixed costs and at the same time increase their attractiveness as an employer, this will also affect the size of the apartments in demand. The small ‘desk in the corner’ of the people’s guest room will then no longer be sufficient. A natural desire for a separate room for working in one’s own living space will grow with the remote working model applied. While currently in Poland about 50% of apartments are equipped with two rooms, and just around 25% with three rooms, the average increase by one room more is long-term expected.

While Warsaw accounted for almost 50% of the total residential rental market in Poland in 2018, a diversification to further popular cities is expected. Above all, the scenario of „living in Kraków with an employer in Warsaw“ seems to be within reach, which in turn is particularly favourable for long-term rental housing.

When it comes to the housing standard within the apartments for rent, the demand for „affordable“ housing will grow. Not to be underestimated are the premium and luxury residentials for tenants in well-earning positions who still want to stay flexible but aspiring for even international careers.

Put in a nutshell, the expected change of usage of housing in Poland will likely impact the demand for housing for rent which opens new opportunities for the mentioned above group of investors- not only in the yet seen scenario of buying for example a whole building and selling single apartments but rather to adopt more frequently the model one can spot very often in DACH countries: acquisition of whole property (buildings) that are afterwards managed by property management companies.

Aurelia Cieślińska spots the appetite for adoption of this investment model by the foreign investors now for Poland as well. ‘Our investor clients from abroad have determined certain cities in Poland in which they prefer to invest. In cooperation with our overseas subsidiaries, partners and our developer clients, we have prepared an according portfolio of residential assets in which they can invest directly. In addition, we are currently expanding this portfolio, so that further new developments can be offered soon, in order to meet the increasing investment demand for the mentioned above scenario´, summarizes Aurelia.