Poland 2011 Real Estate Review

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2011 COLLiers reAL estAte review » COUNtrY

Poland Dear Clients and Friends,

it is my great pleasure to present to you, for the first time in my new role as Deputy Managing Partner, our latest publication summarising the main trends observed in the Polish commercial market during 2010 and an indication of what we can expect in 2011.

2010 was a good year for commercial real estate in Poland and in comparison with 2009 it offers hope for a further improvement.

the Polish capital market experienced a significant growth. total real estate investment volume in 2010 more than doubled in comparison to 2009 levels, with a number of high profile transactions. it is worth noting that for the first time post-lehman, investors returned to regional cities with several prominent transactions, particularly in the office and retail sectors.

Although new supply of office space in Warsaw was relatively limited, regional cities continued to grow steadily. More importantly, the office market recorded a noticeable increase in tenants’ activity.

A similar situation was observed in the industrial market, where few industrial schemes were completed. Demand side, however, turned out to be very high.

the retail market also experienced a slowdown in terms of new projects. As far as tenants are concerned, their interest in new space has visibly increased. However, market share is no longer their sole strategy. A great deal more emphasis is now put on profitability and the quality of the location.

2010 also turned to be a successful year for the company. Colliers was consistently instructed to advise in many prominent investment transactions which took place in the market, such as the sale of Grunwaldzki Center in Wrocław by Skanska, the sale of the Jantar Shopping Centre in Słupsk by Mayland, the sale of Panattoni Park Garwolin by Standard life investments, as well as the purchase of trinity Park iii by SeB Asset Management.

2010 was a turning point for our land department, which acted as a real estate advisor in the first major transactions that took place in the Polish market after the crisis. More business opportunities are expected to come in 2011.

Despite the unfavourable market conditions our office, industrial and Retail agencies secured space for many clients and won their appreciation.

the Property Management division within Colliers continued to expand its portfolio by adding over 140,000 Sqm of office space and over 130,000 Sqm of industrial space.

Since people are our main asset we decided to hire several talented specialists who will strengthen our market position both on a national and international scale. A new service line called Retail Solutions was also introduced, which will add a new value to existing services provided by Colliers international Poland.

Also we accelerate our growth through a continuous commitment to Service excellence. As an enterprising organization we endavour at delivering the best client experience. We look forward to further engagement with our clients and maintaining a customer-centric culture in our company.

An additional change was our rebranding which gave us a new and more dynamic look and feel.

We were delighted that our efforts were acknowledged by the industry when we were voted the Best Real estate Agency of the Year at the CiJ Awards and the Best industrial team of 2010 in Poland at the eurobuild Awards Gala.

We are entering 2011 filled with plenty of positive energy and hope for an exciting time ahead of market revival. We wish all our Clients and Friends a prosperous year and that they enjoy many new business possibilities.

Yours sincerely, Monika Rajska-Wolińska

Monika Rajska-Wolińska deputy managing partner colliers international poland

Address 3 Pl. Piłsudskiego 00 – 078 Warsaw, Poland

Phone +48 22 331 78 00

Email [email protected]

P. 74 | CollieRS inteRnAtionAl

CollieRS inteRnAtionAl | P. 75Research: [email protected]

2011 COLLiers reAL estAte review » POLAND

ECONOMIC OVERVIEW

SUMMARY � Last year Poland was a leader in

Europe in terms of economic growth. In the third quarter GDP growth reached as much as 4.2%, ahead of analysts’ expectations. Economic growth in the last quarter is estimated to be at a similar level. According to preliminary results from the Main Statistical Office (GUS) growth for the whole of 2010 was 3.8%. The Ministry of Finance forecast growth of 4% in 2011.

� The main driver of growth has been domestic consumer demand, reflected in retail sales growth. This is despite the fact unemployment remained high during the whole year and in December stood at 12.3%. Economists estimate that unemployment will begin to drop during the first half of 2011, with IBnGR forecasting a decrease in unemployment rate to 10.8% by the end of 2011.

� This is likely to create pressure for higher salaries amidst a general increase in inflation. In December inflation accelerated to 3.1% y-o-y, from 2.7% level in November. The increase was caused mainly by the growth of fuel prices.

� From an investment perspective, the NBP (National Polish Bank) expects the inflow of Foreign Direct Investments (FDI) into Poland to have reached €9.8 Bln in 2010. A further significant increase in FDI is expected in 2011, up to €12.7 Bln, bringing with it a higher number of technological investments.

PROGNOSIS � The consensus view of GDP growth

in Poland in 2011 is around 4%, supported by growth in industrial production of 8 – 10%. With this will come an increase of investments into fixed assets, a decrease in the unemployment rate and rising salaries in tune with rising inflation.

� The most important challenge for the Polish government will be to reduce the deficit and public debt. Although public debt levels did not exceed 55% of GDP in 2010, this may be difficult to maintain in 2011.

� The public deficit was around 8% of GDP. It is important for the longer-term sustainability of the national economy that both the public deficit and debt levels are reduced. Most economists indicate that a reform of the pension and social allowances system, savings in budget expenditures, a reduction of the government's fixed-cost base and an acceleration of privatization are necessary to balance state finances.

� The outcome of parliamentary elections scheduled for 2011 will be an important precursor as to how the new budget is set for 2012 as a means of tackling the ongoing public debt and deficit issues the country faces. This should not, however, significantly impact against strong economic growth fundamentals.

KEY ECONOMIC FIGURES (YOY)

Metric 2009 2010GDP Growth 1.8% 3.8%

Industrial Production 7.2% 11.5%

Unemployment 11.9% 12.3%

Inflation 3.5% 3.1%

Retail Sales 7.2% 12%

Source: GUS

|

2000|

2001|

2002|

2003|

2004|

2005|

2006|

2007|

2008|

2009|

2010|

2011F

25%

20%

15%

10%

5%

0%

GDP, INFLATION & UNEMPLOYMENT

▬ GDP ▬ Inflation ▬ Unemployment Rate

Source: GUS, IBnGR (forecast), Ministryof Finance (GDP forecast)

|

2008|

2007|

2006|

2005|

2004|

2009|

2011F|

2010

18.016.014.012.010.08.06.04.02.0

0

FOREIGN DIRECT INVESTMENTS (EUR BLN.)Source: NBP

P. 76 | CollieRS inteRnAtionAl Research: [email protected]


OFFICE MARKETWARSAW

GENERAL OVERVIEW � 2010 saw a significant improvement in activity in

the office leasing market. Total volume of leasing transactions in 2010 was double that of 2009 facilitating renewed action in the development community. Improved access to bank finance has helped drive developer activity, although some restrictions on the availability of development finance remain, creating an immediate scenario of very low levels of new construction.

KEY OFFICE FIGURES

Metric MeasureTotal Stock 3,435,830 Sqm

Take-Up 549,210 Sqm

Vacancy Rate 7.2%

SELECTED LEASE TRANSACTIONS

Tenant Sqm Property TypePekao SA 38,450 Lipowy Office Park Renegotiation

Aviva Group 13,000 Platinium Business Park IV Pre-lease

GTECH 4,700 Brama Zachodnia Renegotiation

Pfizer Polska 4,350 Adgar Plaza B New

Oracle Polska 4,000 Crown Square New

Tchibo 1,800 Riverside Park Renegotiation

|

2004|

2005|

2006|

2008|

2007|

2009|

2011F|

2010

300,000

250,000

200,000

150,000

100,000

50,000

0

NEW SUPPLY (SQM)

TAKE-UP STRUCTURE

36%Renegotiation/Renewal

5%Expansion

1%Ow-occ

58%New

� As a relatively small amount of space is under construction, we expect a shortfall in the availability of good quality modern space in the second half of 2011. This will have an impact on vacancy rates, which by the end of the year had fallen slightly to ca. 7%, and will continue to fall into 2011.

SUPPLY � An estimated 188,400 Sqm of new

office space was delivered to the Warsaw office market last year, representing 27% y-o-y reduction in new supply.

� Over 60% of new space was delivered in two zones: in the Upper South zone (64,640 Sqm) and Lower South zone (54,000 Sqm). The largest new projects completed last year were: Poleczki Business Park (Lower South zone; 45,000 Sqm), New City Mokotów (Upper South; 35,000 Sqm), Crown Square (West; 17,000 Sqm) and Zebra Tower (City Centre Fringe; 17,000 Sqm).

� We expect an even lower amount of new space to enter the market in 2011 (ca. 132,650 Sqm). One third of this space will be delivered in the city centre.

DEMAND � Demand levels returned to those

recorded in times of prosperity as a total of 549,210 Sqm was leased over the year. This represents an increase of over 90% relative to take-up in 2009. This activity does, however, account for a sizeable amount of renegotiations and renewals (36%).

� A clear positive trend was an increase in the volume of pre-let agreements (12%) and expansions (5%) as a proportion of overall activity.

� Another noticeable trend is the increase in the number of large transactions in comparison with 2009. As many as 16 deals for space over 5,000 Sqm were signed. For comparison, in 2009 only 4 such transactions took place.

� Many of the largest transactions were renewals/renegotiations. Among these were: Bank Pekao SA in Lipowy Office Park (38,450 Sqm) and Orange in Renaissance Tower (17,400 Sqm). The largest new deals were signed by Aviva Group in Platinium Business Park IV (13,050 Sqm) and PZU in Empark Sirius (12,500 Sqm).

VACANCY / AVAILABILITY � The vacancy rate remained during

most of the year at 8% before dropping slightly at the end of the year to 7.2%. This included the city centre, where availability of space decreased despite the fact some tenants had moved out to other districts. Further decrease of vacancy rate over the year across the city is expected.

RENTS � Since the end of the first quarter

rents have remained stable. Asking rents in the Central Business District are between €18 and 25 per Sqm. Although in some properties space is offered at rates below €18. Most non-central locations (Upper South and South West) offer modern office space for €12 – 16 per Sqm. The market situation advantageous for tenants found its reflection in the incentives offered by landlords (rent-free period, fit-out allowance).

PROGNOSIS � In the coming months situation in the

Warsaw office market should remain stable. We can expect that many tenants will utilize favourable conditions and will renegotiate their lease agreements or decide to move to cheaper location.

� High level of demand combined with a limited number of projects entering the construction phase and overall diminishing space availability change the market situation in favour of landlords in the second half of the year.

CollieRS inteRnAtionAl | P. 77Research: [email protected]


OFFICE MARKETREGIONAL CITIES

GENERAL OVERVIEW � In 2010 a revival was also recorded in

regional office markets, where demand increased significantly. In the eight largest regional markets as much as 216,200 Sqm of new space was completed. However, a smaller number of new projects entered the construction phase in 2010, so we anticipate lower levels of new supply in 2011.

SUPPLY � The amount of new space delivered in

2010 was comparable to the new supply in 2008 and 2009. The majority of new supply was completed in Kraków (54,140 Sqm) and Katowice (47,610 Sqm). Due to this significant new supply Kraków remains the largest regional office market.

� The largest new projects completed last year were: Francuska Office Center (21,470 Sqm) and Katowice Business Point (17,500 Sqm) in Katowice, University Business Park B in Łódź (18,760 Sqm), Vinci Office Center (18,720 Sqm) in Kraków and Wojdyła Business Park in Wrocław (17,000 Sqm).

� Approximately 150,000 Sqm is planned to be completed in 2011. The largest amount of new space in 2011 will be delivered in Kraków and Tricity. New supply will include, among others, the 2nd phase of Quattro Business Park (Kraków) and Olivia Gate (Gdańsk).

DEMAND � Last year was characterized by high

activity from tenants. The most popular city was Kraków, where lease transaction volumes reached over 80,000 Sqm surpassing the activity levels recorded in other cities.

� The largest transactions signed in the regional markets in 2010 were: IBM in Wojdyła Business Park (17,000 Sqm) in Wrocław, Motorola Solutions in Green Office (11,840 Sqm) and Capgemini in Quattro Business Park (10,000 Sqm) in Kraków, renegotiation by Thomson Reuters in Baltic Business Center in

Gdynia (9,045 Sqm) and renegotiation of Nokia Siemens Network deal in the Wrocław Business Park (7,380 Sqm).

� 2010 also saw further development of SSC/BPO sector in Poland. Such companies as IBM, Sony Pictures, McKinsey, Nordea Bank and Nycomed opened their centres.

VACANCY / AVAILABILITY � In comparison with 2009 the most

significant increase in vacancy level was recorded in Katowice (from 10.3 to 22%) and in Tricity (from 10.5 to 16.6%). This was caused by the delivery of new space which then failed to let. In Kraków vacancy rate did not change significantly despite delivery of high volumes of new supply. A decrease in vacant space was recorded in Łódź (from 30 to 25.6%) and Wrocław (from 9.8 to 4.3%).

RENTS � Rental rates remained at similar level

throughout the year, although some landlords of buildings with high vacancy levels decided to lower their demands. Most asking rents are between €12 and €15 per Sqm. The lowest rates are in Łódź and Katowice and are between €11 and €13 per Sqm.

PROGNOSIS � Similarly to the Warsaw market, we

expect the situation in regional markets to be stable over the first months of the year. If demand continues to grow at similar rate, the amount of available space will drop bringing more balance to markets such as Łódź and Katowice. As Wrocław has an insufficient amount of space available for lease we can expect increase of rental rates in this city in 2011.

KEY OFFICE FIGURES

City Total Stock (Sqm) Vacancy rateKraków 388,030 12.3%

Wrocław 305,430 4.3%

Poznań 191,480 13.9%

Tricity 217,060 16.8%

Katowice 180,730 22.0%

Łódź 177,750 25.6%

Lublin 48,480 6.1%

Szczecin 43,060 6.2%


Tenant Sqm Property/City Type

IBM 17,000 Wojdyła Business Park/Wrocław

Pre-let + expansion

Capgemini 10,000 Quattro Business Park/Kraków Pre-let

Motorola 11,840 Green Office/Kraków Pre-let + expansion

Tieto Poland 4,600 Oxygen/Szczecin Pre-let

NSN 7,380 Wrocławski Park Biznesu/Wrocław Renewal

Capgemini 3,000 Millenium Tower/Wrocław New

Sony Pictures 1,260 Łużycka Office Park/Tricity New

IKEA 2,850 Malta Office Park/Poznań New



INDUSTRIAL MARKET

KEY INDUSTRIAL FIGURES

Metric MeasureTotal Stock 6,400,000 Sqm

Take-Up 1,400,000 Sqm

Vacancy Rate 15.6%

2,7502,5002,2502,0001,7501,5001,2501,000

750500250

0

TOTAL STOCK BY REGIONS (SQM ,000)

| | | | | | | | |

Warsaw

Centra

l Pola

nd

Pozna

ń

Upper

Silesia

Krak

ów

Wrocław

Gdańs

k

Szcze

cinTo

ruń

|

Other

� After a continued period with significant decreases in rents, the first signs of minor increases were recorded towards the end of 2010 in some of the regional Polish markets.

SUPPLY � The Polish industrial market grew by

almost 252,000 Sqm in 2010, delivered within 14 projects. Over half of this new space was located in BTS warehouses. The remaining projects were speculative, requiring to be pre-let in order for construction works to start. The majority of space entered the market in the last quarter (ca. 140,000 Sqm) and most of this space was added to the Upper Silesian market.

� It is worth noting that Panattoni is currently one of the most active developers in the Polish market, having started numerous projects despite the unfavourable market conditions. In 2010 they completed almost 220,000 Sqm of industrial space in different areas of Poland.

� At the end of the year ca. 196,000 Sqm of industrial space remained under construction, with a delivery date expected in 2011.

WARSAW � Warsaw saw only 3 new deliveries

which were the next phase of Ideal Idea in Zone I and 2 buildings within Panattoni Park Ożarów. It was thanks to these schemes that the total stock of the Greater Warsaw area grew by 42,830 Sqm, exceeding 2.45 Mln Sqm as of end 2010.

� Almost 60,000 Sqm of industrial space is under construction in the Greater Warsaw area. These are: the second phase of Good Point Puławska, 2 warehouses within Żerań Park II, Pannatoni’s BTS project in Święcice and a warehouse within Annopol Logistic Park IV by ECI SA.

REGIONAL MARKETS � Almost 210,000 Sqm of modern

industrial space entered the regional markets. Significant deliveries included three BTS schemes built by Panattoni – for Tesco in Gliwice (56,700 Sqm), for H&M (30,000 Sqm) in Gądki, Poznań and for Cereal Partners (30,000 Sqm) in Toruń.

� With over 86,000 Sqm of industrial space delivered to the market, Upper Silesia was first in terms of new supply. Poznań came second among regional markets with almost 38,000 Sqm and Toruń third with 30,000 Sqm. New deliveries were also recorded in Central Poland (26,000 Sqm), Tricity (18,685 Sqm) and Wrocław (9,700 Sqm).

� Across the regional markets, the majority of space is currently under construction in Poznań (45,100 Sqm within 3 schemes – Panattoni’s BTS project for Neuca SA and 2 speculative projects) and in Rzeszów, where 32,500 Sqm will be delivered within a BTS project for Zelmer by Panattoni. Kraków is third in terms of the amount of space under construction (almost 25,850 Sqm within Goodman and MARR’s projects). In Wrocław, Upper Silesia and Toruń projects totalling ca. 10,000 Sqm are under way, whereas in Central Poland one project of ca. 3,300 Sqm hit off the ground.

DEMAND � Total activity recorded in 2010

reached 1,440,000 Sqm, which represents a substantial growth in comparison with 2009, when the total volume of signed agreements amounted to 940,000 Sqm.

� New agreements and expansions were concluded for as much as 990,000 Sqm, renewals and renegotiations constituted the remaining 450,000 Sqm.

GENERAL OVERVIEW � 2010 was characterized by exceptionally low

activity of developers who almost completely withdrew from speculative projects and focused instead on BTS schemes. Nevertheless, several projects built on a speculative basis did enter the construction phase.

� Although the supply side turned out to be limited, the demand for industrial space was much higher than in 2009.

� Even so, the vacancy rates remain high in the Greater Warsaw area. In contrast, regional markets have recorded a gradual absorption of space by tenants.

Research: [email protected]

TAKE-UP BY REGION▄ Warsaw (30.7%)▄ Upper Silesia (30.5%)▄ Central Poland (13.1%)▄ Poznań (12.9%)▄ Wrocław (7.5%)▄ Gdańsk (1%)▄ Toruń (0.7%)▄ Szczecin (0.3%)▄ Kraków (1.3%)▄ Other (2%)

CollieRS inteRnAtionAl | P. 79


INDUSTRIAL MARKET


Tenant Size (Sqm) Property Type

Fiege 36,520 ProLogis Park Dąbrowa

Renewal & expansion

Zelmer 32,500 Panattoni Park Rzeszów BTS

Kaufland 24,500 Tulipan Park Gliwice New lease

Moto-Profil 20,000 ProLogis Park Chorzów New lease

Tesco 56,700 Panattoni Park Gliwice BTS

PF Concept 23,000 Point Park Poznań New lease

100%90%80%70%60%50%40%30%20%10%0%

VACANCY RATES

| | | | | | | |

Warsaw

Centra

l Pola

nd

Pozna

n

Upper

Silesia

Krak

ow

Wroclaw

Gdans

k

Szcze

cin

20.1%

81.5%

4.1%13.1%10.6%11.9%10.8%14.3%

6.005.505.004.504.003.503.002.502.001.501.00

EFFECTIVE RENTAL RATES (€/SQM)

| | | || || | | |

Warsaw

I

Warsaw

II

Warsaw

III

Centra

l Pola

nd

Pozna

n

Upper

Silesia

Krak

ow

Wroclaw

Gdans

k

Szcze

cin

WARSAW � The highest level of tenants’ activity was recorded

in Warsaw amounting to ca. 440,000 Sqm. New agreements and expansions encompassed over 315,000 Sqm, whereas renewals constituted almost 125,000 Sqm.

REGIONAL MARKETS � Tenants’ activity in Upper Silesia was at a level

comparable to Warsaw’s. The share of renewals was, however, higher than in the capital as they encompassed almost 190,000 Sqm. New agreements and expansions reached almost 250,000 Sqm. Upper Silesia saw the largest transaction in 2010, which was concluded between Tesco and Panattoni resulting in the development of a new BTS scheme totalling 56,700 Sqm in Gliwice.

� Central Poland and Poznań came next in terms of the leasing activity, with 188,500 Sqm and ca. 185,400 Sqm, respectively. Activity surpassing 100,000 Sqm was also reached in Wrocław (exactly 107,000 Sqm).

� The amount of space leased in Kraków and Gdańsk was lower – ca. 18,000 Sqm and 15,000 Sqm, respectively. However, we must consider that these are smaller markets.

� 2010 saw leasing activity also in Rzeszów (32,500 Sqm BTS scheme for Zelmer), Toruń (10,250 Sqm BTS for Nissin) and Szczecin (3,650 Sqm).

VACANCY � Throughout 2010 the average

vacancy rate for the Greater Warsaw area remained stable at ca. 20%. When compared with vacancy rates recorded in the regional markets, there was a noticeable difference in that vacancy rates in almost all locations – namely in Central Poland, Upper Silesia, Wrocław, Poznań and Szczecin – where they dropped over the year.

� The only exceptions were Kraków where, similarly to Warsaw, vacancy rates remained at practically the same level, and in Gdańsk where the availability of space increased slightly.

� At the end of 2010, the locations with the largest volume of vacant space could be found in Warsaw Zone II and in the regional markets of Upper Silesia and Central Poland.

RENTS � Since the beginning of 2009 rents

had systematically fallen due to the high amount of unleased space which had entered the market alongside lower demand. Despite tenants’ higher activity in 2010 the downward tendency continued in the first six months of the year in all markets.

� Warsaw Zone II and Zone III, as well as Poznań and Szczecin experienced further downward corrections in rents at the end of 2010.

� In contrast markets with low availability of space (such as Gdańsk) or with increasing tenants’ activity e.g. Warsaw Zone I and Upper Silesia recorded the first increases in rents for over twelve months. Nevertheless, effective rents are still much lower than at the end of 2009.

PROGNOSIS � Due to tenants’ higher (activity

combined with decreasing availability of space) rents are expected to start growing, especially in markets with decreasing amounts of vacant space. These markets include: Poznań, Wrocław and Upper Silesia.

� Since there is still a relatively high volume of vacant space in Zone II in Warsaw, Upper Silesia and Central Poland it is unlikely that developers will begin new projects in these locations throughout the year, unless pre-lease agreements are signed.

� Only those markets with a low level of available space can expect some increase in supply. These include: Gdańsk (Segro and Goodman have already announced new investments in this location) as well as Kraków, where some investments are already under way (Goodman and MARR).

� Developers will continue to focus on BTS schemes, as they demonstrate a much lower degree of risk than speculative developments, as well as on projects with secured pre-lease agreements.




RETAIL MARKET

GENERAL OVERVIEW � After a significant market decline in

retailer activity in 2009, last year was characterized by stability. Although tenants continued to analyse their financial results carefully and many companies still looked to cut costs, growing optimism was visible amidst continued growth in retail sales across the country. Stronger retailers have taken the opportunity to expand their market share on advantageous conditions.

� In 2010 only 460,000 Sqm of new retail space was delivered to the market, although developers’ activity actually increased as new construction of over 670,000 Sqm began during the year in expectation of continued improvements in years ahead.

SUPPLY � Total stock of modern retail space in

Poland reached 8.04 Mln Sqm at the end of the year as ca. 460,000 Sqm of new retail space was delivered to the market in 2010. This is significantly less than in previous years (less than 60% of 2009 new supply) as a result of a significant drop in the number of schemes entering the construction phase during the crisis.

� The total retail stock in the eight largest markets is 5.19 Mln Sqm. Approximately 153,000 Sqm of new retail space was completed. The largest new project was Port Łódź (67,000 Sqm).

� The majority of new space was completed in small and medium-size cities. At the end of 2010 the total stock in these markets reached 2.9 Sqm. The largest projects delivered were Victoria shopping centre in Wałbrzych (43,000 Sqm) and Gemini Park in Tarnów (41,500 Sqm).

� Among the largest cities, the saturation level is still the highest in Poznań (984 Sqm per 1,000 inhabitants) and Wrocław (863 Sqm per 1,000 inhabitants). As regards to medium size cities (above 100,000 inhabitants) the most saturated are Opole (1,059), Bielsko Biała (905) nad Płock (872). Market saturation in the latter increased significantly in 2010 due to the delivery of 46,700 Sqm of new retail space.

PLANNED SUPPLY � Up to 650,000 Sqm of retail space is

under construction and scheduled for delivery in 2011. This amount is similar to supply levels reached in 2008. The majority of this space will be completed in secondary cities. Taking into consideration the lenghty construction period for modern shopping centres we can expect only a few additional projects completed in 2011. Higher volumes of completions are expected in 2012 and 2013.

� The largest retail properties planned to be delivered in 2011 are Millenium Hall in Rzeszów (56,500 Sqm), Galeria Kaskada in Szczecin (43,000 Sqm) and Galeria Słoneczna in Radom (42,000 Sqm).

� The majority of this new supply will be traditional shopping centres. Retail parks (in total 101,000 Sqm) are expected to be completed in Opole, Kraków and Gdańsk. Also worth mentioning are outlets, which account for only 1% of total retail space in Poland. Delivery of such properties is planned in Kraków (Factory Outlet, 21,320 Sqm) and Szczecin (Outlet Park Szczecin, 23,000 Sqm).

KEY RETAIL FIGURES

Metric MeasureTotal stock 8,040,000 Sqm

Stock under construction 890,000 Sqm

Market saturation in Poland 212 Sqm/1,000 inhabitants

Market saturation in the eight largest agglomerations 662 Sqm/1,000 inhabitants

SELECTED PROJECTS PLANNED FOR 2011

City Project Developer SqmRzeszów Millenium Hall Develop Investment 56,600

Opole Turawa Helical 41,000

Szczecin Galeria Kaskada ECE Projekt Management 43,000

Gdańsk Morski Park Handlowy Liebrecht&WooD 50,000

Ostrów Wielkopolski Ostrovia Saller Group West

Investment 37,000

|

2004|

2005|

2006|

2008|

2007|

2009|

2011|

2010

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

NEW SUPPLY (SQM)

STOCK STRUCTURE

9%Hypermarkets

7%Retail Parks

1%Outlets

83%ShoppingCenters




RETAIL MARKET

DEMAND � Although still very cautious in making

decisions, tenants are more interested in new investments than they were during 2009.

� Generally, however, retailers are looking at consolidation focusing on their best performing stores and cities and reducing the size or closing unprofiteable units, or increasing the size in the best locations to increase economies of scale and improve the range and value of the offer.

� Retailers are also considering potential locations more carefully – market share is no longer the sole strategy. There is now much more emphasis on market dominance, profitability and the quality of the location.

� Such companies as Tchibo, Starbucks, TK Maxx, New Look, Pandora, Peacocks, Marks&Spencer opted for further expansion in 2010.

� Among new brands which decided to enter the Polish market were Muji, New Look, as well as luxury brands Carolina Herrera and Salvatore Ferragamo.

� In 2011 entry of such brands as Toys R Us, LC Waikiki, Chocolate Company and Jula is expected. Toys R Us will probably be the most significant market entry.

� Demand for street locations is also at a stable level, although limited bank branch expansions and the tendencies to close unprofitable locations has had an unfavourable influence on the vacancy level, mainly outside large agglomerations. This poses an opportunity for mobile phone operators, cafes, bakeries, fast food bars, restaurants and shops with accessories to take advantage of the current situation and secure units which were previously unavailable.

RENTS � Rents in the very best centres and

high street locations were maintained over 2010, with some increases seen in regional cities where demand exceeded supply. However, some of the lower quality centres have suffered from rental reductions as a result of falling retail turnover.

PROGNOSIS � We can expect an increasing number

of projects to receive financing and enter the construction phase, driving new supply levels in the coming years.

� Most tenants have put serious problems behind them and we therefore expect a more stable level of demand. Prime shopping centres will still enjoy the highest levels of interest.

� We expect to see rents remain stable in the coming months, although they are likely to increase slowly in prime shopping centres.

� In 2011 retailers will continue to seize the opportunity to take units from their weaker competitors and strong brands will continue to increase the size of their units and their offer to improve sales. We can also expect their higher interest in high street locations.

� Despite growth amongst retailers, there will be continued pressure to improve the management and marketing of centres to increase turnover levels, improve efficiencies, reduce costs and diversify the overall offer relatively to competing shopping centres.

SELECTED PROJECTS PLANNED FOR 2012/2013

City Project Developer Size (Sqm)Gliwice Europa Centralna Helical 67,000

Kielce Korona Kielce Church Land Development 36,000

Elbląg Siódemka NEPH 64,000

Rzeszów City Center Star Europa Holding 42,000

Gliwice Focus Mall Parkridge 65,000

Although tenants continued to analyse their financial results carefully and many companies still looked to cut costs, growing optimism was visible.

|

Tarnow|

Lodz|

Plock|

Przemysl|

Walbrzych

1,000900800700600500400300200100

0

MAJOR CHANGES IN MARKET SATURATIONSqm per 1,000 inhabitants

▄ Q4 2009 ▄ Q4 2010




HOTEL MARKET

GENERAL OVERVIEW � 2010 was a year of worldwide hotel trading

recovery, most regions participated in a pronounced improvement in occupancies and ADR growth.

� In Europe we noticed remarkable economic turnarounds, cities such as Munich, Frankfurt, London, Zurich, Berlin, Istanbul fared very well in the post recession year. Most of the aforementioned cities enjoyed a remarkable growth in RevPAR.

� To be added to this positive outcome for 2010, Warsaw can also be mentioned, with the increase of RevPAR of 7.5% and occupancy growth of 8%. The ADRs are still under pressure, especially in the oversupplied 5-star branded hotel category in the capital of Poland.

SELECTED HOTEL OPENINGS

Hotel name City Standard No. of roomsHilton Gdańsk 5* 150

Holiday Inn Bydgoszcz 4* 134

Best Western Premier Katowice 4* 168

Ambasador Łódź 4* 143

Bella Note Chorzów 3* 44

� Some of the positive influencing factors in Poland were the GDP growth, the strong exports and manufacturing sectors, relatively well positioned Polish currency, and domestic demand level. Chopin 200 year anniversary and related festivals and activities also helped the Polish market with transient visits.

� EU debt crisis, the currency wars, volcano ash business interruption, Smolensk tragedy and floods in the south of the country were negative business influencers.

HOTEL SECTOR IN MAJOR CITIESWARSAW

� The hotel sector in the capital enjoyed a very good year. Strong demand for room nights in the business and small conference segments were noticed throughout the last three quarters of the year.

� The 5-star hotels performed with occupancy rate of 69.9% and ADRs of circa €98. The 4-star hotels also enjoyed a good trading year, occupancies were reported at the level of 68% and ADRs of €73. All the rest of the branded hotel products had circa 5% y-o-y growth in occupancies as well as ADRs.

� New hotel inventory was not added in Warsaw in 2010. In further years we can expect completion of the 4-star 347 room Doubletree by Hilton Conference Centre and Spa, the 250 room Renaissance by Marriott at the Chopin Airport, and the former Warszawa hotel building converted into a luxury class boutique hotel by the Likus family. In terms of economy sector in Warsaw, Orbis/Accor has announced a combination Etap/Ibis hotel (340 rooms) to be delivered in Q2 2012.

KRAKóW � This city also performed well in

comparison with 2009. The branded hotel products fared well, the occupancy in that segment was circa 64% at an ADR of €67. 5-star hotels showed growth in occupancy to 72% with a final ADR of €97.

� The city enjoyed a favorable summer season, which is predominantly leisure based travel. The hotels did a pretty good job in staying busy and competitive against most cities in Poland.

� The BPO business is creating new corporate room nights, and a new Conference Centre is being built next to the Park Inn hotel, which will bring new MICE sector room nights to the city.

� A new 157 room Hilton Garden Inn was delivered in January 2011, further diversifying the branded hotel offer in the city.

TRICITY � Tricity did relatively well, when you

consider that the Radisson Blu (2009, 134 rooms) and the Hilton (2010, 150 rooms) were added to Gdańsk’s accommodation offer. There are no new branded hotel projects in the pipeline for 2011 in Tricity, however, a 3-star Globus hotel will be opened at the beginning of the year.

� Gdańsk faired 58% occupancy through all hotel categories, with an average daily rate of €55. The 5-star branded hotels finished the year at 64% occupancy and an ADR of €87.

� Sopot’s hotel also enjoyed a better year than 2009, we estimate that the 5-star hotel segment is performing at the level of 57% in occupancy at an average achieved rate of €112. The lower segment non-branded hotels finished the year at 61% occupancy and an ADR at circa €64. Gdynia’s occupancy rate was 49%, and an ADR of about €47.

|

2004|

2005|

2006|

2008|

2007|

2009|

2011F|

2010

18

16

14

12

10

8

6

4

2

0

TOURIST ARRIVALS (MLN)

Source: Instytut Turystyki

HOTELS BY CATEGORY IN MAJOR CITIES

20%2 star

15%4 star

8%1 star

8%5 star

49%3 star




HOTEL MARKET

POzNAń � The city of Poznań has been trying to

turn around its poor hotel trading performance. 2010 showed some improvement for a few hotels there. There are also no new hotels in the pipeline. The Sheraton, the IBB Andersia, the IBIS and the Campanile are the city’s best performers. The city in all categories managed to do 49% in occupancy and achieved an ADR of €61.

� One bright side to this city’s attempt to improve its competitiveness was its commitment in promoting and advertizing the city for leisure travelers. The challenge for Poznań is continuing to be the MICE market, and we believe Poznań should do all it can to reposition itself in this very lucrative segment.

SzCzECIN � 2010 was a better year for this city,

and occupancies climbed to 58%, with an overall ADR of €49. The Radisson Blu, still the market leader, fared well in the city, with the introduction of renovated rooms and conference areas.

ŁóDź � The hotel segment had a slightly

better year, only due to regional and local conferences held in the city. The leader in the market continues on being the Andel’s Hotel in Manufaktura, which practically owns the small to medium size MICE segment in Łódź. The city did 57% in occupancy across all branded hotels, and an achieved rate of €64.

� 4-star Ambasador hotel was opened in 2010, however no new branded schemes entered the market. In the third quarter of 2011 Holiday Inn Hotel (that has been under construction since 2007) will be delivered into the market. A new 4-star, 191-room Doubletree by Hilton hotel is to open in 2013 in the city.

WROCŁAW � The city finished the year with a very

small improvement in RevPARs. The branded hotels leading in occupancy rates finished at 2009 levels – 65%, and an ADR of €57 was achieved across all categories. The 5-star branded hotels managed to deliver circa €86 in ADR and a 69% occupancy rate.

� 5-star Platinum Palace boutique hotel was opened in 2010, and the pipeline has a Hilton 5-star project which has been delayed for some time now due to the lack of financing. The same issue is affecting the Hilton Garden Inn development in the centre of the city. A Park Inn and dual branded Campanile and Premiere Classe have been announced and are currently being developed. Those hotels are planned to be delivered into the market in 2012.

OTHER POLISH CITIES � Bydgoszcz is progressing very nicely.

A new 137 room Holiday Inn was opened in October, and a Campanile is also being planned in the city.

� Katowice is developing rapidly into a well diversified city, catering to the trade, investment and shared service center sectors. We saw two hotels opening in 2010 – The Angelo (203 rooms), and the 168 room Best Western hotel.

PROGNOSIS � Positive factors for the Polish

hospitality sector will be the GDP growth, one of the strongest in the EU, as well as ongoing preparations for the UEFA Euro 2012 championships.

� The EU Council Presidency will be taken over by Poland in July. We estimate over 100,000 room nights will be used in conjunction with this event, and an extremely important promotion of the country during the last months of 2011 is expected to become reality.

FORMALLY RATED HOTELS AS OF END 2010

City 5* 4* 3* 2* 1* TotalWarsaw 10 7 22 13 9 61

Kraków 10 21 74 22 5 132

Poznań 1 5 22 15 2 45

Wrocław 5 8 23 3 4 43

Gdańsk 4 5 12 4 0 25

Łódź 0 2 10 9 2 23

Szczecin 0 4 7 3 6 20

Source: Colliers International on the base of Hotel Register in Poland

OCCUPANCY & ADR IN MAJOR POLISH CITIES, 2010

City Occupancy ADRWarsaw, 5* hotels 69.9% €98

Kraków 64% €67

Gdańsk 58% €55

Wrocław 65% €57

Poznań 49% €61

Łódź 57% €64




LAND MARKET

GENERAL OVERVIEW � The second half of 2010 – especially

the fourth quarter – indicated that the crisis in the land sector was over as the number of both investors and concluded deals is grew. Therefore, it is highly probable that the year 2011 will witness numerous new land and investment transactions.

� The beginning of 2010 was still strongly influenced by the global economic downturn which greatly affected the purchasing decisions of investment funds and developers. In this period no major transactions were recorded, however new plots were offered to the market. Also during this time, a growing number of Polish and foreign companies began their quest for new investment plots.

� In the second quarter there was a slight increase in the number of transactions recorded. New agreements were mostly signed in cases where the transaction price was considerably lower than the asking price.

� The summer holiday period – contrary to previous years – showed eagerness from investors to begin considerable purchases. A higher number of preliminary contracts were signed. In addition, potential buyers started to invest in the process of examining the urban, infrastructural, and legal status of plots.

� In the last months the number of companies with concrete investment plans, backed up with cash and preliminary promises of financing, increased. Also the number of closed transactions grew, including multi-phase investment projects.

TRENDS � It is clear that in the coming years the

market will be oriented towards buyers and not towards vendors, as it was before the crisis. More and more frequently the major factors that constrained new deals were lack of building permits, financing, and in case of commercial properties – preliminary lease agreements.

� Many companies either changed or widened the range of their interests regarding the type of investments they focused on. The return of interest in residential plots is now noticeable. Commercial real estate, in particular retail, also become priority for many investors who until now were developing only residential properties.

� Banks have started to search for buyers interested in purchasing plots with bad credit loans; importantly, this process is carried on in collaboration with existing plot owners.

� Another noticeable trend is a joint-venture as more and more attractive form of investing, sometimes the only possible one for certain investment targets.

� Among factors restricting market activity are long administration procedures and the issue of perpetual usufruct (granting ground leases), the costs of which constraint some companies from investing in this type of plots. This is, in addition to high prices for the best locations, instances where the high amount of capital required deters many from investing.

RANGE OF RESIDENTIAL LAND PRICES €/SQM OF NET SELLABLE AREA (PUM)

City/Region Min Max Mid-point Change*Warsaw, centre 300 900 600 37%

Warsaw, suburbs 140 350 245 24%

Kraków 150 410 280 24%

Łódź 100 220 160 0%

Poznań 120 350 235 1%

Silesia 70 200 135 0%

Wrocław 150 380 265 17%

Tricity 100 300 200 0%

* Compared to 2009

RANGE OF OFFICE LAND PRICES €/SQM OF GLA

City/Region Min Max Mid-point Change*Warsaw 220 950 585 27%

Kraków 180 350 265 23%

Łódź 100 200 150 0%

Poznań 180 300 240 0%

Katowice 100 220 160 0%

Tricity 130 350 240 0%

Wrocław 160 450 305 19%

* Compared to 2009




LAND MARKET

PRICES & TRANSACTIONS � The average price of office investment

sites increased in comparison with the end of 2009 in Warsaw (27%), Kraków (23%) and Wrocław (19%). Prices in Łódź, Katowice, Poznań and Tricity remained at the same level.

� With respect to residential investment plots the highest increase in average prices was recorded in Warsaw city centre (37%). An increase in prices was also recorded in other Warsaw districts (24%), as well as in Kraków (24%), Poznań (11%) and Wrocław (17%).

� The most significant transactions in the Polish land investment market included sale of 4.85 ha plot in the city centre of Kraków at a price of ca. €21 Mln. The site is designated for residential and office development. Another major deal was the sale of a residential/office investment site in south-eastern Warsaw. The price for the 4.4 ha plot was PLN 70 Mln (ca. €17.9 Mln).

PROGNOSIS � The second half of the year, especially

the last quarter proved that the crisis is over and the number of transactions and investors is increasing. Some banks now offer conditions that many investors are willing to accept. With regard to the residential market, the improvement in borrowing power is noticeable, which will cause an increase in purchasing activity.

� Everything indicates that 2011 will be a very active year in terms of new land and investment transactions, construction of new residential, office, retail and warehouse projects. Locations for potential hotel developments will also find buyers.

� New residential projects will begin in all major and medium-sized cities. Developers are already in possession of well-prepared plots, therefore in many places we can expect construction to begin soon.

� There are more and more investors interested in retail parks, cities with above 30,000 inhabitants will continue to be besieged by searches for plots in attractive locations, offering a good price and limited competition in the area.

� In the coming years prices will remain at the current level with some minor changes. If a growth in prices is recorded, it will be sensible, especially taking into account dynamics in the pre-crisis years.

MAJOR TRANSACTIONS IN 2010

City/Region Size (ha) Sqm* Purpose PriceKraków 4.85 70,000 Residential/Office €21.3M

Warsaw 4.4 60,000 Residential/Office €17.9M

Gdańsk 2.7 45,000 Residential €7.9M

Warsaw 1.8 45,000 Office €6.2M

Gdynia 1.44+2.25 30,000 Office/Industrial €4.4M

Toruń 3 10,000 Industrial €2.6M

* Investment potential




INVESTMENT MARKET

SUMMARY � As a result of strong macroeconomic

fundamentals and low vacancy rates, Poland’s commercial property market navigated well through the recent credit crisis.

� Poland is widely perceived by the international investment community as the ‘hot-spot’ in the CEE region and indeed a major European economy. The country has continued to emerge as a ‘core market’, with such features as liquidity for core assets (equity and debt), low risk premiums, institutional quality inventory within a sound legal environment.

� The Polish commercial real estate market has remained attractive relative to other EU countries and property values have not been impaired to the degree observed in other CEE countries during the crisis. Moreover, upward pressure on pricing with regard to core assets was recorded in 2010.

� Total real estate investment volume in Poland in 2010 more than doubled in comparison to 2009 levels with a number of high profile transactions.

� Single transaction volume increased in comparison to 2009 and the market has witnessed several all equity transactions which demonstrated the confidence of the investors in the market.

� Office and retail asset classes dominated the market, whereas the logistics sector also recorded major transactions, including a core portfolio sale.

� For the first time post-Lehman, investors turned to regional cities with severalprominent transactions, particularly in office and retail sectors (Grunwaldzki Center in Wrocław, Avatar in Kraków, Jantar Shopping Center in Słupsk, Galeria Malta in Poznań).

� We note that the Polish investors are becoming increasingly interested in the commercial real estate market, which has been marked by acquisitions concluded by PZU, Poland’s largest insurance company (which purchased e.g. Athina Park office complex).

PROGNOSIS � Core German investors are expected

to continue to dominate the investment landscape for the medium term, given the ability to transact by means of ‘all’ equity or low leverage levels.

� As a result of the available pool of debt and equity being focused on standing core assets, a growing difference in yield or pricing has become more prevalent between ‘core’ and ‘non-core’ assets.

� Several assets in Poland are currently in due diligence and we expect investment activity to remain strong in 2011, although likely less volume than in 2010.

� We are of the opinion Poland will out-pace the rest of CEE for the near term, primarily due to the inherent, healthy macro-economic dynamics, a national economy, which continues to expand and also due to favourable leasing dynamics in Poland’s major cities.

� Stabilization of core yields in the mid-term is becoming increasingly dependent on the macroeconomic fundamentals of the region in the wake of the sovereign debt issues.

KEY INVESTMENT FIGURES

Metric MeasureInvestment Turnover €1.8 Bln

Prime Office Yield 6.75-7.25%

Prime Retail Yield 6.75-8%

Prime Industrial Yield 8-8.5%

SELECTED INVESTMENT TRANSACTIONS

Project Value Seller BuyerArkadia & Galeria Wileńska n/a Simon Ivanhoe Unibail

Rodamco

Horizon Plaza €102M IVG Union Investment

Trinity Park III €93M Ghelamco SEB AM

Jantar SC €92M Mayland EPISO

Logistics Portfolio €91M Panattoi EPISO

Topaz & Nefryt €79M GTC RREEF

Grunwaldzki Center €77M Skanska RREEF

5,000

4,000

3,000

2,000

1,000

0

INVESTMENT VOLUMES (€ MLN)

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2001|

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2008|

2007|

2009|

2010|

2005|

2004|

2003|

2002

|

2000|

2007|

2004|

2003|

2002|

2001|

2005|

2006|

2009|

2008|

2010

13%

12%

11%

10%

9%

8%

7%

6%

5%

4%

PRIME YIELDS

▬ Industrial ▬ Retail ▬ Office




BASIC FORMS OF TITLE � In Poland there are four basic forms of title to

real estate: (i) full ownership (“własność”) which is similar to “freehold” title and entitles the owner to a full range of perpetual rights to use and enjoy real property; (ii) the right of perpetual usufruct (“użytkowanie wieczyste”) which is a form of ownership where the State Treasury or units of local government own the underlying title and grant the user full rights to use and enjoy the property for up to 99 years subject to an annual statutory fee; subject to certain conditions, the right of perpetual usufruct may be changed into full ownership; (iii) a long term lease (“dzierżawa”), which was originally designated for agricultural land but is often used to lease commercial property for up to a maximum period of thirty (30) years; and (iv) a lease for a fixed period of time (“najem”) which has a maximum term of ten (10) years or thirty (30) years, if the agreement is entered into between commercial entities.

ACQUISITION OF REAL ESTATE BY FOREIGNERS

� Generally, the direct or indirect acquisition of commercial property by entities which are “controlled” by foreigners require a permit from the Minister of Internal Affairs and Administration. However, due to amendments arising from Poland’s EU accession, entities from the EEA no longer require such a permit. However, certain restrictions and transitional rules relating to the purchase of specific types of real estate (i.e. agricultural land, land located in border zones and second homes) remain in place.

REGISTRATION SYSTEM � In Poland, District Courts maintain land and

mortgage registers (“księgi wieczyste”) which can date back more than 100 years, depending upon the jurisdiction. These registers show the owner of the property in question and also indicate the extent to which the land is encumbered by mortgages and other limited property rights or limitations. As a general rule, “good faith” purchasers of land are entitled to rely upon information contained in the registers.

TRANSFER TAxES � Generally, the supply of immovable property is

subject to VAT. The supply of undeveloped land other than building land or land designated for development is exempt from VAT. As regards developed land, the VAT exemption also covers:

� The supply of buildings, constructions or any part thereof (together with the land), except where: (i) the supply is made within the first occupancy (as defined by VAT Law) or before the first occupancy took place; (ii) the period between the first occupancy and the supply of a building, construction or any part thereof was shorter than 2 years;

� The supply of buildings, constructions or any part thereof (together with the land) which is not subject to the exemption referred to in A, provided that: (i) the person supplying these items had no right to reduce the amount of output tax by the amount of input tax connected with these items; (ii) the person supplying these items, did not incur expenses for their improvement in respect of which he/she had the right to reduce the amount of output tax by the amount of input tax, and if such expenses were incurred, they were lower than 30 per cent of the initial value of these items.

� However, taxpayers who fall within the VAT exemption referred to in point A above, may opt for taxation of the supply made (if the formal requirements provided by VAT Law are met). The exemption referred to in point B above is obligatory for taxpayers.

� Where a sale of immovable property is either VAT exempt or not subject to VAT, the sale is subject to a transfer tax at the rate of 2% (the buyer is liable for the payment of the transfer tax). Transfer tax is charged on the market value of the immovable property subject to its being transferred.

LEASES � Leases in Poland are freely negotiable, but

subject to certain mandatory provisions of the Civil Code which cannot be varied by contract. The most important restrictions concern the length of lease terms (although in commercial leases the maximum period for which a lease agreement can be signed was recently extended from 10 to 30 years) and termination rights.

RESTITUTION CLAIMS � There is no comprehensive restitution law in

Poland. Instead, there is a complex web of laws which, under limited circumstances, permit certain former owners of real estate to assert claims against governmental authorities. Restitution claims may be registered in the land and mortgage books; however, the absence of such registration does not necessarily indicate that no such claims exist.

NOTARIES AND NOTARIAL FEES � Legal agreements for the sale of real estate and

the transfer of perpetual usufruct rights to real estate need to be in notarial form in order to be enforceable in Poland. Notarial fees are calculated on the value of the transaction up to a set maximum. The new law on Court Registration Fees (effective as of March 2006), introduces fixed fees for entering the following rights into the Land and Mortgage Registers: the right of ownership, the right of perpetual usufruct and limited property rights (e.g. mortgages and easements).

CONSTRUCTION LAW � As a general rule, all major construction

requires a building permit in a form of an administrative decision. Following the amendments made in 2006, administrative requirements for the construction of media access have been relaxed.

PLANNING AND DEVELOPMENT LAW � The local development plan is the main

document deciding which investments are to be allowed on a given site. However, many Polish communes still have no local plans in force and therefore, prior to obtaining a building permit, an administrative decision on the site development conditions is required.

LANGUAGE � Most legal agreements do not need to be

executed in Polish in order to be enforceable in Poland. Nevertheless, the notarial form of real estate transfer can only be executed in Polish.

Information contained in this general outline does not constitute a legal opinion and is not meant to be comprehensive. As a result of pending and new legislation, laws and regulations change frequently in Poland and are often subject to varying interpretations. Professional advice should be sought regarding all aspects of real estate in Poland.

POLAND LEGAL OVERVIEW

P. 88 | CollieRS inteRnAtionAl Contact: [email protected]


POLAND TAX SUMMARY

GENERAL � Since 1 January 2011, the new VAT rates have

been introduced – standard rate of 23%, as well as reduced rates of 8% and 5%.

� Generally, based on the currently binding VAT provisions, the sale of the buildings and constructions occupied for longer than 2 years is VAT exempt (as a result, 2% transfer tax is payable by the buyer). However, in most cases, the taxpayers may give up the exemption on such sale and make it a VAT-able transaction if the special conditions are fulfilled. Also, exempt from VAT are supplies of buildings and constructions if the supplier had no right to deduct input VAT upon acquisition of this building or construction (and additional conditions are met).

� The reduced 8% VAT for sales of residential property before first occupation applies only if the property meets the criteria of social housing program. If the area of a house or apartment exceeds certain surface, both reduced and standard VAT rates applies.

� Based on the amendments to the CIT Act being in force starting from 1 January 2011, the possibility to implement step-up on the value of properties not recognized as fixed assets (i.e. properties being reported as work in progress, e.g. apartments for sale) was eliminated. However, there are still some tax optimization possibilities to be implemented in 2011.

CIT AND CAPITAL GAINS � Generally, CIT in Poland is levied on all taxable

income, with some exceptions, e.g. income derived from forestry and agricultural activities. 19% CIT is payable on income which is computed as taxable revenues reduced by eligible costs incurred to generate these revenues or retain or secure a source of a taxable revenue.

� The costs incurred in respect of given up investments may be treated as tax deductible costs.

� There is no separate capital gains tax, but gains on the disposal of fixed assets and intangibles are added to the taxpayer’s mainstream income (gains from the sale of real estate property are taxed at regular 19% CIT rate). For the seller, profit on the sale of assets is added to the mainstream income subject to corporate income tax at normal rates. On disposal, the taxpayer can deduct the net tax value of the assets and associated disposal expenditures. Taxable income can be reduced by tax losses available for utilisation.

� In case of a sale of shares in a Polish company held by a non-Polish shareholder typically the double tax treaties Poland has concluded with other countries provide for a taxation right of respective capital gains in the jurisdiction of the shareholder. However, in some double tax treaties sale of shares of the Polish company which to a great extent comprises of real estate is taxed in Poland at 19% CIT (for example double tax treaties with UK, Spain, France, Ireland, Germany, Austria, Belgium, Denmark, Malta, Sweden).

� A fiscal group may be created for corporate tax purposes. There are a number of conditions that need to be met (in practice, the most difficult is the requirement for the profit of the group for tax purposes to be equal to at least three percent of gross taxable revenue). In principle, partnerships are used to achieve consolidation of CIT results.

TAx DEPRECIATION � Depreciation of fixed assets is usually

calculated on a straight line basis using the rates laid down in the Polish CIT Act. Depreciation write offs are then claimed on the initial value of the individual fixed or intangible assets, in equal amounts each month, starting from the month following the month in which particular asset was brought into use, until the end of the month in which the total depreciation write offs equal to the asset’s initial value or in which it is liquidated, disposed of or found missing. The key annual depreciation rates are: 2.5% for buildings, 4.5% for constructions and 10% for technical devices. Land is not depreciated for tax purposes.

TAx LOSSES � Tax losses may be carried forward for 5 years

and up to 50% of particular tax loss can be utilized in any one year (after 5 years they expire). The ability to utilize tax losses is unaffected by a change of ownership of a company.

THIN CAPITALIzATION � The Polish thin capitalisation rules limit

the tax deductibility of interest paid or capitalised on loans granted by qualified lenders, i.e.

— from the shareholder holding solely at least 25% of voting rights or shareholders holding jointly at least 25% of voting rights of the borrowing company;

— from a sister company which has the same shareholder as the borrower, if the shareholder owns at least 25% of voting rights of both the lending and the borrowing company (i.e. sister company).

� Generally, the thin capitalization restrictions apply to interest paid from the above loans by the Polish company if as per the date of its payment the total debt to the above qualifying lenders and shareholders of parent entity with at least 25% of voting rights in the parent entity exceeds three times the equity of the Polish company. In principle, the interest paid from the part of the loan exceeding this debt to equity ratio will not be tax deductible. There are some uncertainties how thin capitalization rules should be applied in practice.

WITHHOLDING TAxDIVIDENDS

� Dividends are subject to 19% withholding tax. This is generally reduced under double tax treaties to which Poland is a party. To apply the reduced rate, the payer should be in possession of a tax residence certificate of its shareholder. Dividends paid to qualifying Polish resident company, EU/EEA resident companies (or its foreign permanent establishments) or qualifying Swiss companies are exempt from Polish withholding tax if the shareholder owns at least 10% (in respect of the Swiss shareholders at least 25%) of payer’s shares and the shares are uninterruptedly held for at least 2 years. The withholding tax exemption is also applicable if the dividend payments are made before the end of this period, but if the shares are disposed of earlier, any withholding tax due is payable together with penalty interest.

INTEREST, ROYALTIES AND INTANGIBLE SERVICES

� Under Polish domestic legislation, withholding tax of 20% applies on payments of interest, royalties and fees for intangible services made abroad. This is generally reduced or eliminated under the double tax treaties to which Poland is a party. However, in order to apply the treaty rates, the payer should have a certificate of tax residence of the recipient.

� Poland was granted a derogation period until 1 July 2013 to fully implement the EU Interest and Royalties Directive. Based on the above derogation provisions, until 30 June 2013 interest and royalties paid to qualifying EU resident companies or EU permanent establishments are subject to 5% withholding tax. From 1 July 2013 qualifying interest and royalties will be tax exempt. To apply the EU Interest and Royalties Directive provisions in the above manner the 2 years holding period is required. These provisions can be also applied before the 2 year holding period has been fulfilled, but if the shares are disposed of earlier, any withholding tax due is payable together with penalty interest.

CollieRS inteRnAtionAl | P. 89Contact: [email protected]


POLAND TAX SUMMARY

� Similar provisions apply to qualifying Swiss resident companies.

REAL ESTATE TAx � Real estate tax is a local tax which applies

to land (and perpetual usufructuary of land), buildings and constructions (installations).

� The taxable base for all buildings is the floor area of the building. For land (and perpetual usufruct of land), it is the area. For constructions (installations), the depreciation value is taken into account. The current (for 2011) maximum rates for real estate tax cannot exceed:

— PLN 0.80 per Sqm for land used in business activity.

— PLN 0.41 per Sqm for other land. — PLN 0.67 per Sqm for dwellings. — PLN 21.05 per Sqm for buildings used in business activity.

— PLN 7.06 per Sqm for other buildings. — 2% of the value of constructions/installations (in principle on tax written down value at 1 January each year).

� Year-by year is intended by a government to implement a new real estate tax where the basis for the taxation will be the value of the real estate (cadastral tax). However, the implementation of this tax is being postponed each year and there is no information when (if at all) it would be implemented.

TAx ON CIVIL LAW TRANSACTIONS (PCC, TRANSFER TAx)

� 0.5% PCC is imposed on capital injections to a newly registered company, as well as on any increases of the share capital or additional payments made to the reserve capital of the company (or on the value of contributed assets in respect of partnerships). The shareholder loans are PCC exempt while non-shareholder loans are generally subject to 2% PCC (the borrower is obliged to pay the transfer tax; if certain conditions are met there is no obligation to pay PCC on loans).

� Moreover, the sale and exchange of goods and property rights are subject to PCC if outside the scope of VAT. If the sale is VAT exempt, it is usually exempt from PCC, except for land and buildings (purchase of real estate is subject to 2% transfer tax on its market value even if VAT exempt).

� Acquisition of shares in Polish companies in principle is subject to 1% transfer tax in Poland

payable by the buyer, but some tax optimisation techniques can be used.

VATGENERAL PROVISIONS REGARDING REAL ESTATE

� Generally, since 1 January 2009, the sale of the buildings, constructions and their parts is VAT exempt (except if the sale performed confines the first occupation or is made before it or if the sale is performed within 2 years from the first occupation). However, in most cases the taxpayers are able to give up the exemption if the special conditions are fulfilled. Also, exempt from VAT are supplies of buildings, constructions or their parts if the supplier had no right to deduct input VAT upon acquisition of this building or construction and additional conditions are met.

� In case of a VAT exempt sale of the buildings, constructions and their parts, the transaction is subject to 2% transfer tax. In case of a sale of land with a building which qualifies for a VAT exemption, then both assets are VAT exempt and are subject to 2% transfer tax.

� The standard VAT rate in Poland on the sale of land and buildings is 23%. The reduced 8% VAT for sales of residential property before first occupation applies only if the property meets the criteria of social housing program (houses not larger than 300 Sqm and apartments not larger than 150Sqm). If the area of a house or apartment exceeds such values, both VAT rates applies (8% to the area up to the 300 Sqm/150 Sqm, 23% to the area exceeding those statutory limits).

� Where a property is acquired as a going concern (as a whole business or organised part of business) such transaction is outside of VAT. In these circumstances, transfer tax applies at 2% on the value of property and is payable by the buyer (if an enterprise would be consisted of various components, transfer tax of 2% applies to sale of real estate, movables, perpetual usufruct rights; 1% applies to sale of other property rights).

� Lease of office and rental space is subject to 23% VAT regardless of the status of the tenant. Lease of residential property for housing purposes is VAT exempt.

PLACE OF SUPPLY OF SERVICES � Generally, the place of supply of services to a

tax payer registered for VAT purposes in Poland or in other EU country is the place where the purchaser has its seat, permanent place of residence or permanent place of carrying

business. However, in case the supply of services is done to entities other than tax payers (registered for VAT purposes in Poland on in other EU country), the place of supply of services is where the service provider has its seat, permanent place of residence or permanent place of carrying business.

� However, in case of services related to the real estate, the place of supply of services is where the real estate is situated.

� The advisory services provided to the non-tax payer (i.e. entity not registered for VAT purposes in Poland on in other EU country) having its seat or permanent place of residence outside of EU are subject to taxation where the purchaser have its seat or permanent place of residence.

VAT REFUND UNDER DOMESTIC LAW � Since December 2008 the standard refund

period has been shortened from 180 to 60 days. In order to apply for direct refund of input VAT excess within standard 60 days, the taxpayer has to perform taxable sale. The standard periods of refund (60 days) can be shortened to 25 days if all purchase invoices from which VAT is declared in particular VAT return are paid by the time the VAT return in submitted to the tax office. If there is no VATable activity, then the VAT refund can be obtained as well, however, within 180 days. It can be shortened to 60 days if the taxpayer files the security deposit.

FOREIGN VAT REFUND UNDER VIII DIRECTIVE

� Since 1 January 2010 VIII Directive reclaims must be filed with the local VAT authority (where a company is registered) and not where VAT has been paid. VAT reclaim has to be filed electronically.

EC SERVICES LIST � Since 1 January 2010, the monthly EC services

lists must be filled by the tax payers, if they supply services to tax payers from other EU countries where the reverse-charge mechanism was applied. Advisory services where the VAT is charged in the recipient’s country have to be included. Services relating to the local real estate where the VAT is charged locally are not to be reported.

� The EC services lists must be filed by 15. of the following month or by 25. of the following month if filed electronically.

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