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Łódź: the shining star of the development market in 2018

6 February 2019

After nearly 5 years of “persisting” among cities with the largest transaction volume on the primary market in Poland, Łódź started catching up and in 2018 became the shining star of the development market, having recorded an over 30% increase y/y.

Although Łódź is the third largest city in Poland in terms of population, its residential market has trailed far behind other cities for a long time. In many respects, such as prices or sales on the primary housing market, Łódź was more like Lublin and Szczecin than Warsaw or Wrocław.

In the past three years, however, the situation changed significantly and Łódź has become a shining star of the development market. Demand for housing has been growing exceptionally dynamically. The number of flats sold in 2018 was over twice as high as in 2015 (4,200 transactions in 2018 compared to 1,900 in 2015), reaching an all-time high for this city.

More flats to choose from means higher demand

This was possible thanks to the developers' flexibility and their rapid response to the growing demand. Back in 2015, selling 4,000 units on the primary market was virtually impossible due to the relatively limited offer and the ensuing limited selection of flats. The price threshold in the MdM scheme, which was unfavourable compared to the prices on the primary market, caused Łódź to benefit the least from the boost offered by this government scheme (out of the six cities monitored by REAS | JLL Residential Advisory), falling behind markets such as Wrocław, Poznań or the Tri-City. Initiatives intended to attract investors to the city were rolled out fairly slowly.

 

The development of the residential market in Łódź followed the development of other real estate sectors. The initiatives of local authorities (including revitalisation programs, infrastructure development and promotion of the city, also abroad) contributed to the development of the office space market. Attractive conditions for investing, combined with advantages resulting from the central location in Poland, spurred the development of the logistics and warehouse industry. All this also attracted, indirectly, the attention of home buyers investing in properties for rental on the residential market in Łódź, for whom the return on investments in the more and more expensive flats in Warsaw or the Tri-City slowly ceased to be attractive. Developers seized that opportunity. They released 4,600 units onto the market in 2018 alone (2.5 times more than in 2015).

The many new projects that were launched turned out to work in favour of the buyers. The steady growth of the developers’ offer, mainly in the popular flats segment, removed upward pressure on prices. In 2018, the average asking prices increased in Łódź by 8%, which is the lowest result among the six largest markets in Poland (Warsaw, Kraków, Wrocław, Tri-City, Poznań and Łódź), and by 17% since the end of 2016, which is also one of the lower results in this group. Demand responded to the new supply equally enthusiastically. The developers operating in Łódź closed 2018 with a result of 4,200 units sold and beat the record of sales of new flats another year in a row, this time by a solid 30%.

Growth driven by demographics

Although Łódź has been struggling with declining population for years, it is still the third largest city in Poland (behind Warsaw and Krakow). If we take into account the number of transactions on the primary market compared to the number of residents, there is still ample space for growth in Łódź. In 2018, there were fewer than 6 units sold on the primary market per 1,000 residents, while on other large markets the ratio was closer to 17 units, or even over 19 in the previous years.

The current performance of the market in Łódź suggest that this gap is likely to narrow further, especially as the relation of prices to wages in Łódź is still favourable, the most attractive out of all of the six monitored cities. Although in the upcoming quarters the volume of transactions is likely to drop on the back of the increasing prices, especially in the low-end segment, the quite stable demand, which still has not been satisfied, makes Łódź a quite safe market for launching subsequent development projects. This obviously depends on whether developers have learned their lessons from the failure of some exceptional projects 10 years ago, which have had a long-lasting effect on the local residential market, and will wisely explore the opportunities that this rather distinctive market has to offer.