Pros and cons of 2021 in the PRS segment

December 2021

The past year has been an important one for the PRS market, especially for Zeitgeist Asset Management, a company that entered in 2016 as a pioneer in institutional leasing. Due to its financial background, Zeitgeist tackled a difficult but profitable niche market, betting on the acquisition of properties located in top locations in the country. Peter Noack, co-founder and CEO of Zeitgeist AM sums up the pros and cons of 2021.

Peter Noack, CEO Zeitgeist Asset Management

Among the good signs, Noack counts three main aspects:

1. New players in the market, making PRS an increasingly self-contained asset class

Until recently, the PRS market was at an early stage of development. While there is still little competition among the players, it has certainly become noticeable. We are seeing a dynamic flourishing of this segment thanks to the uncertainty of modern times. People do not want to be tied to a particular place for many years because they cannot predict what will happen even next year. On top of that, it is getting more and more difficult to get a loan. I make no secret of the fact that the development of the institutional rental sector has also been helped also by the pandemic. In comparison to other asset classes, like office or retail, the residential rental market was at every time stable and income producing. All these factors have led to the institutional rental sector starting to be taken more seriously. We are seeing an increase in the confidence of banks in institutional rental projects, as well as investors and officials, and finally customers, because the institutional rental market is an excellent alternative for people who do not want or cannot finance the purchase of a home.

2. Developers are more open to structuring term deals

Expanding lease offerings based on new or renovated buildings entails the introduction of a special type of agreement between the fund and the developer. Until now, contractors have approached this type of agreement very cautiously, often seeing us as competition. Now this is changing, because its advantage is the strongest aspect - the financial one. Developers have learned that not having to take out loans for investments is beneficial for them for several reasons. First, because of the fund's promise to purchase the building upon completion, and second, because of the guarantee of early financing at all stages of construction. At the same time, the contractor does not incur any costs for marketing, sales or individual alterations of the units. It is therefore a typical win-win situation. An example of a project based on the forward purchase, forward funding formula described above is the new Zeitgeist Asset Management development in Gdansk, where BMC is the executing partner or in Prague, where FIMEP was the development partner.

3. Private student housing is still a very interesting niche investment with great potential for the future

Part of our strategy is to strengthen our position in the market for private student residences, as this is a large niche to be developed. Today only one in ten students can count on accommodation in a student hall of residence, which is why in August this year we purchased and re-branded our first facility in Kraków at Koszykarska 33. Another ultra-modern dormitory in Solec, Warsaw, is undergoing renovation. Next in line will be dormitories in other cities such as Poznan, Wroclaw and Tricity. All our student residences are managed by Zeitraum, our subsidiary company. Zeitraum Student Housing is currently the second largest professional operator of student residences in the Czech Republic. It has been operating on the market for five years and manages 460 beds for students and 53 serviced apartments; more will come this year 2022. Rentals are made through innovative, automated platforms and, which handle the entire booking process. In Poland, we are the first operator to enable short-term rentals.

In addition to the positive aspects, naturally, there are also the negative ones in the PRS market. According to Peter Noack, these are:

1. The new tax law, which makes investments in Poland more complicated and, as a result, more expensive for the end user/tenant

The "New Deal", passed by the Parliament, strikes a tax blow to rental housing. In this way, the government hopes to limit the growth of property prices while increasing budget revenues. However, it is a wrong direction. The announced inability to depreciate costs will result in the necessity of transferring them to the tenant, and already today renting in Poland is not cheap. The tax system should achieve its fiscal goals in such a way as to distort economic activity as little as possible. The current changes are hampering the positive trends we have seen in the real estate market in recent years.

2. There is still a shortage of real estate for institutional rentals

The best and easiest way to revive city centers, dominated by commercial buildings, is to purchase entire complexes of real estate, which after renovation and redevelopment will be converted into comfortable apartments for rent. Such investments on our part are e.g. Dluga 44/50, Solec 22 or the Nowogrodzka/Św. Barbary quarter in Warsaw. However, there are not many such buildings compared to our experience in the Czech Republic. In Poland there is no ready-made, good quality real estate, with regulated property issues, which could be bought and immediately included in the rental offer. If you want to have a good product, but possible quickly, you have to create it yourself. The first such development project, created for our brand Home by Zeitgeist (, is the “Górskiego” estate in Gdansk-Oliwa, which will offer more than 200 apartments at the edge to Sopot, close to the business district of Oliwa and very close to the sea.

3. There are still too few projects in the hand-over phase to prove the strength of the market

Despite all the good aspects that happened to the real estate industry this year, the PRS sector is not treated as a distinct and "full-fledged" market category. Still few investors have the financial capacity to enter this segment. Funds, the banking sector and analysts have to rely on estimates as to whether institutional leasing is the right move and whether there will be the expected return on investment. The foreign market provides a lot of such data, but institutions are waiting for hard data from Poland. We see this especially among decision makers, and we are still waiting for the PRS business model to become more established in Poland and gain favor with cities and their administrations.

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