How to recognise upper-middle and high-end apartments
Segmentation of the offer on the primary residential market is one of the key factors in JLL analyses and recommendations. What are the criteria driving classification to each quality segment?
The residential market in Poland has been booming over the past few years. First of all, the structure of demand groups has changed. The first-time buyers started to be overweight by those who improved their standard of living. Many of them, buying for a second or next time in life, were ready to purchase larger, better located, higher standard flats. Individual investors placing their savings on the housing market to profit from renting have also become a significant group. Changes have also taken place on the supply side. Residential developers much more often have launched higher standard projects containing upper-middle and high-end apartments. Furthermore, the lower-middle apartment’s share in the total supply has risen significantly, on the cost of low-end pool of units.
For many years, the research and analysis of phenomena occurring on the primary residential market was the domain of the Polish consulting company, REAS. Uninterrupted monitoring of the primary
market has been carried out since 2007. It is being continued now after the company was merged into the structures of the Polish branch of JLL at the end of 2018. The reports on the residential market, currently published under the JLL brand, are a key indicator of the condition of the sector for the majority of market players.
The key division into segments, which is particularly important for price analyses, is carried out on the basis of price and quality. In REAS analyses, dwellings in multi-family housing are divided into two basic segments: flats and apartments. There are two sub-segments in the category of flats: low-end flats and lower-middle segment flats. The apartment segment is also divided into two sub-segments: apartments (upper-middle segment) and high-end apartments.
”The set of features taken into account when determining the category a given developer project is very complex and is used in a specific local context. This requires not only extensive experience of the analysts, an individualised approach to each examined housing investment, but sometimes also consultations with a wider range of team.”
It is not always easy to determine the residential category
In order to assign any dwelling to one of these particular segments we have to consider its location and quality with regard to a residential unit, a building, as well as a grouping of buildings. We also take pricing into account as a supplementary segmentation criterion.
However, because individual local markets are different from one another, it is difficult to use one single criterion for all the locations considered. When applying the adopted segmentation in a literal manner and reviewing the list of developers’ projects from individual segments at the same time, it may seem that Warszawa’s low-end segment could easily meet the criteria of the lower-middle segment in Rzeszów or Olsztyn, while an investment in Lublin offering PLN 9,000 per sqm has been included in the upper-middle segment only by coincidence.
This results from the fact that the set of features taken into account when determining the category a given developer project is very complex and is used in a specific local context. We have a slightly different outlook on the investments in Poland’s largest and “most expensive” cities, and on those situated in the locations outside the top ten. This requires not only extensive experience of the analysts, an individualised approach to each examined housing investment, but sometimes also consultations with a wider range of team members, explains Katarzyna Kamińska who is responsible at JLL for the work of the team that monitors the housing market.
Developers that operate simultaneously in several cities realise that such differences exist. Those who opened their businesses on the primary market over 10 or even 20 years ago also understand that the market has evolved and matured over the years.
When we were developing the terms describing particular elements of the emerging residential developers market based on the Western terminology in the 1990s, we tried to adapt the still drab Polish reality to the concepts used in the much more developed economies. Today, when we have become more like them in terms of salary levels, living standards and expectations as to the place where we live, we have the impression that the concept we used to refer to as low-end is no longer sufficient, whereas the basic expectations of the statistical buyer (especially in the largest business centres) are closer to those that we have once called the lower-middle, which is in fact the predominant low-end part of the offer in Western countries, positioned slightly below the lower middle on a qualitative scale, comments Kazimierz Kirejczyk, current Management Board Vice President at JLL, the co-founder of REAS, who, in the 1990s, participated in the advisory programme of the World Bank, USAID and the Ministry of Construction that supported reforms of the housing sector in Poland.
Although we respond to changes on the residential market on a current basis, we still use the categories adopted over a decade ago, if only because of the possibility of the historical comparison of the segmentation data. So what can we say about the segments?
Low-end flats constitute a vast majority of offers from developers in Poland. The basic advantage of flats in this sub-segment is their affordability.
Lower unit prices of such flats are driven by several factors. The key factor is their location on relatively less expensive plots: typically on the outskirts of cities, or in less attractive parts of central districts. Those are often developments with limited access to public services and poor transportation options for getting to the city centre and business or industrial districts (in terms of both public transport and road infrastructure).
In the low-end segment, the size of the project is not an important consideration for customers. Those are often large groupings of buildings with repetitive design and high density. Such projects are usually surrounded by similar developments. The aesthetic quality of the surroundings and the „view from the window” are of limited importance. The lack of public spaces within such a development is acceptable, just as the use of parking spaces on the outside. Common spaces within buildings are limited to a functional and legal minima.
Another factor is their construction standard. Such developments are often built with the cheapest technologies available. The choice of building and finishing materials or workmanship is driven mostly by economic considerations. The facades have a sparing design (they are usually only plastered) and feature small windows (except for the living rooms) whose size is forced by technical conditions.
The floor surface in this category of flats is close to a functional minimum: small rooms, small kitchens, narrow passages, small bathrooms. It should be stressed, however, that over time this parameter can change due to changing customers' expectations. Usually, there is no separate walk-in wardrobe, and the interior wall height stays in the range of 250-260 cm.
Lower-middle segment flats
Projects with lower-middle segment flats are intended for buyers looking for more attractive locations, better finishing quality, and a comprehensive offer of additional services and amenities.
Compared with the low-end sub-segment, lower-middle segment flats are usually larger for a given number of rooms (by 20-30%) and offer a little more privacy. The corridor-like layout of units in a building is not accepted, and bedrooms should not share walls with hallways and staircases (only living rooms can). These flats often have walk-in wardrobes and are designed in such a way that they can easily be transformed into open-plan flats (if the customer expects this). Occasionally, we can come across master suite type solutions (master bedroom with a private bathroom and wardrobe).
Some taller buildings are common to have specialty flats on top floors: they are much bigger and equipped with access to large terraces. They may remind us of „penthouses”, which are typical of the apartment segment.
As a rule, projects in the lower-middle segment are more refined architecturally than low-end developments but the quality of architecture is not a decisive criterion for including a project in this sub-segment. The size of the project is not an excluding factor, either. However, the inclusion in the lower-middle segment is always conditioned by the presence of aesthetic and functional common spaces both around the building and inside the building (entailing a professional landscape design). The lower-middle segment features a lift, usually from the level of an underground car park, which also is seen as an additional convenience of the investments (especially in smaller towns and on the outskirts of larger cities). The number of parking spaces in an underground car park corresponds to at least two-thirds of the number of units, but each one has its own basement or storeroom. Optionally, there is also a reception desk or a security room (for individual buildings or for the entire complex) and access control. In larger cities, CCTV is also standard for this segment
In most cases the building and finishing materials and workmanship are in medium price and quality ranges. As a rule, solutions of the lowest quality are avoided.
Apartment projects are exceptional products, intended for the most demanding and affluent customers. Apartments are situated in prestige locations and built with the use of high-quality materials. However, functional and aesthetic qualities are not sufficient to include a project in this segment: it is the prestige that matters.
Apartments are located in central city districts and the most prestigious locations of sub-central and suburban districts. Apartment developments are usually surrounded by varied residential buildings of good quality, and possibly also by some non-bothersome non-residential structures. The only accepted annoyance for an apartment project is the vicinity of busy urban roads (but even if this is the case the ambient noise should be limited by appropriate technological solutions). Good transportation options for getting both to the city centre and prestige business districts, as well as easy access to public services, are also crucial aspects of the location.
The style and the density of development are important characteristics of this category. The density is usually moderate, although some centrally located high-rise buildings can also be qualified as apartment projects. An apartment development should feature an original, attractive architectural design. Moreover, in the case of bigger estates, individual buildings should remain independent and quiet. External finishing should at least in part utilise quality materials (stone, high-grade ceramics, custom-made architectural details, aluminium or steel cladding). Large glazing surfaces are also typical of apartment projects.
A reception desk combined with a spacious, presentable lobby is a standard feature of apartment projects. Even low buildings (less than four floors above the ground level) are fitted with lifts. Apartment estates and buildings usually have 24-hour security guards and video surveillance of common spaces. In bigger developments, the residents frequently have access to on-site recreational facilities, such as swimming pools, saunas, fitness rooms, or tennis courts.
Floor surfaces of apartments are often similar to those of lower-middle segment flats. However, they usually feature a separate walk-in wardrobe and an option to have an independent, well-lit kitchen. In apartments with three or more bedrooms, master suite isa standard solution. Some units can have bay windows or winter gardens but the most common solution are large balconies or terraces. The walls inside apartments are usually at least 275 cm high.
One of the most important criteria is building technology. Apartment buildings are constructed with the use of traditional methods and high-grade, healthy materials (with an exception being some centrally located high-rise apartment buildings). Natural stone, stainless steel, brass, high-quality wood – these are used widely. The building and finishing workmanship is also of the highest standard and based on customised interior and architectural detail designs. Equipping apartments with A/C systems and advanced smart technologies is also becoming increasingly popular. At the same time, as smart home systems become more widespread (and, at the same time, more affordable), developers have started to treat them as a purchase benefit and also offer them in lower segments in their basic versions.
Only a few projects countrywide offer the highest standard available, entailing the use of all (or almost all) of the state-of-the-art technologies and the most prestigious sector practices. Only about 800 of 11,000 apartments completed in 2010–2019 were included in the high-end segment. Currently, 240 of them are under construction. At the end of 2019, the entire offer available on the Polish market in this segment amounted to as many as 243 units.
High-end apartment developments feature great and unique architectural designs from distinguished architects. The exterior finishing is marked by expensive materials such as stone, glass, and decorated with custom-designed architectural details of stainless steel, bronze or brass.
Floor surfaces of the majority of units in this segment exceed 100 square metres. As a rule, minimum surfaces for different rooms are used, usually much larger than in the other market sub-segments – e.g. bedroom: ca. 20 sq. m, living room: over ca. 30 sq. m. As a rule, the number of bathrooms equals the number of bedrooms, and the kitchen is a separate and well-lit room with an option for a separate pantry room or a utility room. A high-end apartment frequently has a large square-like hall. A wardrobe room (or even several of them) is a must. Master suites are standard at any premium apartment. Wall heights usually exceed 300 cm. However, it should be remembered that several completely different types of product operate in parallel in this sub-segment. Premium apartments in residential towers may differ significantly from those available in city villas.
A development in this sub-segment offers a wide range of additional services. Its residents can use both a standard reception service and also have access to concierge services, minor repairs, cleaning services, etc. Underground parking spaces are designed to accommodate bigger cars. High-end apartment buildings offer storage spaces for various sports equipment (surfing boards, bicycles, skis). Additional parking spaces for visitors and a driveway for taxis are also frequent. You may also come upon car wash services located at the underground car park. There are extensive common spaces. On-site recreational facilities, such as swimming pools, saunas, fitness rooms and tennis courts, are standard. One can also have business meeting rooms or leisure rooms (mini cinema rooms, etc.)