Karolina Kowalska: Is Poland attractive as an investment market?
Neil Gregory-Eaves: Yes, Poland is perceived as an attractive investment market with continued prospects for both short-term and long-term growth. We have seen a new European real estate investment map emerge after the financial crisis which is much less east–west delineated and now more north–south focused.
Mr Gregory-Eaves says a lot of new capital coming into Poland is from Asia
Courtesy of Colliers International
Poland is a beneficiary of this trend and is increasingly being included in most international investors’ focus, together with Germany, France, the UK and the Nordic states. At the same time, yields and capital values in Poland remain quite attractive vis-à-vis these other northern European markets. For example, prime office yields in Germany and the Nordic markets start at below 5 percent, whereas prime office yields in Warsaw are roughly at the 6 percent level.
Which real estate sector is the most attractive in terms of investment?
In recent times, we have seen clearly that dominant retail schemes in major Polish catchments have been attractive. By definition, there are very few of these “trophy” retail assets and many of them have been traded in the past couple of years. Given their trading success and the substantial barriers to entry for potential competing schemes, properties such as Złote Tarasy, Manufaktura and Silesia City Center attracted core capital at benchmark yields.
So far in 2013, high-quality office and logistics properties with longer lease terms have also been successful in attracting capital at benchmark yields, both in Warsaw and in major secondary cities. Core investors are, as usual, focused on property fundamentals but also currently pre-occupied with lease-term duration and are willing to compromise on pricing in exchange for longer-term income security from prime assets.
That said, traditional logistics properties – namely those with shorter lease terms – are also in favor with yields compressing and a number of such transactions in Poland currently underway. Like with retail properties, investor demand comes from both strategic industry buyers, who have teamed up with sovereign wealth or pension fund capital, as well as most investment managers with an allocation for logistics properties.
The recent return to logistics is a wider European trend and not that surprising given that most investors believe in a European recovery, the growth in consumer demand that will follow and the fact that warehousing is viewed as a derivative asset of retail. Another factor in Poland is the growth in e-commerce and the potential for Poland to continue growth in manufacturing and distribution.
There were many spectacular transactions in the retail market this year, including the sale of the Silesia City Center shopping mall for €412 million. This is concrete proof that Poland is attractive for investors isn’t it?
Absolutely. Many of the larger transactions that have taken place or that are currently underway have been equity deals at declining yields, further demonstrating investor confidence in the Polish market.
We’ve observed that average transaction volume is up as there have been fewer deals than in the past but much larger ones. Moreover, the availability of credit in Poland is substantial and growing both with regards to foreign and domestics lenders. Additionally, the pricing of that financing is trending towards that found in other northern European markets.
Even though GDP growth has slowed down recently, the Polish macroeconomic story remains positive. The country has not seen a ratings downgrade like so many other countries in the European Union. Poland remains very competitive in respect to educated labor costs and occupier costs and continues to attract foreign direct investment.
The modernization of infrastructure – largely the motorways, airports and deep seaports – is also having a positive impact as efficiencies are starting to be realized and capacity from other Western European markets shifts eastwards.
Have there been any new players emerging on the investment market in Poland this year? Has our market attracted any new investment funds?
There are a number of new investors active in the Polish market, however they are generally not acquiring assets directly. Many investment managers looking to acquire properties in Poland at present have new sources of capital in segregated accounts and a lot of that new capital is inbound from Asia.
In addition, there are a number of new German investors considering entry into Poland directly as are a handful of insurance companies and pension funds. We are also seeing a number of new domestic investors become active although their interest is focused on smaller assets.
How much money are investment funds ready to spend in the Polish real estate market this year?
We expect investment volumes in Poland to total between €3.0 to 3.5 billion in 2013. Notwithstanding the very recent political and fiscal problems in the United States, we see strong momentum in the Polish investment market with all planned closings on track, but some deals always get pushed into the next year, largely due to administrative or regulatory reasons. Of course, there is substantially more capital available than what is being invested and the challenge is mostly a lack of opportunities.
How does the Polish real estate market look like when compared with other markets?
Poland is an increasingly important market from a European perspective. In 2012, Polish investment volumes approached 10 percent of cross border, continental European investment volumes (excluding Russia). In comparison, the Nordic countries combined registered 2012 volume represented approximately 14 percent of total activity. We can’t forget that Poland accounts for just 3 percent of overall EU GDP. From a CEE perspective (excluding Russia), the Polish market dominates the region and accounted for approximately 65 percent of total volume last year.
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