Hitting new heights

The high yields seen 3 to 4 years ago are now likely to fall to around 5.49 pct for offices in Warsaw and 5.9 pct for the retail sector by the year’s end, according to CBRE’s predictions. This situation has led to a growing trend for ‘secondary transactions’, whereby properties bought earlier at a higher yield are now being sold on again as investors cash in. According to Paweł Welo, director of the investment department of CB RE: “We hear everyday of new properties being put on the market – the long term and dramatic yield compression is leading owners to capitalize on the really low yields. In 2003, yields stood at 9 pct, but now are 6 pct – this represents a big profit for investors.” One example of this is that of Centrum Okęcie, originally acquired by Irish investors Caelum in early 2004 at a yield of around 10 pct and recently sold at a 6 pct yield. Secondary transactions currently amount to about 10 pct of the total invested in Polish properties.

 Another phenomenon becoming increasingly prevalent is that of sale-and-leaseback transactions. With rents finally stabilizing, the market swinging back more in favour of landlords, and developers now more prepared to build on a speculative basis, sale-and-leasebacks are becoming increasingly popular with the owners of properties, as Paweł Welo explains: “At the moment there are many owners looking to enter into this kind of partnership.” According to Michael Atwell of Cushman & Wakefield, “investors are very keen on this sort of deal – they like the security of having a big international tenant and can secure very good finance rates and pricing.”

 Interest rates are another important factor in predicting the volume of future investment transactions in Poland. Paweł Welo of CB RE believes that: “Everything depends now on the European market – if the euro interest rate is increased, then yields will freeze. Everyone will then have to wait for rents to go up again.”

Office yields for prime properties in the major provincial cities are still higher than in Warsaw, but not by much. In Poznań they currently stand at around 8 pct, whilst in Wrocław the yield is about 7 pct and in Kraków 6.5–7 pct, according to the CB RE report. Paweł Welo feels that the office yield in such cities could fall to around 6 pct, but there is not much more room for movement in the Warsaw market where “yields of around 5 pct are not possible because of the interest rate level.”

Low warehouse rents

Whether next year will be yet another record-breaker remains to be seen. Paweł Welo is optimistic about the investment market’s prospects, but adds a cautious note: “There is still room for good investment in Poland. Almost every investor has been successful so far. But because of the low yields, they may need to hold onto properties longer and receive the returns for now, having maybe bought too aggressively earlier.”

      z Nathan North