It’s the economy, stupid

– but it seems on the evidence so far that 2006 is going to surpass this amount

a consolidation of the retail sector: in Poland, the top  Mind the gap

6 pct and the cost of borrowing at 3.6 pct and likely to climb further in the wake of a series of increases in US interest rates, economists are predicting further small upward adjustments in eurozone rates this year – and it is these that are important as major acquisitions and leasing deals in Poland are always made out in euros or else are euro-linked. Taking into consideration the fact that acquisitions are generally 70-80 pct financed from loans, the reduction in the premium between yields and interest rates will have a significant impact on what investors are willing to pay.

a whole percentage point higher, at 7 pct compared to 6 pct in the capital. But for the really high yields, the risk-loving type of investor may start looking outside Poland, to soon-to-be EU countries such as Bulgaria and Romania (due to join the EU in 2007), which have a lot of potential for development and where the expertise and knowledge gained from operating on the Polish market can be applied once more in countries at the same stage Poland was a few years back.

 Another consequence of the narrowing of the yield gap, is that there is likely to be a move away from pure investment towards development and joint ventures, which have the advantage that land and properties can be bought off-market and more cheaply. Already this year Irish investor Caelum (see pp. 26 and 27) has announced such an intention, and various joint ventures have been formed for the Polish operations of international companies, such as Quinlan Private Golub and Pirelli Pekao Development, with typically one party dealing with the financial aspects, and the other concentrating on the developmental side.

So where now for yields? Are they going to continue to fall, or are there already signs that the massive yield compression of last year (down from around 8 pct to around One last issue concerning the state of the investment market that has been subject of many column inches in the business media, is the impact of the new government, with their threats to end the Polish central bank’s independence and limit Sunday trading and the number of large shopping centres. The former would result in Poland being ineligible for eventual entry into the eurozone. A serious weakening of the złoty would not harm landlords, but tenants instead would bear the cost. Michael Atwell of Cushman & Wakefield feels that: “Investors are not influenced or worried about the political situation – they look more at the economic factors: the GDP, the increase in salaries, take up. They don’t see the political situation as Nathan North