The era of stability

Good prospects
“The development of the real estate market should be viewed positively, particularly in Poland and the Czech Republic. Funds investing in our region now regard Polish real estate as attractive for two reasons: the market is stable, mature and predictable, with relatively high liquidity; and it guarantees returns on investment at a slightly higher level than, for example, Germany,” comments Ireneusz Stolarski, a legal adviser at the Baker & McKenzie, Krzyżanowski i Wspólnicy law firm. “We are at a very interesting moment in time,” he adds. So far investors have preferred the larger conurbations, with Warsaw at the top of the list. Now they are looking at smaller towns with greater interest and are being particularly drawn to properties that have a strong position on their local markets, in locations that have so far been overlooked by the large institutions that count on a stable and rational return with a high security of investment provided by real estate.

Conservative capital likes security
As well as the more aggressive opportunistic institutional investors, the Polish market is also attractive to the more conservative type of investor: from the Middle and Far East, and Western pension funds, which are only interested in prime assets. They are able to offer the highest prices but only for the best assets on the market offering prime space and excellent tenants. “Some of the more specialised investors have appeared on our market. It cannot be generally said about them that they are interested in any old retail or office properties. They are exclusively interested in the best office and retail,” explains Ireneusz Stolarski. “Poland and the Czech Republic are very positively perceived compared to the rest of the region. Some companies are even opting for increasing their investment in Poland to the detriment of projects in Hungary or Romania,” he insists. The level of security on the Polish market is not a coincidence. It is the result of the maturation and professionalisation of the market. Polish real estate now and a decade ago are two different worlds. The standards that have been established over the years are what have earned us this interest now. Economic and legal stability is also playing a huge role, encouraging investors to become more involved in our country.

Financial returns
After several years of banks turning their noses up at real estate, their return to this sector of the economy is noticeable. The banks are now looking at individual projects with increasing interest. The granting of a loan of more than PLN 900 mln by a consortium of a few banks for the construction of the Warsaw Spire exemplifies their new approach. This does not mean that banks are now going to release an uncontrolled stream of cash onto the market, but it does show that they are more eager to become involved in financing projects. After their experience of the last few years, they now require high levels of collateral, flexible legal instruments, solid budgetary discipline and, of course, suitable leasing levels and capital involvement from the developer. But a number of alternative methods for funding projects have been coming into vogue. Bonds are now a very popular solution, as they allow the developer to be less dependent on financial institutions. They are a good way of obtaining funds quickly. There is one possible drawback to such an approach – you need to find investors interested in your securities. And this varies; but the bond issues that have recently been carried out show that bond buyers are by no means shunning the development market. Those investing in Polish real estate are also not being scared off by the current rather high level of supply. “I do not expect any overheating of the market due to the excessive supply. Vacancy levels of a dozen or so per cent pose no threat to the market or to individual projects. Business plans are now drawn up in such a way that the projects do not lose their liquidity when they are not fully leased. We can talk about a threat when it comes to the owners of less attractive or older facilities. They could have problems leasing such space on a competitive market,” adds Ireneusz Stolarski.