Money to spend, little to buy

According to the latest calculations of the International Real Estate Institute (IREI), in Q1 2014 funds investing on the European real estate market raised USD 10.7 bln. This is quite a substantial amount, considering that they only managed to raise USD 11.2 bln over the whole of last year. Colliers International is also reporting a large influx of investment capital. “New capital for property investment raised in Europe in March 2014 alone amounted to app. EUR 3.2 bln,” reveal the company’s analysts. And the money for property purchases is not only flowing in from the West. Investors from the Far East are becoming bolder in the region. According to a Knight Frank report, investment by Chinese businesses in real estate globally is set to double this year. Apart from the Chinese, investors from Taiwan are also looking for profits outside their domestic market and there is also a large stream of money flowing in from Korea.
The increased influx of cash into the region’s property markets is a result of both the improvement in the economic climate and also the anti-crisis measures implemented over the last few years. The US reaction to the credit crunch was to embark upon quantitative easing. Billions of new dollars were put into circulation, helping to calm the situation and contributing to growth on the global stock exchanges. Some of these funds were bound to end up on the real estate market – it was just a matter of time. “Quantitative easing has undoubtedly helped to encourage investors. The second reason for the growth in investment is the search for the most attractive rates of return compared to, for example, those from bonds in more developed countries. And there is also the ‘investors’ short memory” factor, as they have returned to viewing real estate as attractive assets again,” explains Piotr Mirowski, the director of the CEE investment services group at Colliers International.

A record-breaking year?
The majority of investors and funds are, not surprisingly, interested in prime locations and the largest European markets. The markets that are most in demand are, of course, the UK, Scandinavia, Germany and France, but the return of large amounts of capital is also evident in Spain and Ireland. However, this does not mean that investors have turned their backs on the Polish market and other countries in our region (perhaps with the exception of Russia, where the turnover decreased by nearly two thirds in Q1). On the contrary, the Q1 data shows that we can expect a very successful year. “In Q1 2014 the value of transactions on the investment market in Poland came to almost EUR 900 mln. This means a growth of 50 pct compared to Q1 last year, according to Colliers International. The total value of transactions in Poland over the entire year could reach EUR 3–4 bln, they add. Office properties are enjoying the most popularity (their share in Q1 transactions came to 58 pct in terms of value). Next are retail properties (32 pct) and logistics facilities (10 pct). However, it is worth emphasising the growing interest in the logistics sector. Many transactions in this segment are currently at the due diligence stage. The speculation on the market is that PointPark Properties (P3) is poised to buy the logistics portfolio of Tristan Capital Partners, which includes facilities in Poland, the Czech Republic, Austria and Germany with a total area of 930,000 sqm. Neither of the interested parties is willing to discuss the topic, though.

Funds calling the shots
The biggest deal of the first quarter in Poland was the sale of the Rondo 1 skyscraper in Warsaw. Its previous owner, BlackRock Europe Property Fund II, sold the office tower to two funds managed by Deutsche Asset & Wealth Management for almost EUR 300 mln. “The purchase of Rondo 1 is the largest single investment transaction ever on the Poland office market and one of the biggest transactions in the CEE region. The acquisition provides more evidence that investors are mainly focusing on prime properties and that Warsaw remains the most attractive market in the region. A few other large investment transactions are currently in progress that should be finalised in 2014,” claims Mike Atwell, CBRE’s senior director of CEE capital markets. Thanks to this transaction the total value of assets currently managed by Deutsche Asset & Wealth Management in Poland now amounts to EUR 850 mln. And this is probably not the end of their activity. “We will be looking for further development possibilities in the region while relying on the excellent work of our asset management team so far and its local experience,” reveals Gianluca Muzzi, the real estate director for Europe at Deutsche Asset & Wealth Management. Other veterans of the Polish investment market, including IVG, are also looking at Warsaw. “We are mainly focused on the capital of Poland, which has been and will remain over the next few years the main target for investment in the office segment, particularly for clients of real estate funds that prefer stability and security – such as the pension funds and insurance companies that are eager to invest through us. The Warsaw market is attractive because it fulfils all the core market criteria and remains one of the most liquid European markets after Paris, London and the German markets, and is characterised by relatively easy access to capital and loans,” explains Maciej Zajdel, the president of the board of IVG Poland, whose fund acquired the Chmielna 25 office building in the centre of Warsaw in March. In the second half of the year IVG is to establish a new fund to invest in Polish real estate. It will mainly be making property acquisitions in Warsaw, but probably elsewhere too. “We will be able to discuss the details after the summer holidays when the restructuring of our German company is completed and we have prepared new products,” adds Maciej Zajdel. In other property segments transactions involving funds are also at the forefront. “The retail sector was dominated by the sale of Poznań City Center by TriGranit, Europa Capital and PKP to a consortium of Resolution and the ECE Fund. Two transactions took place on the warehouse real estate market and in both cases the purchaser was the Texan Hillwood fund, which took over Panattoni Park Wrocław and Panattoni Park Błonie I from Standard Life Investments and Panattoni Park Bielsko-Biała from Invesco – as JLL points out in its Q1 report.

Is this a bubble I see before me?
The most active players on the market were the funds that already have properties in Poland: IVG, Griffin, Hillwood, W.P. Carey, GLL Real Estate Partners and RREEF, but more capital for Polish real estate acquisitions is increasingly coming from the East. This was the case with the purchase of Silesia City Center in 2013 and the trend is set to continue. “Some of the funds will support themselves with capital raised in China and Korea. This is money that has not been available to the Polish market before or was present only in limited amounts,” says Piotr Mirowski. An increase in capital earmarked for Polish property acquisitions and the growing competition from new players interested in such investment is pushing up the values of commercial properties. “Fortunately we do not have to worry about a bubble. Investors learned a harsh lesson during the credit crunch and they are infinitely more careful than they were pre-crisis,” insists Piotr Mirowski.
When there’s lots of money around, investors are tempted to spend it, but it turns out that there is a palpable lack of attractive, suitable properties on the market to satisfy investors’ appetites. “There is equity of app. EUR 1.5–2 bln to be spent on retail properties in Poland, but there are simply not enough assets of the right kind for sale in our country to absorb this money,” claims Piotr Kaszyński, the director of capital markets at Cushman & Wakefield. Prime properties disappeared from the market a long time ago and investors now have to resort to looking for opportunities away from the usual locations. This is a chance for regional towns or new projects, but the threat of the real estate market overheating is becoming more and more real. “Investors’ interest in the development of new projects has been obvious for some time. This is a phenomenon I have not witnessed for a few years,” says Grzegorz Pękalski, the president of Libra Project. “So far investors are still being cautious, but even funds have their schedules. It might turn out that at the end of the year, with quite a large financial reserve left, they will start spending the money more freely,” adds Grzegorz Pękalski.

Selected transactions on the real estate investment market in Poland and the CEE region in Q1 2014:

• BlackRock Europe Property Fund II sold Rondo 1 in Warsaw to two funds managed by Deutsche Asset & Wealth Management for EUR 300 mln.
• Funds managed by Resolution Property (Resolution Real Estate Fund IV) and ECE Projektmanagement (the Prime European Shopping Centre Fund) bought Poznań City Center for app. EUR 250 mln. The former owners were Europa Capital, TriGranit Development and Polskie Koleje Państwowe.
• Globalworth acquired Tower Center International in Bucharest for app. EUR 58 mln.
• The ČS Nemovitostní fund bought Qubix 4 Praha – an office building in Visegrád (Prague 4) for app. EUR 34.6 mln. The facility was sold by Austrian company S+B Gruppe.
• Deka Immobilien sold Florenc Office Center in Prague to Czech property fund ZFP Investments for app. EUR 34 mln.
• Griffin Group acquired two Warsaw office buildings: Nordic Park (from Eurozet) and Bliski Office Center (from Castle Carbery Properties). The combined value of the transactions amounted to app. EUR 30 mln.
• Echo Investment finalised the sale of the second stage of Aquarius Business House in Wrocław. The buyer was Skua, which is part of the Azora Europe group, the same company that bought the first stage of the project in 2013. The developer sold the second stage of the project for EUR 22.7 mln.
• Griffin Group bought Company House II, an office building on Al. Jerozolimskie in Warsaw from Axa Real Estate for app. EUR 17 mln.
• Immofinanz Group acquired five buildings (four in Slovakia and one in the Czech Republic), which will include Stop.Shop retail parks. A total of app. EUR 26 mln was invested in the deal.
• Rank Progress signed a preliminary contract to sell the site and the project for the ongoing Galeria Piła project to Immofinanz. The value of the transaction comes to app. EUR 13 mln.
• Polimex-Mostostal signed an agreement to sell its headquarter building on ul. Czackiego in Warsaw to Molina, a subsidiary of PKO TFI. The price was set at app. EUR 7.5 mln.
• BPT Optima sold five commercial properties to Estonian investment company Capital Mill, which represented an anonymous investor. The facilities in question include two Rimi supermarkets in Vilnius, an office building on Ševčenkos street (also in Vilnius), the Barona Centrs mall in Riga and an industrial building on Körgepinge in Tallinn. The terms of the deal have not been disclosed.
• HB Reavis sold three out of five City Business Center office buildings in Bratislava (‘III’, ‘IV’ and ‘V’). The new owner is the Tatra Asset Management property fund. The value of the transaction has not been disclosed.
• Raiffeisen Evolution acquired a 50 pct stake in the five-star Augustine hotel in Malá Strana district, at the foot of Prague castle for an undisclosed sum.
• Upside Property purchased three shopping centres in Poland with a total area of 38,000 sqm from Polimeni International for an undisclosed sum.
• Futureal completed the purchase a 50 pct stake from its joint venture partner Caelum Development in the Nova Park shopping centre in Gorzów Wielkopolski, thus increasing its ownership to 100 pct. The value of the transaction has not been disclosed.