After the first million – a property magnate?

In the wealth stakes, Poland still lags some way behind the most affluent European countries. “Polish affluence levels are considerably lower than those of the Western Europeans or the Scandinavians. In 2014 the average value of assets per capita amounted to USD 22,200 in Poland whereas in Norway it was as much as USD 268,000, in France it was USD 241,000 and in Germany USD 174,000. Also the number of HNWI
(high net worth individuals), those with liquid assets of a minimum of USD 1 mln, is considerably lower in Poland. So it is no surprise that the average expenditure on luxury goods in Western European countries is many times higher than Polish expenditure. The average French person spends twelve times on luxury clothing, 18 times more on luxury jewellery and 15 times more on luxury watches than the average Pole does,” remarks Andrzej
Marczak, a partner at KPMG in Poland and one of the authors of the ‘Luxury Goods Market in Poland 2014’ report. However, Poles have been constantly increasing the value of their assets, so that the number of affluent citizens (with an average monthly gross income of more than PLN 7,100) is set to exceed a million in 2016. In 2017 their total income could surpass PLN 200 bln. HNWI also constitute an interesting group. They are the potential investors and buyers of luxury goods. According to the report, last year 47,000 of them lived in Poland. “In recent years (2008–2014) the rate of growth in the assets of the average Pole was 4.6 pct, whereas in the majority of western countries the rate of increase was slower: 3 pct in Germany, 2.8 pct in France and 1.3 pct in Italy. The growth in Poles’ assets will translate into a growth in their expenditure on luxury goods. We expect that the luxury goods market in Poland will grow at a considerably quicker pace compared to its equivalents in Western Europe,” says Tomasz Wiśniewski, a partner of KPMG in Poland. In 2014 the value of the luxury goods market grew to PLN 12.6 bln (15 pct more than a year ago). KPMG’s
forecasts and those of Euromonitor International indicate that by 2017 the figure could reach as much as PLN 14 bln – 11 pct more than 2014. The experts expect that some of this money will be absorbed by the real estate market, mainly for exclusive residential properties but there are also expected to be more guests in luxury hotels. The number of private investors spending their own money on office building purchases is also growing.

The rich like apartments

Market analysts have been aware of the growth trend in the number of affluent Poles for some time. This has led to the launch of Sotheby’s International Realty brand in Poland, which has come about through cooperation with Noble Bank.
Its managing directors in Poland – Arkadiusz Wojciechowski and Piotr Śliwka – reveal that they are hoping for rapid expansion in Poland. “The conditions are ideal. The number of wealthy people expecting top customer service standards and a selection of the best residential properties has been growing. And we have all this,” claims Arkadiusz Wojciechowski. His words seem to confirm the findings of KPMG’s report: in 2014 the value of the luxury real estate market increased by PLN 200 mln compared to 2013 and is currently worth PLN 1.1 bln. The rich (who earn more than PLN 20,000 per month) buy properties every four to ten years. Who buys them and what for? “Our clients usually invest in two ways. Some of them allocate their excess money to the purchases of residential properties as investments. Another group includes those who collect ‘pearls for their necklaces’,” argues Piotr Śliwka. They both agree that the luxury goods market is growing and the numbers of wealthy people will increase. The company is set to benefit from this because it offers the most exclusive locations in Poland and abroad. The most expensive apartment Sotheby’s has in its offer would fetch you PLN 25 mln – a 700m luxury apartment in the Angel Wawel project in Kraków. This comes to more than PLN 35,700 per sqm. Is this exorbitant? “The average Pole with a gross monthly salary of PLN 7,100–10,000 is prepared, for one sqm of luxury in a finished apartment in a large Polish city, to pay upwards of PLN 14,100. For those who earn PLN 10,000–20,000, they will start from PLN 16,000, while for people who earn more than PLN 20,000 the threshold begins at PLN 17,000,” explains Andrzej Marczak of KPMG. However, the price is not the determining factor. “Poles put more emphasis on the prestige of the location or its history. The second important factor is the quality of the materials used and the finishing,” say the representatives of Sotheby’s International Realty in Poland. “Wealthy and rich people are rejecting the mass produced in favour of the unique – products that are not available to the average buyer and are tailor-made. According to KPMG’s report, wealthy people are first of all pragmatists, who often treat the purchase of a luxury product as an investment. Due to this Poles’ interest in luxury residential projects will continue to grow as they become more aware of the fact that values will increase more and more as time goes by. Sotheby’s entry into Poland shows that this market has a considerable potential,” points out Tomasz Wiśniewski of KPMG. “We have been seeing a growth in the demand for luxury real estate for a few months. In the Rezydencja Piasek project in Wrocław, where prices for the smallest apartments start at more than PLN 900,000 and a more expensive one costs almost PLN 2.4 mln, nearly half of the apartments have been sold in spite of the fact that it has been on the market for under a year. The speed at which the buyers are being found represents a great success for such an exclusive project, because selling top shelf apartments usually takes a few years. Our clients so far are affluent people from Poland, many are entrepreneurs who are buying an apartment for themselves or for their children. One of the apartments was purchased by a client who also has properties in other cities, including London, New York and Dubai. Some buyers combine the apartment purchase with subsequent plans to rent them out,” remarks Bartosz Sanecki of Rezydencja Piasek’s developer Jot-Be Nieruchomości and the sales manager of the project,.

Shopping for office buildings

Another effect of Poles’ increasing affluence is the growth in the money they can spend in purchases of commercial properties. The first such transaction took place on the Polish market last year when closed investment fund Reino Dywidenda FIZ acquired an office building in the Kapelanka 42 complex in Kraków. The property changed hands for EUR 29 mln – money raised from rich individual investors and private banking clients, among others. “We can see a lot of interest in similar transactions from wealthy people. Many factors are contributing to this. In particular the low interest rates, which are encouraging people to look for interesting alternatives to deposits. But there are also the disappointing returns from independent investment in apartments and commercial premises. Our funds make it possible to invest in an institutional product on a greater scale. This is an attractive offer that generates annual dividends to investors and is a kind of bond based on properties that generates a stable income,” says Radosław Świątkowski, a partner and president of Reino Partners. When it comes to the products offered by Reino Partners, the minimal contribution of an individual investor is EUR 50,000. “We believe that new classes of assets, real estate in particular, represent an opportunity and the future of private banking in Poland. What has been available to investors has been exhausted by the current growth potential. No client will now invest the majority of their assets in shares or bonds. Of course, funds with Polish private capital will not make up a significant slice of the total value of the commercial property market for a long time yet to come. But the potential is substantial: cash and deposits amount to more than PLN 700 bln and the income of affluent and rich Poles will exceed PLN 200 bln in the next three years. We also know the estimates of pensions from the current system in 20–30 years’ time. And properties that generate a stable income are an ideal investment for a private pension,” declares Radosław Świątkowski.

Luxury on holiday

KPMG’s report also indicates that the owners of top-shelf hotels could benefit from the burgeoning wealth of such individuals. As the affluence level grows, their requirements change. The quality and the brand start to play a more important role – and the price moves more into the background. KPMG’s analysts point to this as one of the growth factors in the value of luxury hotel services market. In 2014 this reached the level of PLN 1.3 bln and for five-star hotels (which are considered to be luxury in Poland) the total value increased by 15 pct in the same period. The occupancy level in these hotels was around the 66 pct mark (2013 data). There has also been the development of spa & wellness services on top of this. “Top shelf hotels will be enjoying much greater interest in Poland. As Poles become richer, their expectations also increase. During their stay in a hotel, wealthy people expect to be able to relax in unique interiors created by famous designers, featuring works of art or interesting architectural elements. Rich Poles, who travel a lot on business, will expect the service to be of a similar level to hotels in Western Europe,” explains Tomasz Wiśniewski. However, Dorota Malinowska, a partner at Pro Value, claims that Poland is still too small a market for luxury hotels. “Taking into account the construction costs of such a project, the average price per room in an exclusive hotel should be in the EUR 180–250 per night range, but in the most expensive Polish locations is only at around EUR 100–120. We are talking about the average price that the hotel actually gets, rather than the price offered. Even in Warsaw it is very difficult to develop a luxury hotel project that would generate a satisfying rate of return,” says Dorota Malinowska. One hotel that could be classified in the luxury bracket in the capital is the Bristol - Luxury Collection Hotel on Krakowskie Przedmieście. The most exclusive hotel in Poland, under the Raffles Hotel & Resort brand, is to be built in its immediate neighbourhood. This will be the redeveloped Europejski hotel. The luxury Prudential hotel is also to be built, on the site of the former Warszawa hotel. So we can see that only a small number of five-star hotels offer genuine luxury. “I would not recommend that investors put their funds into other five-star developments, especially luxury projects in the capital city. I consider four-star hotels to provide a better opportunity for good business. (...) We still need to wait for luxury in the proper sense of the word,” says Dorota Malinowska.

Expensive brands in Paris or... in an outlet

“Considerable growth can also be expected in the clothing and accessories market, or in the market for jewellery and watches. These luxury goods serve a special role because they endow their buyers with a sense of uniqueness, allowing them to stand out from the crowd and exhibit their personalities. The availability of global brands in this sector becomes wider every year, which means that producers also appreciate the potential of this kind of market in our country,” says Andrzej Marczak. Perhaps this represents an opportunity for the Polish retail market because so far there has been no significant interest from top shelf brands in opening their own-brand stores in Poland. Louis Vuitton, which has launched itself directly onto the market with a department store in Warsaw, is an exception. “The luxury sector in Poland is developing and will continue to develop. However, the process is subject to many limitations. It is necessary to abandon the traditional attitude that this segment should be made up exclusively of brands from Western Europe or from across the ocean. For such brands Poland is in fact too small a market to develop in any significant way and to ensure standards are maintained on an ongoing basis. Allowing franchisees the freedom to form their own collections could considerably distort the perception of the brand on such a market. The proximity of more mature markets (Germany, France and the UK) means that they are more intuitive shopping destinations for the still limited target group in our country. However, I can see great opportunities for the development of luxury brands of a domestic origin. (...) Some have become global brands (Eva Minge, Agnieszka Maciejak) but they fit into the trend even without this classification. Polish designers are increasingly tailoring their concepts for high streets – for example on ul. Mokotowska in Warsaw – or for selective shopping centres. Obviously, they are subject to the same restrictions as global brands, such as the lack of a policy from the city for high street development. Nevertheless, the number and the clear potential of Polish luxury brands has been remarkable,” believes Agnieszka Mielcarz, the head of retail asset management at Knight Frank. However, Dawid Rutkowski, the head of the asset management retail department at Peakside Polonia Management, which owns Fashion House Outlet Center Warszawa in Piasezcno, says that exclusive brands are now available via the internet on the sites of international brands as well as in boutiques abroad for travellers. These have been making up a greater proportion of the tenants of outlet centres. “We have been seeing such demand in our outlets, particularly in Piaseczno, which also serves the Warsaw market. We have been gradually extending our luxury brand offer because this is what customers want just as much as brand owners and they are the ones who know their development potential best. Brands that already have stores in the centreinclude Hugo Boss, Furla, Pinko and Trussardi – and this year they are to be joined by a few more,” says Dawid Rutkowski.In the spring, the US fashion designer Michael Kors will open a 314 sqm boutique there. ν

Dorota Tobiasz, real estate investment director, Sun & Snow

Condohotels are also an investment

Afew years ago Poles started a never-ending love affair with holiday apartments. We are keen to invest in them and equally as eager to relax in them. The ‘second home’ concept came to Poland from abroad and found a lot of local enthusiasts. Buyers interested in holiday apartments include those who are consciously investing, who are looking for opportunities and profit and treat such properties as another product in their investment portfolio. Apartment buyers also include people who are looking for an alternative to deposits and who are thinking about their futures – their pensions. Purchases are financed through their own funds and partly by loans. They treat the purchase of an apartment as an investment for the future and a chance for a higher return on an investment than those currently available in bank accounts. The third group of buyers combine business with pleasure. They buy a holiday apartment for their own use but they are also interested in the option of leasing it and making money. The latter group can buy apartments in the mountains or at the seaside. Personal preferences are of key importance for them – and in spite of the fact that the price of luxury accommodation is still important, it is often of secondary importance to them. Investors perceive the location differently and they choose those that guarantee the best profitability. The building should have a good layout, or is situated near the beach, the town centre or has a view onto the mountains.