Towards consolidation

The participants of our roundtable discussion:

Monika Rajska-Wolińska

As managing partner for Poland she is responsible for the strategic and operational activities of the company. She joined Colliers International Poland in 1999. Before joining Colliers she was with Knight Frank (a broker in the office department) and Cushman & Wakefield (property
manager), among others.

Malgorzata Żółtowska

The head of valuations and COO for the CEE region at JLL. Her responsibilities include managing the company’s increase in effectiveness in the region and the supervision of areas such as HR, marketing and corporate social responsibility.

Daniel Bienias

Managing director of CBRE Poland since August 6th, 2015. He has been with the company for five years. Before joining CBRE he was employed by CA Immo as the head of the marketing and lease department.

Michał Ćwikliński

As managing director and head of the investment department at Savills Poland, Michał is responsible for the supervision of teams of consultants and sales and purchase transactions of investment real estate on behalf of clients. Before joining Savills in 2010 he worked with King Sturge Poland.

Izabela Potrykus-Czachowicz

As regional director/partner, Izabela manages the landlord representation department at Knight Frank. She supervises the work of the commercial agency in Warsaw, Poznań and the TriCity in landlord representation. She is also responsible for the operational cooperation with investment funds and the commercialisation and re-commercialisation of space.

Renata Kusznierska

The head of retail in Poland and the CEE region at DTZ. She has spent nine years at DTZ, where she was the head of DTZ’s retail space team until 2009. In 2009–2012, Renata performed a variety of roles on the board of directors of Carrefour Property Poland, including director of property and director of assets and development.

Charles Taylor

The managing partner of Cushman & Wakefield Poland. Before taking up the position in July 2013, he had been managing C&W’s office in Budapest for 15 years, where he was also responsible for coordinating the capital markets team across Central Europe. Previously he was responsible for the retail agency in Central London.

Tomasz Szpyt, ‘Eurobuild CEE’: What role do real estate agents play in the current real estate market? Where are the changes in an agency market undergoing consolidation heading? Which departments will agencies be opening and which will they be closing?

Monika Rajska-Wolińska, managing partner, Colliers International: I would like everyone to stop calling us agents and our companies agencies. It has been like this for a very long time, but the range of services we offer far exceeds those offered by a typical agency. I am not very keen on this label because I think our employees are not only agents but also proper consultants. The market expects services from us that go far beyond those of a traditional agency.

Małgorzata Żółtowska, CEE head of valuation and COO, JLL: I agree. I guess calling us agencies was justifiable 10 or 15 years ago. Nowadays our role has changed from being agents to being consultants.

Daniel Bienias, managing director, CBRE Poland: Transactional business will remain the core of our services, but they are now much wider than that. We offer several other service lines, in close cooperation with each other, in order to provide our clients with real value. People have almost unlimited access to information and clients’ awareness and requirements are growing. You cannot be effective being just an agent – this is a thing of the past.

Michał Ćwikliński, managing director, investment department, Savills Poland: Polish people do not have good associations with the word ‘agent’. This is not the case in the UK, where even when talking about property management one can use the term ‘managing
agency’, instead of ‘property managers’. In Germany they use the term ‘broker’. Agency operations, however, comprise only a part of our business; say around 40–50 pct of the turnover. Property management, valuations and consulting are not agency operations.

Agata Kłapeć: ‘Eurobuild CEE’: But in the past only the big consulting companies, i.e. the ‘Big Four’, used to be called consultants...

Daniel Bienias: Unlike those companies we offer highly specialised services and operate only in the real estate sector. The ‘Big Four’, on the other hand, operate across various sectors. Moreover, not all of them offer typical agency services...

Monika Rajska-Wolińska: Some of them do and are having a go at it, which can be seen in the US and Canada in particular.

Daniel Bienias: We must bring a great deal of added value to our activities and we are becoming comprehensive consultants representing parties in transactions. The amount of work we have to do is massive and the industry is not as profitable as it might seem when you take a look from the outside. It seems that soon the market is going to undergo a revolution...

Tomasz Szpyt: What will this revolution be about?

Daniel Bienias: For instance, the real estate services sector may continue to consolidate.

Michał Ćwikliński: The consolidation is already in progress. In the UK Deloitte took over the real estate consulting agency Drivers Jonas a few years back.

Izabela Potrykus-Czachowicz, regional director/partner in charge of landlord representation department, Knight Frank: I get the impression that you are trying to tell us that the ‘Big Four’ are looking for a better analysis...

Daniel Bienias: They are looking for income and the transactional real estate market seems very attractive to them. And this is hardly surprising because it is one the most lucrative service lines in our sector, even though the margins are continuing to fall due to the fierce competition and the expansion of the service range. It would be worth considering, however, how to defend ourselves in a situation when the ‘Big Four’ are beginning to fill our shoes...

Małgorzata Żółtowska: Personally, I would think twice before saying it is necessary to defend ourselves. It is the natural course of things that both they and we are looking for new areas. We are looking for niche markets and are adding new areas to our offer. We are entering the fields of working environmental analysis, the planning, complete execution and arrangement of offices and
FM services. We are expanding our strategic consulting. Naturally, there is always the first one to take the step, but as soon as it turns out that the demand exists for such a product, others will follow. Everyone is looking for an extra source of income.

Daniel Bienias: It is obvious that it is impossible to shut them out of our business, but we have more experience and knowledge of the area, and they will only be able to begin to gather the information.

Małgorzata Żółtowska: Certainly, and they do not act purely as brokers. In terms of knowledge and range of services they will lag behind our current offer. They will be our competition, but will they be the biggest competition for us...?

Daniel Bienias: Certainly not, but I often see that they are using the data gained from us, so perhaps we should consider how, what and with whom we should be sharing it. Or whether we should even share our data at all?

Małgorzata Żółtowska: We have already started taking a closer look at who can gain access to our information – and potential competitors have limited access to the data.

Monika Rajska-Wolińska: We have just addressed the issue of respect and the perception of what we are doing. There is the common notion that the agent, and particularly those selling apartments, gets money for nothing. I do not know if this is only the case on the Polish market, but I have noticed that some companies do not realise how significant the quality, the quantity and the importance of the services is that we provide. Our activities include not only transactions, but also consulting on the organisation and operations of enterprises. These days our clients, who happen to be tenants, expect from us thorough knowledge of their sector and professional evaluation going far beyond our scope, e.g. in
terms of introducing changes in their companies. We are addressing here the issue of the organisational culture and communication strategy of their brand. We should talk together more often in order to promote the Polish market. And unfortunately we are not doing it together. We held the first constructive meeting this year and set up the Polish Office Research Forum; we appeared at MIPIM together, but we need to take one step further. Perhaps we should start educating clients that we not only deal with transactions, but also offer more sophisticated services. We should also take note of one more thing: many developers, and in every sector, are building their own commercialising teams. That should give us food for thought. People are beginning to avoid consultants and developers are becoming less willing to commission their projects to us. Well, they will only do this if it is a very difficult investment, the job is almost impossible to do or the fee is very low.

Renata Kusznierska, head of retail in Poland and the CEE region, DTZ: Developers often take on a consultant if faced with huge problems. It is only then that it occurs to them that it might be a good idea to have an agent. However, this is often too late because the building is under construction and is not being successfully leased. One should talk to a consultant when devising the project, not when a non-functional building is almost completed and potential tenants are avoiding it like the plague. There are a few buildings in Poland that have been completed and are still unleased.

Małgorzata Żółtowska: I think that is only the case with inexperienced developers. The experienced ones do not carry out projects that fail to attract tenants. Of course, they might experience temporary problems. I would therefore disagree there is no respect for agents. This is not happening. There is obviously competition and price competition, but it seems to me that clients still highly value full professionalism. Sometimes, when doing a single short-term project, you can get the impression that there is no respect, but a client who receives a consulting service of a high level usually, in the long run, returns to the same consultant with new commissions. Then 5 to 10 pct fluctuations in rates are not that important. I think that the quality of our services is more important. I totally agree that we should do something that would help to promote us and, at the same time, place special emphasis on our professionalism.

Daniel Bienias: I noticed that the market has expanded significantly in the last five years I have been with CBRE. The market in regional cities, especially in the office sector, has opened up a great deal. I agree that we should cooperate as an industry. It is essential to discuss the approach needed. It is only through a joint effort that we will be able to build up the professional image we are looking to achieve. This will be a process, but this dialogue should start as soon as possible.

Michał Ćwikliński: I can’t say I agree. I think we already speak the same language...

Daniel Bienias: We speak the same language, but when we come together the discussion doesn’t go at all smoothly. If two or three companies come together it is easier, but it would be a good idea to get together in a forum and decide on the principles we are going to apply once and for all. Recently such principles have been introduced by the Research Forum and it seems they are being followed. We should adopt a similar approach for other service lines and lay down principles or adapt already existing ones. We are competing against competence, we are competing against experience. Let us be smart when dealing with clients, but – at the same time – let us keep a strong backbone, like we do during valuations.

Małgorzata Żółtowska: I look at the market and the consulting company’s job from the point of view of valuations and I get the impression that there is no conflict or particularly impolite conduct. On the other hand, I can see that professionalism, reliability and other ethical principles are well-rooted and very often emphasised. As part of my new responsibilities in the company I can see that this also applies to other departments or business lines. I think ethical principles are observed. It needs to be borne in mind that unethical activities damage business for all consulting companies and tarnish the image of consultants. I don’t think the situation is that bad. As long as we keep a strong moral backbone, it isn’t necessary to meet and set up guidelines.

Daniel Bienias: I did not say the situation was bad or dramatic, I only said there only needs to be a few very simple principles that we adhere to. Let me give you a very simple example. We’ve already said that developers are building their teams up, but we also have to point out that we have helped them to do so. Instead of them calling the agent representing the developer, we called the developer directly. One simple procedure is all that is needed here: to get in touch with the representative of the developer.

Izabela Potrykus-Czachowicz: The market is becoming more and more competitive and we have to accept that. We are partly to blame for the fact that our profession is becoming more and more demanding. Today the agent’s role, apart from arranging meetings between the tenant and the landlord, involves the full spectrum of consulting services. We have allowed many developers to benefit from the knowledge we have acquired while extensively monitoring the market. This has led to a situation in which the majority of them are developing their projects on their own, without our help. Developers are creating their own departments where the scope of activities may overlap with that of agencies, but not always with that of consulting companies.

Michał Ćwikliński: We need to note, however, that our clients are not only developers. Investment funds are holding more and more assets, and they do not always have local teams and still need our services, even to a greater extent than developers, who seem to wish to have everything within or near their companies. I can understand that.

Malgorzata Żółtowska: Perhaps this is related to cost control, which might be the result of the financial crisis. Perhaps it turned out that it was cheaper to have your own team than pay the agent. On the other hand, I do not regard developer’s teams as a big threat. In fact, some agents, who have a great deal of knowledge, join those teams; but by losing their connection with the consulting business, they quickly lose the source of their knowledge too...

Monika Rajska-Wolińska: But we have to note the percentage of transactions carried out directly by developers earlier this year. Over 33 pct for offices, and still growing, and around 69 pct for warehouses.

Charles Taylor, managing partner, Cushman & Wakefield, Poland: Without a doubt, developers’ internal teams have sliced off a large share of the leasing market for themselves. This can be seen on the retail, office and industrial markets, where the competition is often strong between agents’ and developers’ teams. However, agencies often have much wider access to market information than internal teams and so they will be able to add value to the leasing process and keep their market share. The competition from large consulting companies is also a challenge – particularly for valuation and advisory services but less so on the transactional side. If we look at what is driving the consolidation process, we can see that it is mostly the requirements of corporate clients, who expect global reach and a broad, full spectrum of related services. You do not necessarily have to be the best in each market, but you do need to have global coverage and a broad range of services – not only in terms of transactions but also advisory, and offer deep local knowledge.

Michał Ćwikliński: All the agencies in Poland offer office, trade, warehouse, transactional and other services, but not many focus on residential, farmland or hotel consulting. We are still in the early stages of our development here.

Daniel Bienias: I think this is a good sign for us because there are still areas for us to develop and expand into.

Małgorzata Żółtowska: We have become interested in farmland turnover because here we can see great potential for development and a source of income in the future. We are investigating other areas and still looking for potential niches. Naturally, how much we can spend on the expansion of the range of our services and what can become a source of potential income in those areas are separate issues.

Agata Kłapeć: Which market segments are currently the most attractive in terms of financing? Which ones will become more and which ones less attractive in the near future?

Charles Taylor: Capital markets is undoubtedly the most attractive at this time.

Michał Ćwikliński: This sector works well on a good day but bear in mind that the market may not always grow. We all remember 2009. In Poland we achieved a turnover of a few hundred million euros, whereas in Hungary, for instance, they carried out one or two transactions. This cannot have been profitable in any case.

Charles Taylor: Of course, but real estate turnover is a very attractive source of revenue for agencies in terms of the value of individual transactions and the size of transactions. However, the trick is to have each business line generating profit in a sustainable manner despite changing market conditions and cycles.

Tomasz Szpyt: Is property management profitable? A few years ago many consultancies started intensive expansion of that area of their business. How profitable are the other areas?

Charles Taylor: Yes, but it has a completely different scale and character of services. It also needs to interact with the agency services in order to deliver solutions to clients.

Michał Ćwikliński: Margins are low here, but we can count on steady incomes, even in times of crisis. The same applies to valuations, which even on a bad day bring relatively steady incomes and make it possible to maintain cash flow.

Małgorzata Żółtowska: Absolutely, property management is a very profitable activity in a growing market, which as a result increases the demand for land. Our departments operating in this sector are noting very good results, similar to valuations. The warehouse and office markets also look very good.

Michał Ćwikliński: I have to point out that the rates of valuations have plummeted...

Małgorzata Żółtowska: I can’t agree. This had been a problem until early 2014. However, I have noticed a significant improvement since the last quarter of 2014.

Michał Ćwikliński: Perhaps the higher rates are the result of the more complex services offered as part of valuations?

Małgorzata Żółtowska: Yes and no. If you look at global clients, you’ll see that the competition is very fierce, but they are not developing many projects in Central and Eastern Europe. However, we focus on cooperation with clients actively operating in our region and I have noticed an increase in the rates.

Monika Rajska-Wolińska: This is good news.

Małgorzata Żółtowska: I think that similar to the formation of leasing teams by developers, we are to blame for the decrease in the valuation rates. We accepted orders regardless of whether they were profitable for us or not. We only had the signing of the next contract in mind.

Agata Kłapeć: Which segments are going to lose out in the near future?

Renata Kusznierska: We should think of retail and the impact of the internet commerce upon it, particularly in terms of valuations of commercial property. Tenants are increasingly treating their shops as display areas while the real turnover takes place online. This is how the owners of retail properties are being deprived of their share in the tenant’s turnover. We should pay more attention to this fact because it is a growing phenomenon. Recently I have been talking to a few tenants who complained about the fall in turnover in shops located in shopping centres, but, at the same time, their online turnover has increased by over 1,000 pct. The real estate industry is building substantial infrastructure for retailers, but, at the same time, it does not realise what the tenants’ turnover looks like in real life and so does not take any share in the profits at all. Some supermarkets do not register their internet sales even if they sell products displayed on the shelves in their online shop. They simply use their stores to boost online sales.

Malgorzata Żółtowska: Developers have to adapt somehow to the changes and shopping centres should expand their offer, not only in terms of retail. Change is the only constant thing and we should work out methods of coping with a constantly evolving environment. This applies to all areas of the real estate market.

Charles Taylor: The changes taking place are significant for us and for the entire sector. It is important how they are affecting the warehouse market, the supply chain as well as the size and functions of retail facilities. All of this has great significance for the real estate market, but not only that. New projects will be different. The market is expected to move towards smaller convenience centres and we are likely to see a move away from large hypermarkets. High streets might get their chance to be successful. But we need to appreciate that the changes are as good for us as for the sector. If occupiers are not satisfied with their existing building as their needs have changed, then moving premises is an opportunity for us.

Daniel Bienias: We have to do a great deal of research, especially in the retail sector, to find new methods of consulting with our clients.

Renata Kusznierska: Don’t forget that we are creating trends, too. The way we are consulting with our clients affects the image of the market. We should take a look at ourselves and continue to improve our services.

Monika Rajska-Wolińska: This discussion shows that there are challenges in this market and that means there is a demand for consultants. We should focus on the thorough research and analysis of projects and the needs of our clients and tenants.

Agata Kłapeć: What about warehousing? Will this sector continue to be attractive?

Renata Kusznierska: As e-commerce grows, retailers will more frequently store their goods in warehouses instead of stocking them in shops. This is already happening and it will intensify.

Charles Taylor: More and more research is taking place before new warehouse projects are built. The need for tailored consultancy services is obvious. What is good for one company does not have to be the same for another.

Małgorzata Żółtowska: This is what I have been stressing. Comprehensive consulting is the key to success.

Tomasz Szpyt: Will the real estate market continue to record good results – or have there been any signs of a slowdown yet?

Małgorzata Żółtowska: I do not think that we will face any particular slowdown in this segment this year or the next. If, however, we look at what is happening with the price of gold, oil or bonds, we could expect there to be a slowdown in real estate, too. Nevertheless, it is hard to tell whether or when this will happen.

Daniel Bienias: Don’t forget that we are currently living in an environment of very low interest rates. One day they will go up.

Michał Ćwikliński: So much has been happening in the real estate market that this year we could witness another record. For me it has been the busiest summer ever.

Charles Taylor: This is a very active sector in Poland and at the global level. We can expect there to be a slowdown in due course, but this is probably several years away right now. But the near future looks very good.

Agata Kłapeć: Where would you put Poland in terms of what is happening in other European countries?

Michal Ćwikliński: Poland has become a western market. This is not Eastern Europe any more.

Małgorzata Żółtowska: Poland has definitely been a leader in our region for years. Although markets such as Romania and Serbia are attractive for investors, in terms of scale they cannot be compared to Poland. Warsaw is the place where you have to have a presence, both at the regional and European level.

Charles Taylor: The Polish market has matured a great deal over the last few years and this has been noted by investors, who are increasingly eager to involve themselves in schemes in regional cities, having previously been confined to Warsaw.

Tomasz Szpyt: Are consulting firms going to open new offices in regional cities?

Charles Taylor: We already have our offices in Kraków, Gdańsk, Wrocław and Katowice and are now considering a number of other cities. However, the issue is not as simple as it might look. The main challenge is finding the right person to put in charge of such an office. Consultants in regional cities do not have the same experience as those based in Warsaw.

Daniel Bienias: Apart from Warsaw for us the basic cities are the TriCity, Kraków, Wrocław and Poznań. We are considering other cities, but they don’t have sufficient resources of real estate.

Tomasz Szpyt: And what about Łódź?

Daniel Bienias: For the time being we are planning to service Łódź from Warsaw.

Monika Rajska-Wolińska: We have a branch office in Łódź. The real estate market in this city looks promising.

Tomasz Szpyt: And when it comes to the ethical or unethical actions of agents… which is more profitable?

Małgorzata Żółtowska: Undoubtedly, only ethical conduct in business brings profits in the long run. In the short run it can be different, but such activities are quickly eliminated by the market. Obviously conflicts of interests often occur in this sector. We have to be aware of that and be able to manage conflict. Professionalism will always protect itself.

Daniel Bienias: I’d add to that that our clients are perfectly aware that sometimes we are forced to act in a conflict of interests. But a high level of professionalism and the adoption of standards make it possible for us to cope with the situation in the best way.

Michał Ćwikliński: In the UK, the RICS is the watchdog for standards. It also sets the models for ethical conduct. Consulting companies operating in Poland are now adopting those models in their activities.

Izabela Potrykus-Czachowicz: We are operating according to global standards, which enable ethical management and the resolution of potential conflicts of interests. Knight Frank was the first real estate consulting company in Poland to obtain an RICS certificate.

Monika Rajska-Wolińska: In every industry there are rules you follow. Real estate is no exception. Of course, we operate in a pretty competitive environment, but Poland is no longer an emerging market. In the last twenty years we have worked out certain modes of conduct and they work in practice.

Charles Taylor: This is not an issue on the Polish market. The fact that investors view Poland as a core market is confirmation that the right modes of conduct have been adopted here.

Tomasz Szpyt: What are your plans for development for the next year or two?

Izabela Potrykus-Czachowicz: Knight Frank is present in Poland and the six most important regional cities in the country. Our development is steady. We are constantly recruiting new specialists for different departments. It is the people that create a company and for this reason the choice of suitable team members is so crucial. Our youngest baby – or babies – are the retail asset management and retail agency departments. Shopping centres require constant changes and adaptation to current market needs. Therefore we consult the property owners on the modernisation and revitalisation of a project, to make it a good investment. Our offer is also addressed to investors developing new buildings, whom we can support in the preparation for the opening of a shopping centre, among other things.

Michał Ćwikliński: I think entering the transaction segment might be an opportunity for growth. It is a big market with big opportunities.

Daniel Bienias: We have been growing constantly for a number of years. We are currently thinking of introducing a few new service lines addressed to the needs of our clients and a changing market, although it is too early to provide any details. We are working on the synergy between our departments and improving the competence of our teams, in order to make all the actions we undertake highly effective and of the highest quality for the end user. This is very important for us.

Małgorzata Żółtowska: We will continue with a model of conduct that has been proven and tested. I do not think there will be any changes in this respect.

Monika Rajska-Wolińska: In recent years we have been growing very rapidly. I think that in the near future we will place greater emphasis on the continuing improvement of the quality of our services rather than the quantity. We are watching the market closely in order to respond quickly to new challenges and opportunities.