Facing the challenges ahead

Representatives of the commercial property sector in Poland meet every year to review the last twelve months and make their forecasts for the future. Things were no different this time at the 21st Annual Commercial Property Market Conference, which took place on December 2nd in the Muranów Conference Center in Warsaw

The meeting was opened by Simon Wallace, the vice-president and head of research for Europe of Deutsche Asset & Wealth Management, who started with a presentation of the company’s ‘European Real Estate Investment and Outlook – Poland’ report. According to this publication, the macroeconomic indexes remain promising for Poland. An expected increase in employment is set to have a significant impact on tenant activity in terms of space leased. This is in line with the beginnings of a stronger revival of the economy and increased employment across Europe that have been forecast and are already apparent. Meanwhile, in the second half of this year there was also a fall in office rents compared to the same period of the previous year. This situation is expected to continue into the long term. In the ranking of cities, Warsaw’s rents decreased the most together with those in Prague and Düsseldorf. Investor interest in Poland is also on the decline, even though investment in commercial real estate in Europe is projected to be close to its record level. The vacancy rate will also grow on the Polish office market. However, there are a few factors in the wings that could improve the sentiment of investors. One is the expectation of growing demand, which is playing a particularly significant role in stimulating the development of the Warsaw office market. Yields on the Warsaw office market are likely to stay above the European average until 2019, fluctuating above 5 pct. The investment market topic was developed by the experts on the first panel. Michał Sternicki, the general manager of Aareal Bank, was the moderator of a discussion on the health of the investment market and was joined by: Katarzyna Zawodna, the managing director of Skanska Property Poland; Jarosław Bator, member of the board of Polskie Koleje Państwowe; Maciej Dyjas, co-managing partner of Griffin Real Estate; Gabriel Tayoun, chairman of Europtima; Grzegorz Trawiński, member of the board of MBank Hipoteczny; and Jeroen van der Toolen, the CEE managing director of Ghelamco. It turned out the panellists had nothing to complain about the current situation on the Polish market. The positive factors they pointed to included the influx of money from funds (such as those based in Scandinavia). They also revealed that they have substantial development plans, thus further confirming the rude health of developers at the moment. Ghelamco announced the launch of the project it will be carrying out jointly with PKP at the Warszawa Gdańska station in mid-2016. Skanska announced a doubling of its investment in the region as well as the launch of Generation Park – a new office project in Warsaw. Maciej Dyjas outlined Griffin Real Estate’s plans, which involve the purchase of residential projects for lease. And Grzegorz Trawiński claimed that hotels are now an investment opportunity. However, as a banker he is still looking more favourably upon the financing of residential, warehouse and retail projects.

The next panel was devoted to the retail market. Beata Kokeli, the senior director and head of retail of CBRE, talked about online trade, which has recently dominated discussions in the sector. Ronan Martin, the vice-president of the board and expansion and shopping centres director at Carrefour Polska, emphasised that online shopping would not take customers away from grocery operators because the growth of its share in sales is still not high. He is also unconcerned about any prospect of the shopping centres owned by the company suffering from this.
Extensive modernisation and redevelopment is in progress and renovated centres with an attractive retail offer will attract customers. Rafał Pruba, the head of the leasing department at ECE Projektmanagement Polska, added that the growing significance of restaurant zones is a positive trend – because meetings and shared meals cannot be replaced by internet chats. “The way that shopping centres will function in the future has already started to be determined by the younger generation and their approach to shopping,” he emphasised. Karl Schwitzke, the founder and CEO of Schwitzke Group, also participated in the discussion, and as an architect remarked that shops nowadays are getting smaller and smaller. In his opinion smaller towns should focus on convenience shopping, whereas for conurbations large malls are needed to ensure a comprehensive range of goods. Meanwhile Michał Górski, the CEO of the group’s Polish subsidiary Schwitzke Górski, offered examples of extensions carried out by his company. “The largest brands focus on quality in the form of flagship shops in the best projects,” he claimed.

There was also a lively discussion during the panel devoted to the construction market. This was moderated by Bartosz Mysiorski, the vice-president of the board of Fundacja Centrum Partnerstwa Publiczno-Prywatnego. Its participants complained about the lowest price criterion that is still the norm for state tenders. “General contractors, that is, all of us here, cannot consent to the lowest price condition. And it is us who have to open a discussion on this topic because how public officials approach this issue largely depends on our stance,” declared Ferdinand Baggeroer, the owner of CMT, receiving applause from the audience after these words. Radosław Górski, the acting general construction director of the company, listed three factors that could limit the development of PPP projects: “The availability of public money and the prospect of public funding coming to an end; the commissioning of projects by individual local authorities and council officials unfamiliar with the realities of this business; and the lack of a best practice book, which would become the code of conduct in the case of public-private partnership projects,” he listed. Bruno Lambrecht, the general manager of CFE, shared his experience with the audience. “There is a move away from PPP in Belgium in favour of joint venture projects,” revealed the head of CFE. One thing is clear, though. “Without PPP the Polish construction industry will not be able to grow,” said Tom Smith, the global director of property and buildings at WSP Parsons Brinckerhoff.
The warehouse sector, on the other hand, has a bright future ahead of it. “Over the last two years we have leased an area of 70,000 sqm. New companies, such as those from Germany, are now entering Poland. The prospects are very promising,” remarked Andrzej Rosiński, the chairman of the board of Waimea Holding. Robert Dobrzycki, the CEO of Panattoni Europe, commented that tenants from the e-commerce and automotive sectors are having a significant impact on the growth of the warehouse market, particularly the former, who are asking for space ranging from 10,000 sqm to 100,000 sqm. Radosław Krochta, the CEO of MLP Group, and Bartosz Mierzwiak, the CEE managing director of Logicor, stressed the need to keep a careful eye on the market trends in Western Europe. Amazon is considered the trendsetter here, where it requires smaller and smaller premises and is asking developers for halls of 15,000 to 20,000 sqm. Everybody also agreed that the development of infrastructure has boosted the market; however, they do not see much business potential in locations close to Baltic Sea ports due to the proximity of highly developed German ports.

The hotel market has been picking up momentum. Recently there has been a lot of news about the debuts of international hotel chains new to Poland, such as AC by Marriott and Moxy, both of which belong to the Marriott International family. However, Janusz Mitulski, the CEE director of Marriott International, declined to comment on the transactions. Meanwhile, Magdalena Sekutowska, the development director for Eastern Europe at Hilton Worldwide, announced that there is still some room for more Hampton by Hilton hotels in Warsaw. Miguel Martins, the development director at Intercontinental Hotels Group for Poland, introduced the new Holiday Inn on ul. Twarda in Warsaw. The moderator of the discussion, Alex Kloszewski, a managing partner of Hotel Professionals, raised the subject of cooperation with OTA companies. Everybody agreed that OTA agencies should be treated as business partners. Franz Jurkowitsch, the CEO of Warimpex, said he was also satisfied with the growth of the hotel market in Poland.

The predictions of the experts on the next discussion, on growing vacancy on the office market, made the audience freeze. Optimists, such as Tomasz Buras, the managing director of Savills Poland, and Łukasz Kałędkiewicz, the senior director of the office agency at CBRE, put the figure between 12 and 15 pct; however, there was no shortage of people saying that the level could be much higher if older facilities requiring modernisation were included. “The vacancy rate might grow to as much as 20–25 pct in 2019,” remarked Maciej Brożek, the leasing director of Torus. Stanislav Frnka, the country manager of HB Reavis Poland, expressed the opinion that vacancy could go up to 19 pct. The panellists also put the spotlight on regional markets, which are not only attracting new foreign companies but also gaining good quality office space at a suitable pace. “The strength of regional markets in Poland is being determined by investor interest as they are increasingly often choosing office complexes outside Warsaw,” added Paweł Lothammer, the landlord representation department director of Knight Frank. The discussion was moderated by Hadley Dean, the CEO of Compass Offices. “Compass Offices is not only a company that offers offices for lease. We operate comprehensively on this market,” he explained.

The property market in Poland is varied. Each of its sectors faces challenges corresponding to the specificity of its field. When it comes to offices, the issues are oversupply and declining rents, while in the case of retail – the changing consumer habits and the rapid development of new technological tools. The hotel market, which has been underestimated until now, is gaining in importance, alongside the construction industry, which is rousing itself out of its slumbers. Warehouse developers are having to monitor trends emerging in the West and need to be prepared to respond quickly when they arrive in Poland.

This year, the event was held in the conference section of the Polin Museum of the History of Polish Jews. Its modern architecture provided not just the venue for the discussions but also allowed Bene, among others, to showcase its office furniture line. After the formal part of the meeting concluded, there was some time for unofficial chat and mixing at the cocktail party sponsored by Echo Investment.