Choppy waters but no tsunami

However, the first topic addressed a real risk that lies ahead. “Interest rates are still quite low, so you can quite easily finance your operations – but this situation will not last forever,” warned Jan Vincent-Rostowski, the former minister of finance, in his introductory speech for the meeting; “In two, three or four years at the latest, interest rates will be much higher than they have been up to now and loans will be harder to obtain.”

The first session of the conference was hosted by journalist and TV presenter Piotr Kraśko, who pressed the minister on the impact of the election of Donald Trump as US president. Mr Rostowski replied that we should expect changes in the American budget policy and an even further strengthening of the dollar as well as an increase in the profitability of US bonds.

“The closing year has been full of events that have had great significance for the real estate market. It started with the uncertainty surrounding the conflict over the Constitutional Tribunal, which received a great deal of publicity and unsettled investors,” explained Tomasz Ożdziński, a director and tax consultant in the real estate market group at EY, opening the discussion for the investment panel. The end of the year has seen a number of significant events: the long-awaited bill on the Polish version of REITs, as well as changes to the tax on investment funds, which could be inconvenient for real estate market investors when they come into force on January 1st. “These events were exacerbated by the Brexit vote and the presidential elections in the US. What in your opinion is the current appetite for Polish properties?” asked Tomasz Ożdziński. “Investing capital in real estate still generates much higher returns on investment compared to, for example, bonds, so we expect to see a considerable influx of capital into the real estate market,” explained Adrian Karczewicz, the CEE transaction director of Skanska Commercial Development Europe. “Commercial facilities, including ‘prime’ office buildings, will continue to be appreciated by investors. If you compare the price per sqm of a top quality office building in Warsaw and some of the largest cities in Western Europe, the value of app. EUR 5,000 per sqm is very attractive, still below the 2007 level. This is attracting investors despite the falling yields. A real estate market bubble is not very likely to happen in the near future, even though the gap in terms of the valuation of ‘prime’ products vs. other classes will continue to increase. At the same time buildings that have long-term leases will be increasingly appreciated by funds.” A bucket of cold water was then poured on the heads of the listeners by another panellist: “Unfortunately, there is a market bubble growing that may soon break,” warned Brian Patterson, the managing partner of White Star Real Estate, “because tenants are being spoilt by the owners of buildings and effective rents are much lower than they should be, so the actual rate of return will also be lower than expected.”

Conventional shopping centres have been expected to suffer from competition in the form of the growth of e-commerce; however, the share of online trading is still in single-digit figures. Yet mall operators are not standing idly by: their centres are being modernised, their goods ranges are being extended and new concepts are being introduced. “There are still places in the capital where new retail projects could be developed. However, we can see the greatest potential in the development of high streets, where a few new projects are planned and a lot of new tenants are interested in opening flagship stores,” claimed the moderator of the panel Magdalena Frątczak, the senior director and head of the retail leasing agency at CBRE.

The first half of the year saw a decline in production in nearly all the segments of the construction sector. Construction and assembly production overall was 11.9 pct lower than a year earlier. “In the last year the level of optimism in the construction sector has clearly fallen, but there is no reason to panic because we have a busy 2017 ahead of us since more EU funds are in the offing,” said the moderator of the construction panel, Bartłomiej Sosna, the chief construction market analyst at PMR. “The situation in 2016 was not bad either, if we could afford the luxury of choosing the projects we wanted to be involved in as a contractor,” added Krzysztof Siemieński, the head of the business and marketing development department at CFE Polska. “A lot of companies are simply not accepting contracts – even if there is only the slightest risk related to the quality of their work or meeting a deadline. This is a clear sign of the normalising and maturing of the market,” believes Krzysztof Siemieński.

“The demand from tenants is the highest in history, speculative construction is blooming, and investors are eager to pay for Polish warehouses as much as for top office buildings or shopping centres. Can things get any better?” Katarzyna Pyś-Fabiańczyk, the director of the logistics and industrial department in Central and Eastern Europe at BNP Paribas Real Estate, asked rhetorically at the beginning of the warehouse panel, which she moderated. “Things can surely be better. And they will,” insisted Bartosz Mierzwiak, the managing director of Logicor. “However, we cannot rest on our laurels. There are a few large players on the market, but new ones keep emerging, tempted by the developing economy and stable rent rates. The warehouse market in the country has been developing at a very fast rate. Over the previous five years Poland was 7th in Europe in terms of the percentage of warehouse space leased, while in 2016 it moved up to third position, behind only the UK and Germany. The arrival of fresh competition on the market is only a matter of time,” stresses Bartosz Mierzwiak.

“There is probably not a single hotel chain that is dissatisfied with this year’s results,” declared Jan Wróblewski, a member of the board at Zdrojowa Invest & Hotels, at the beginning of the hotel panel. “The Polish economy has been growing as well as the real estate sector – and this is always good news for hotels because economic growth boosts the number of our guests – both from tourism and business.” This was a view that was supported by Martin Ykema, the chief operating officer of Vienna House. However, Alex Kloszewski, the managing partner of Hotel Professionals and the moderator of the panel, put something of a dampener on the audience’s enthusiasm. “Poland is still not the best at promoting itself as a global tourist destination. We lose out to much worse, less safe and less attractive countries. Chains are not promoting themselves, seeing this as the role of the government or governmental institutions,” he lamented.

In Poland, the office market has matured – this is the conclusion that could be drawn from the comments made by those on the office panel. “We have a relatively high vacancy rate, and this is a good situation for tenants, but I believe it is also good for the main agencies and solid developers – they don’t have any reasons to worry,” said Marek Koziarek, the managing director of the structured financing and commercial real estate department at Bank Pekao. “Warsaw continues to provide great opportunities for investors, and the best of these will certainly be exploiting them,” he added. “Things are similar on regional markets: they are developing and constantly changing, but in a good direction,” pointed out Maciej Brożek, the proxy representative responsible for development at Torus. “The most significant transaction has been the lease of Intel in Gdańsk – a single contract that accounted for a quarter of this year’s supply. And I know that there are similar leases in the pipeline,” he revealed. “Locations outside city centres often lose out to central ones, even among tenants who operate business service centres,” argued Bartłomiej Hofman, the president of the board of Immobel Poland, adding that “BPO centres are now even interested in prime projects, which have better transport links and offer more amenities, which is a clear result of the situation on the job market – it is not so easy to find an employee if it is difficult to get to the office.” What kind of offices do tenants want? “They often reply ‘We want an office like Google’. Then they ask about the cost of installing a slide between the floors,” said Tomasz Spalik, the development director of Tétris, a little tongue in cheek. “Clients are getting better educated all the time. They are very familiar with the realities of the market, rent rates and fit-out standards. Poor offers stand no chance,” he added.

The official part of the conference was closed by a presentation on the Q22 building, which has been developed by Echo Investment in central Warsaw. A presentation was given on the latest lighting systems that have been installed in the project by Philips Lighting professionals Radosław Buczkowski, the manager of the design department, and Agnieszka Operhalska, the sales director of the company’s real estate department.

During the conference it was possible to admire a scale model of the KTW office complex in Katowice, which is being developed by TDJ Estate right next to the flying saucer-shaped Spodek sports and entertainment hall. The appreciation for the developer’s work intensified when it turned out that it was the sponsor of an unofficial part of the conference – a cocktail party, the guests of which were able to sample excellent Mexican cuisine and have fun Las Vegas style. If you needed some more excitement, you could try your luck at a little roulette, poker or black jack. The croupiers explained the rules of the games with angelic patience and the excitement was no less than in a real casino. The winners of the largest piles of chips were presented with commemorative statuettes. The guests could then cool themselves down with drinks prepared by bartenders at the molecular bar. See you at the next end-of-year event – hopefully in equally happy circumstances!