Why is Poland so sexy?

With 4 pct y-o-y GDP growth in the first quarter of the year, the lowest ever unemployment since the economic transition of 1989, and the recent change of Moody’s A2 issuer rating from negative to stable, Poland seems to be more than in a good position to attract investment. This was acknowledged by those who came on May 17th to the Intercontinental hotel in Warsaw to discuss the state of Polish real state. And yet the speakers weren’t blinded to the weaknesses. The factors that seem to cool investors’ appetite for investment include recent changes to VAT on real estate, with the introduction of an anti-tax avoidance rule for closed investment funds and a new bank tax.

The question “Why is Poland so sexy for investors?” asked by Przemysław Felicki, the director of investment properties at CBRE, who moderated the first panel, was clearly loaded, but no objections were raised to it. On the contrary, Maciej Dyjas, a co-managing partner and co-CEO of Griffin Real Estate, began explaining why all Polish real estate sectors are so attractive to developers and investors. Offices are benefiting from the rapidly growing outsourcing sector, the redistribution of wealth under the 500+ government programme is good for the further development of the retail sector, while residential rental projects (although almost non-existent) still have great potential.

Although Bożena Krawczyk, the investment director for Central Europe at Segro, painted a rosy picture of the Polish logistics scene, which performed exceptionally in 2016, the next panel was to concentrate on the downsides. These included inconsistent interpretation by the tax office of VAT rules resulting in a refusal to return tax, which seemed to have scared off a number of investors at the end of the last year. “The wait-and-see strategy among investors is a clearly visible reaction to the changes,” commented Michał Sawicki, a senior manager for real estate tax at EY. Marcin Dackiewicz, the vice president of Bergold Group stressed that this undermining of confidence will be difficult to repair. Tomasz Trzósło, the moderator, described the changes as repressive and too sudden. The optimists, however, included Justyna Bauta-Szostak, a legal counsel, tax advisor and partner at MDDP, who said that this was not the first change to VAT, that there had been many tax inspections over the last decade and that things should settle down.

Whether Polish real estate is cheap or expensive was the topic of the next panel discussion, which was really a sparring contest between developers and investors. Beata Kokieli, the head of asset management at Trigranit Corporation, plainly stated that the Polish market was “as expensive as hell”, while Robert Dobrzycki of Panattoni, said this was relative – for someone investing in Florida, Poland would seem cheap. Dominik Sołtysik, the chief investment and development officer for Eastern Europe at Orbis, sagely added that everything depended on whether you were buying or selling. However, what worried the panellists was the large spread between the headline and effective rents on the market. “Investors know about the spread. But the point is that they should also know about what is happening during lease renewals” said Karol Pilniewicz, the CEE head of Cromwell Property Group, suggesting that tenants will not renew their leases at headline prices but at rates that may even be 60 pct lower. Another worry for the panellists was the lack of Polish investors on the market. As Dorota Latkowska-Diniejko, a partner at Reino, pointed out, they are virtually non-existent, stating that: “95 pct of investors are foreign.”

The residential sector is also seeing a lot of activity, which is now driving up land prices. “We have to buy, because otherwise we’ll have to close our business and nobody wants to do that. It’s just the opposite; everybody wants to grow,” said Mikołaj Martynuska, the managing director for investment and development at Echo Investment. Wiesław Jan Prusiecki of Konkret group advised other developers to stop looking for crises, because it would stop them from developing great new projects and areas. Tomasz Konarski, the CEO of YIT Poland, pointed out that the smartest investors buy land in periods of crisis in preparation for better times, but most investors prefer to do their shopping when the market is hot.

After a coffee break two local authority representatives took to the stage. Katarzyna Włodek-Makos, the director of the City of Warsaw’s economic development department, pointed out that 85 pct of foreign visitors say they want to return to Warsaw, and as many as 95 pct say they would recommend Warsaw to their friends. The next speaker was Kornelia Bargielska, a member of the board of InvestGDA, a company owned by the City of Gdańsk, which has supported investors for such projects as the Forum Gdańsk mixed-use centre and the redevelopment of the Wyspa Spichrzów island on the Mołtawa river in the city centre.

“It is becoming more and more difficult to invest, yields are falling ever lower,” admitted Wojciech Koczara, the moderator of the panel on alternative investment opportunities. There followed a discussion about condo-hotels, senior and student housing, data- centres, co-working spaces and even apartments for rent, which are still a niche on the Polish market. “Apartments for rent are no different to commercial properties,” said Michał Sapota, the CEO of Murapol. But Piotr Krawczyński, the managing partner of investment consultancy Synerium, warned that nobody really knows what the yields will be in alternative sectors.

The next panel, which was dominated by bankers, discussed project financing. “The first rise in European interest rates is expected in the middle of next year,” said Grzegorz Trawiński, a member of the board of mBank Hipoteczny. Michał Sternicki, the general manager of Aareal Bank, pointed out that most developers have already factored this increase into their investments and the question is only when the rates will increase and whether those who still haven’t made adjustments will still be able to do so.

In a very informative presentation, Elżbieta Lis, a partner of Dentons, explained the main legal differences in making transactions across the CEE region. Those who stayed until the end had the joy of listening to the last panel discussion, led by Tomasz Buras, the managing director of Savills. The panellists made their forecasts and those who apparently see the future in bright colours seemed to predominate. These included Kinga Bachroń, a partner at PwC, who talked of the low unemployment. This however, could be a double-edged sword since, as it was pointed out it could mean labour shortages. “The skills and specialisations of people will be crucial, not the quantity,” said James Chapman, the partner responsible for CEE capital markets at Cushman & Wakefield. This comforting thought came just as the panel was coming to an end and everyone soon headed off for lunch and some less formal discussion.