Skinny-dipping at high tide?

According to investment research company Preqin, last year was the first when closed real estate funds across the world raised USD 151 bln for investment – the largest figure ever and the first time it has surpassed that of 2008. Perhaps as intriguing is the fact that, as Preqin also points out, only 295 funds closed their capital-raising last year, the lowest number since 2010. This means that they are getting bigger – the average size of a fund was USD 625 mln. 2020 promises to be no less fascinating. Fund managers are benefitting from the investment boom and are to introduce a record number of funds to the market. According to Preqin, at the beginning of 2020, as many as 918 real estate funds (240 more than a year ago) were aiming to raise a total of USD 281 bln from investors. In order to appreciate the scale of this investment fever, a few more numbers will be needed. In 2007, Preqin recorded more than 2,300 investments in real estate (private equity) with a total value of USD 150 bln, whereas in 2019 there were more than 9,300 deals totalling USD 410 bln. The data for the level of ready-to-spend funds (also known as dry powder) are similar. At the end of 2007, there was USD 168 bln of dry powder, but at the end of 2019 it totalled USD 319 bln. It should be added that globally there were slightly more recorded deals and funds in 2018. But it was no coincidence that the largest real estate fund of all time, Blackstone Real Estate Partners IX, was established in 2019 and has since raised USD 20.5 bln.



Michał Proński, the head of asset management at CPI

Players in Poland in good spirits

In this context, you could expect that the Polish real estate investment market will also have a lot to spend and that a great deal is going to happen – and you’d be right, if the first few weeks of the year are anything to go by. “The commercial real estate investment market has begun 2020 in a very good mood. The positive trends of 2019 have continued, when the total transaction volume reached almost EUR 7.8 bln. With the current positive sentiment and strong demand, around EUR 7–8 bln this year seems to be quite feasible, while any possible obstacles to achieving this will only come from the supply side,” believes Marek Paczuski, the investment director of Savills Poland. The sector has shown no signs weakening, but some companies are exerting themselves more than others, such as CPI, which has been busy fulfilling its plans to spend EUR 800 mln on office buildings in Warsaw, having closed several deals since the beginning of the year. “Poland is a key development market for our group,” insists Michał Proński, the head of asset management at CPI. This has also become very clear as the Czech company’s increases its in stake in Romanian-based Globalworth – another player that stormed the Polish real estate market, less than three years ago. “Warsaw is a city where the office market, which has been carried up on the crest of a five-year wave of high demand, is still growing at a very dynamic rate. The supply is strong, and the office buildings that are appearing are of an increasingly high standard of technological sophistication. The awareness and expectations of tenants are growing at the same time, in particular when it comes to systems that improve work comfort and optimise labour costs. In 2020 CPI will be focusing on the active management of its assets while it continues to add to its portfolio. The comfort and evolving needs of tenants remain our priority. Therefore, we are planning further investment in our portfolio,” reveals Michał Proński. Another company worth a closer look is Reino, as it gradually makes it presence felt on the Polish market. The Polish company, together with Australian investor Corval, is still in the process of acquiring Kraków-based developer Buma. This year Reino has also set up an investment vehicle for the Polish warehousing market with UK property group Grosvenor.

Warehouses still on the wave

Investors will not only be battling it out for the best Polish office buildings this year. The warehouse market, which has been something of a star performer in recent years (and not only in Poland), would seem like a sure-fire bet for investors. Analysts are predicting annual turnover of EUR 2.5 bln – and 3 bln is even possible. “In our opinion, the warehouse market will remain the fastest growing segment of the real estate sector in the CEE region in 2020,” argues Michał Białas, the head of Czech-based investor Accolade in Poland. “Looking at our portfolio, you can see that most of our new investments are taking place in Poland, where we are focusing on cities with the highest growth potential, such as Bydgoszcz, Częstochowa or Legnica. There is a growing demand for logistics services, light production and e-commerce, which is prompting investors to choose locations carefully with regard to the quality of the infrastructure, the local purchasing power and the availability of labour. The end-consumer’s expectations of same-day and next-day delivery are becoming a key issue for an increasing number of companies in the logistics and e-commerce sector. This is also being reflected in the degree of robotisation and automation in the warehouse and industrial sectors,” explains Michał Białas.

He is not alone in having such confidence in this real estate segment, since there are fundamental factors supporting its continuing growth. “The importance of Poland for global trade in connecting Western Europe with Eastern Europe and Asia, in combination with the strength of the Polish economy and the favourable conditions on the labour market, make it a very attractive place to invest,” argues Matthias Cordier, the managing director of Madison International Realty. “Furthermore, as e-commerce develops, the growth potential for the logistics sector is enormous. Finally, its excellent market growth, and especially the price differentiation, mean that the segment in Poland is an attractive entry point compared to other European logistics markets, as are other asset classes in the country,” adds the director of Madison, which is investing EUR 150 mln in its European Logistics Investment platform, within which it holds a portfolio of Polish warehouse properties worth around EUR 500 mln.



Matthias Cordier, the managing director of Madison International Realty

Retail put out to grass, but not to die

While Polish warehouses are highly sought-after by investors at the moment, interest in the country’s retail sector has fallen away slightly. This can be clearly seen in the numbers – according to CBRE, it made up 25 pct of the total annual investment turnover in 2019, much down on such heights as 47 pct in 2016. This doesn’t mean, however, that it can now be dismissed with a shrug – things may not be easy for brick-and-mortar retail, but it still offers some interesting investment opportunities. “The saturation of the retail market with shopping centres has led investors to look even more intently at the other shopping formats that have emerged, such as those ideal for smaller towns where the range of retail is still limited,” points out Magdalena Kowalewska, the head of Immofinanz in Poland. In 2020, we are seeing even greater intensity when it comes to investment in the retail park sector. At Immofinanz we have been moving in this direction for some time, developing our portfolio of retail parks under the Stop Shop brand. With the acquisitions and development projects we carried out in 2019, we now have 90 Stop Shops in nine countries. Our next milestone will be to pass the one-hundred mark, but that of course doesn’t mean that we will be stopping there,” says Magdalena Kowalewska.

Alternatives and buy-outs

Wherever there is strong demand, maintaining the level of supply needed to meet it can become a problem. “It seems that the current problem facing the investment market is not a lack of buyers but insufficient supply. In some respects the commercial market is becoming similar to the residential market. Prices have been rising rapidly while the number of attractive products has been shrinking. That’s why investors are now ready to pay more for the best buildings,” explains Daria Chacińska, a client advisor in the office department of Cream Property Advisors. With such a large amount of money to be spent on a limited supply real estate, many investors are shifting their focus to alternative assets, such as student halls (e.g. Kajima), apartments for rent (Catella) and even the acquisitions of entire companies. In addition to Buma, other companies that have been changing hands include Polnord, which has been taken over by Hungarian developer Cordia, and Wrocław-based developer Vantage, whose residential operations have been taken over by German group TAG Immobilien, which wants to turn it into an apartments for rent specialist – with a target of building 10,000 units in Poland. Murapol, one of the largest Polish residential developers, along with its affiliated construction group Awbud, has also recently been bought out by US asset management group Ares.

It’s difficult to hear any pessimistic noises emanating from real estate investors (at least on the record). However, a certain trend has become evident. Some of those who employed their capital in Poland in 2011–2017 are now exiting their investments, but there are also those who are still reinvesting. For the large part, however, they have been replaced by a wave of new players attracted by a solidly priced market in a low interest rate environment. Analysts are still forecasting possible slides in yields and high turnover on the investment market – taking into consideration, for instance, the Warsaw office towers destined for completion this year and the next – so all this is hardly surprising. Yields of around 4 pct could even be achievable – at least according to some developers. This is only possible because investors are both active and optimistic about the situation in Poland. “Poland has developed into a highly liquid investment market, and so I believe that the positive investment mood will persist through 2020,” forecasts Matthias Cordier.

Swimwear malfunction?

It seems that the good economic situation on the real estate market will continue this year. This can also be seen in the interest in land, which – it can be said without much exaggeration – developers are still queuing up to buy. “The situation on the investment land market is very hot and now resembles the run-up to 2008. Developers are still keen to buy land, encouraged by the substantial interest in their products from investors. As far as the latter are concerned, this year there has been a lot of interest from British and Far East capital,” points out Daniel Puchalski, the managing partner of Knight Frank. ‘Records might be broken once again,” he suggests.

There’s one more thing to consider in order to properly gauge the temperature on the investment market: it’s difficult to draw any accurate conclusions from the performance of the investment market in Poland during this last decade because the country is in a completely different place than it was in terms of real estate development. This is especially true for the office market, which grew from around 4 mln sqm in 2008 to more than 11 mln sqm at the end of 2019. An even larger increase in warehouse space has been recorded – from around 5 mln sqm in 2008 to more than 18.5 mln in 2019. So a straight comparison of the turnover on the Polish pre-credit crunch investment market with today’s figures is just not possible. However, it is worth remembering that although swimming in waves of optimism and successive inflows of cash might be very pleasant, each high tide is followed by a low one – and then (to paraphrase Warren Buffet) the questions about who’s actually naked really begin.