Still a good time to invest

On the one hand, what you could see from the very start of the 8th Invested Interest Investment Market Conference at the Westin hotel in Warsaw in mid-April was an increased sense of uncertainty about the current geopolitical situation and the effect this could have on the real estate business. As Joanna Nicińska, a regional director at Echo Investment, put it: “For so many years we were saying: I’ll tell you how things are, they’re like this or they’re like that. But now so many people are just admitting that they have absolutely no clue about what’s going to happen. We’ve had two years of pandemic, where we’ve had to switch from home working to remote working overnight. (…) Now we have the war in Ukraine. What will happen now, I just don’t know,” she said.

On the other hand, however, you could also hear speakers who were much keener to give their predictions about the future of the real estate market, and most who did didn’t seem to be lacking in optimism. In the first panel discussion, which was about the investment sector, all the panellists, which included investors, investment consultants and bankers, were of the opinion that this was still a good time to invest. As Martin Erbe, the managing director of Helaba, commented: “I think this is a good time because Poland in the short to mid-term will actually benefit from this war. There’s a lot of labour coming in from Ukraine and staying here, which is helping Poland deal with its very low unemployment rate. I think this will give a special push to Poland.”

One of the most notable moments of the conference was the lecture given by the former Polish finance and deputy prime minister, Prof. Grzegorz Kołodko, who provided us with his analysis of the current geopolitical situation. He elaborated on the ongoing conflict between the Euro-Atlantic world led by the USA, and the Euro-Asian world, which, as he pointed out, had no leader, but included Russia, China and India. He sees this conflict as a much more fundamental struggle than the current war in Ukraine and cautioned Polish authorities against antagonising China, which has made an astonishing civilisational and economic leap over the last few decades. As for Poland, he expressed his belief that the country is likely to undergo 3 pct GDP growth over the next few years, but regards inflation and an eventual drop in production as the possible main concerns. He ended his speech with some words of wisdom: “I will now tell you something that maybe doesn’t sound very scientific, but I’m sure you’re all going to remember it. We are all subject to some brainwashing no matter what media we follow. I do my own brainwashing with BBC World and the Economist. But at least I know which detergents they use,” he said.

The discussion about the office market, which was the last item on the agenda of the conference before the morning coffee break, offered a mix of hope and concern. As Michał Grabara, the capital markets director of Knight Frank, commented: “After the pandemic we all hoped that stability would return to the market, because yields kept on becoming sharper. But unfortunately, the war broke out and things became even more difficult. I believe that many transactions are now on hold.” Hubert Abt, the CEO of New Work, pointed out that a lot of office space is only being leased simply due to long-term agreements, but the actual space itself is being not used, and it’s likely that some of it will never be needed again in the future.

After the break, there was a very heated discussion about the PRS market, which gave us some indication of how dramatically this sector is set to grow in the years ahead of us. “In April 2021, on the six main Polish markets, around 32,000 apartments were available for rent. We now have 5,800. In Warsaw, for example, the number of available apartments fell by 80 pct. We now have 2,000 apartments in a city with two million inhabitants,” said Paweł Sztejter, the head of living and a vice-president of the management board of JLL in Poland. One PRS operator described the current growth in demand for apartments for rent as “gigantic”. “Until now, clients wanted to see the apartment before renting it. They looked at the building, they looked at the apartment and wanted to compare it with others. Now the client just takes what’s currently available,” explained Rafał Ryba, the CFO of Resi4Rent. He said that rent prices are growing by 20 pct from month-to-month and there seems to be no end to this trend. “According to our research, there’s still no demand from buyers, since many are currently unable to afford to buy homes due to their reduced creditworthiness and rising mortgage rates, so they will be forced into the PRS market in the future. We are expecting this wave to come at any time and for rents to grow substantially,” added Rafał Ryba.

Next it was the turn of Paweł Partyka, a capital markets partner at Cushman & Wakefield, to take to the stage to moderate the warehouse market panel discussion. He stressed that the logistics sector in comparison to others has remained in pole position, both during the pandemic and also through the troubled period of the conflict in Ukraine. The greater part of the debate was devoted to the current rent rises taking place in the Polish logistics sector that have been ongoing since the beginning of this year. Beata Hryniewska, a senior director and head of industrial and logistics at CBRE, stressed that the war in Ukraine has only strengthened this surge in headline as well as in effective rents. “In response to the very low vacancy, owners are putting up their rents – as are developers for their new projects. Headline rents have increased by 30–40 pct and we are also seeing effective rents grow by 20 pct,” revealed Beata Hryniewska. However, less space is currently being built than in 2021, as a result of which the market is unlikely to break last year’s records in terms warehouse supply or leasing activity. “The point is not to break records. It’s all more about having a healthy market – and for that logistics is certainly perfectly positioned,” concluded Paweł Partyka at the end of the warehouse session.

The conference concluded with a panel discussion on the two sectors that have clearly suffered the most during the pandemic – that is, shopping centres and hotels. Karol Bartos, the group head of asset management at Atrium European Real Estate, who joined the discussion online, pointed out that most large Polish malls are owned by big players who think of real estate in terms of 15 or even 30-year investments, and for whom events like the pandemic are just temporary market disruptions. Moreover, the Polish market is already saturated with shopping centre space, and if it continues to grow, it will only be through extensions and modernisations of dominant malls that already exist. Such centres are in fact are not generally up for sale, because their owners are simply not planning to sell them.

Even more positive things were said about hotels. Although the sector hasn’t seen any major transactions for the last three years, this has also been because owners currently don’t want to sell their properties at the discounted prices potential buyers might have been expecting. But as Alex Kloszewski, Hotel Professionals Management Group’s managing partner, pointed out, there hasn’t been a single bankruptcy of a branded hotel during the pandemic in Poland, and we could even be on the verge of a golden era for this market. “There are set to be 10–15 mln additional room nights for existing hotels. The occupancy will be driven by the rebuilding of Ukraine – Nato, the US, armies of companies coming to Poland to form JVs for all the reconstruction work. It’s going to be a massive undertaking for the next 7–10 years. We are going to build cities for 150,000 soldiers on the borders of Ukraine. This will have a huge impact on the Polish economy. We can’t exactly celebrate this, given the tragedy next door, but it’s going to happen. These military institutions will make a significant contribution to our GDP. Modular military compounds will have to be built, because with traditional methods we just can’t build them as quickly as will be needed. So, in the next 3–4 years, existing hotels are going to do amazingly well. Their values will probably return to their 2018/2019 levels,” predicted Alex Kloszewski.

All in all, for anyone who listened to all the discussions that were held from morning to lunch on that day, it was rather difficult not to get excited about the future prospects of almost every sector of the real estate market.