Down in the dumps

The mood on the stock exchanges reflects the stubborn global inflation and the moves by central banks. Interest rates in the US are still set to rise, but there are some who are seeing a slowdown in these rises and an end to tighter monetary policy. Such signals would certainly support the stock markets, for which 2022 has not been the best year given the highest inflation in 20 years, the war in Ukraine, the return of coronavirus in Asia and the worrying situation surrounding Taiwan. The losses seen on the world’s largest trading floors have reached double figures and, even though the nadir for most bourses came in June and July, the extent of any potential bounce-back remains in question. Unfortunately, Warsaw has been performing even worse than the other exchanges – at the end of August it suffered the indignity of sinking to last place in terms of the rate of return since the beginning of the year (-28 pct), bettered even by Moscow and Sri Lanka, both of which are embroiled in economic crises. The past few weeks have seen the indices fall even further. The WIG 20 lost 7 pct in under a month, while the WIG 5 declined by 5 pct. The construction and the developer indexes, however, both rose by 1.6 pct and 6 pct respectively.

Meanwhile, the once-surging Polish economy has slammed on the brakes. GDP saw its biggest ever quarterly fall over the April to June period, excluding H2 2020, which was hit by the full impact of the pandemic. The economy is currently growing by 5.3 pct y-o-y, down from 8.5 pct in the first quarter and lower than expected. Consumer spending has been curbed by the high inflation levels, with the influx of refugees failing to reverse the trend. What’s likely to happen next? Is the economy set to enter a technical recession by contracting for two quarters in a row? Economists are of the view that this will mainly be determined by further disruption to the energy market and the availability of fossil fuels, such as natural gas and coal. The construction and installation industries have also slowed down. In July, activity rose by 4.2 pct y-o-y, which was the lowest level since December and far less than had been predicted by economists. From the macroeconomic point of view, there are no reasons to expect any improvement in the construction market.

According to Statistics Poland’s figures, construction work began on almost 8,400 apartments in July, the lowest level since May 2020 when the coronavirus lockdowns were imposed. This represents a fall of 44 pct y-o-y. Over the last three months, the number of construction projects started has been somewhere between 11,000 and 16,000, which analysts believe is the result of changes to the law and specifically to the residential developer’s act (including the introduction of a developer’s guarantee fund). The number of new construction starts is beginning to match the number of apartments being sold. This reduction in supply is one way of avoiding a fall in market prices and maintaining margins, which is also being done by chasing wealthier buyers with cash. Dom Development has embraced such an approach to get it through the slowdown (its H1 sales fell by 26 pct). The company has also pointed out that the slowdown means cheaper land purchases and lower contractor costs.

In theory, at least, the more adverse conditions in terms of the demand from individual home buyers could lead to the further growth of the institutional rental (PRS) sector, not only due to investment from specialist funds but also from other funds that are looking for investment opportunities with healthy returns. That’s why, according to analysts, know-how when it comes to managing long-term investments will be required on the institutional rental market. The situation as it is could lead to a rapid expansion of the segment. Develia is currently building its own platform; while Echo Investment, a major shareholder in the Resi4Rent platform, is supplying it with apartments.

The warehouse and logistics sector, meanwhile, is still booming. WSE-listed MLP Group leased out 214,000 sqm in the first half of 2022 – its highest ever figure. The demand for warehousing continues to be driven by e-commerce, but has also been boosted the pandemic and the war in Ukraine, which have led to the shortening of supply chains and the need to stock up on components and intermediate goods for production close to their eventual markets. Production facilities are being moved from Asia to Europe and as a result more warehousing space is needed here. This is not so much a macroeconomic trend, since many of the decisions for next year have already been taken. With demand outstripping supply, rents are rising and the likes of MLP, which are not selling land and instead are profiting from leasing, are benefitting from this.

Another commercial developer, GTC, is looking to enter new markets. It is not only thinking of renting out apartments, but also about investing in technology parks and renewable energy.

Despite the Warsaw stock exchange’s recent awful run and the constant flow of companies delisting, Archicom, which is controlled by Echo Investment, will most probably remain listed. At the moment, Echo Investment is making a call for the 33 pct of the shares it does not own in Archicom. Part of the reason for this is that this represents the next stage of its takeover; but almost 7 mln shares out of 10 mln are owned by minority shareholders. The proposed offer is the lowest that Echo Investment was legally obliged to make – at PLN 18.3. (Mir)