Waiting for revival

How would you, as a tax and legal advisory, assess the beginning of the year for the real estate market?

Jakub Ziółek, the managing partner of Crido: We have seen the market slow down, which has meant lower transaction volumes – both for completed buildings and for development sites. But the situation seems rather different for some sectors. The warehouse sector has been active throughout, even though it’s slower than the hottest period of 2021 and 2022. The retail real estate sector had already slowed during the pandemic, where there have not been many transactions over the last few years and now it is maintaining this level. With the office market, we are clearly in a waiting game – funds are hoping for lower valuations and financing costs.

Does that mean you have less work right now?

When it comes to transactions, there is indeed less; but when it comes to facility management consulting, there’s a lot more. There are an increasing number of tax and legal regulations to keep real estate managers up at night. Over the last few months, energy costs and related regulations have been a serious issue for us. And there’s also the issue of rising rents, which have been the largest in the last twenty years, while the modernisation of buildings to meet ESG standards has become a serious challenge for the real estate sector as well as for consultancies. These are not just the common certification requirements of BREEAM and LEED or marketing activities to maintain an image, but more often they are requirements that are being demanded by investors or banks.

And what can we expect in the near future? How long is this slowdown going to last?

In my opinion, the real estate market will eventually recover rather quickly, in a few months or just over a year. In Poland, we need new homes, offices and warehouses. If we return to a low interest environment, the real estate market will again receive a big boost for development. It’s a little harder to predict what will happen in the housing market, which in Poland is denominated in złoty. The high interest rates for our currency affect the current situation in two ways. On the one hand, there are greater financing costs, which result in increased construction costs; and on the other, mortgages become less accessible to home buyers and also cost more. The situation is not likely to rebalance soon and so the demand for new homes is going to shrink. In the short term, funds that finance rental apartments could come to the aid of the market, but local authorities and regulators need to be much more open to this idea.

Is there a chance that another group of investors might play a bigger role in the market? I’m thinking about Google’s recent acquisition of The Warsaw Hub.

Real estate is a good that is subject to the laws of supply and demand. When we had an overheating market in 2020 and 2021, prices were high and there were many buyers. These were what we call core buyers – funds from Germany, France, the Czech Republic, the US and Hungary as well as Asian funds. When the market falls, funds stop buying and prices drop – and that’s when opportunistic players step in. It’s also a good time for businesses whose main focus is on not real estate but on investing their excess capital. Some might, for instance, buy a fancy building in which they are currently a tenant. And it’s not only developers that are driving the deals for development plots. For example, take the Dino grocery store chain – this company regularly buys land to build its stores on and, as a result, it now has quite a respectable land bank. The same is true with McDonald’s, which owns most of its restaurants across the world.

You’ve been working for Crido for ten years. Which of the transactions that you’ve been involved in do you remember best?

There’s actually been quite a lot of these transactions and each in its own way was interesting and exceptional. But I do remember one of my first transactions at Crido when I was advising a shopping centre in Płock. The seller was a local company and the buyer was a large fund. We had to bring these two worlds together. As well as negotiating the legal documentation it was also necessary to bring both parties down to the same level so that the deal could be closed, not only to agree on a price but also on the other conditions. This local developer was handing over its baby to the care of others and wanted it to continue to thrive. Luckily, we were successful in closing the deal.

Does taking part in triathlons help you in your business life?

Definitely. A few years ago I took part in triathlons on a regular basis, but now I do this less often; but each of its three disciplines – swimming, running and cycling – are still a big part of my life. And I value my family life even more and watching how my two teenage children are growing up and changing. This is my main hobby and my greatest challenge.

Interview: Anna Korólczyk-Lewandowska