Little time left to be green

Half a year ago you returned to working for one of the Big Four, this time KPMG. You were tasked with putting together a new team to provide comprehensive real estate advisory services. Was there no such team before?

Monika Dębska-Pastakia, partner associate, head of real estate advisory at KPMG in Poland: I’d say that its real estate services were dispersed across many of KPMG’s departments and so it was my job to bring them all together into one team, including valuations, transactions, M&A, market research, ESG and financing. I can say that we are now a good way down the road to completing our plan.

What was the biggest surprise for you when you were building the new team?

Probably green financing, which is now fundamental to sustainable development. There has been a lot of talk about this and many investors have been asking us about such instruments, but I can count on the fingers of one hand the banks that offer such a product. The challenges that the Polish real estate market faces in terms of sustainable development and retrofitting buildings are huge, including the energy classification of buildings and ESG reporting, which is due to come into effect this year.

During a time of investment market stagnation, are investors prepared to take on the higher costs required for this green transformation?

It depends. But on the whole, I’m not seeing much enthusiasm. The situation is complicated because the green transformation is a very costly and long-term process and the planet has little time for us to achieve this. Some of these processes are going to be financed by EU funds in Europe, but private capital will have to bear much of the cost and it’s not so eager to do so, particularly when the market is so difficult. Some of the costs can be offloaded onto tenants, but here we have a similar situation. Everyone wants to work in a green office, but only the most affluent and the most environmentally-conscious are prepared to accept the higher rental costs involved.

What has been prompting investors to dig deeper into their pockets? Are tenants leaving, or is it the new EU rules?

It’s a bit of both – a combination of market and legal reasons. The laws covering sustainable construction are becoming much stricter and are being applied to more and more companies in the market. On the other hand, there are owners who are doing their utmost to survive this difficult period and are having to cut their costs. Nonetheless, they know that if they don’t invest in raising the standard of their buildings, including adding environmentally-friendly features, they won’t be able to fill them, because tenants will simply choose somewhere else. In such a situation, a trusted advisor to show them the right direction to take becomes invaluable.

But you can always sell such a building or convert it to a more profitable use.

Of course, but what kind of price will you get for such an asset in such difficult times? So-called vulture funds, in the meantime, are beginning to hover, but they will only buy at a huge discount. Despite all this, as far as I know, a number of deals involving older buildings were scheduled to close in December, so we are sure to hear about them soon. The same is true when it comes to converting offices to PRS buildings, because this has obviously now become a trend.

But why do we need an office anyway, when we have working from home and hybrid work…

Exactly. Although I wouldn’t put it so categorically. Indeed, offices are no longer the darling of capital and they won’t be again for some time, at least until the current market upheaval quietens down. To provide an example, everyone in our team at KPMG can choose the days they work in the office.

And what about the future of retail and the other sectors?

The situation is similar. New formats have come to dominate as well as new ways of organising sales. Traditional retail, however, keeps on reviving and is becoming better at filling in the gaps of e-commerce. Smaller retail centres, meanwhile, have fitted in well with the 15-minute city trend, which proved its viability during the pandemic. We previously had huge expectations – probably too big – when it came to warehousing and manufacturing. But this segment is still seeing a decent rate of growth. Some dynamism has also just returned to the hotel market. Occupancy has peaked and some large transactions are in the works. The PRS sector is also growing rapidly and with the current need for accommodation it will probably be among the top performers for many years to come.

Don’t you get the impression that our market is impossible to understand for someone who doesn’t follow its latest trends?

Most definitely. And, moreover, each minute a lot of new information comes to light as well as new issues – and this only goes to show just how important education and consultancy are. By itself, ESG is a huge field of new knowledge, which is turning everything we used to know about real estate and the investment market upside down. The taxonomy is also changing, while on a day-to-day basis new laws are coming into force and old ones are amended – and this requires up-to-the-minute knowledge of these fields.

Speaking of things that are upside down, it’s now early January and several degrees below zero – and yet you’re the only person who seems pleased about this, because you can now go skating!

Yes, I love the winter. It’s what I wait for all year. Up until now, both pairs of my skates (in London and Warsaw) have been gathering dust in the cupboard, because it was too warm for even artificial ice rinks. But I’ve now been able to dust them off and finally put them on. I was in Somerset House in London recently, where they have opened an ice rink in a beautiful setting, and I could have stayed skating on it forever.

Interview: Tomasz Cudowski