Keeping the miracle alive

Despite an apparent improvement in the global economy, dark mutterings can be heard about a possible second global crisis. Two years ago, Poland was among the lucky ones, going through the so-called 'velvet crisis'. But is the country ready to weather another storm?

Mladen Petrov

On the panel:
Yann Guen
vice president, Mayland

Ewa Kraszewska
legal advisor, Trusiewicz & Siwko Law Firm

Paweł Graliński
president, Arch Magic Group

John Banka
partner, Poland Investment Services, Colliers International

Maciej Tuszyński
executive director, Poland, Westdeutsche ImmobilienBank AG

Richard Stephens
awards director, Eurobuild CEE (moderator)

Poland is "a green island" in the troubled sea of Europe. Or it's "a safe haven for investors". Is there is anyone who hasn't already heard such opinions? Exactly, that's what we thought. But remember that this was back in 2009, when it became clear that no-one was protected from the credit crunch. In that year, EU10 GDP contracted by 3.6 pct, and EU15 by 4 pct, but in Poland real GDP actually increased by 1.7 pct. Poland enjoyed the ride and the good PR abroad, featuring in first page articles in influential papers such as the New York Times on the reasons behind the Polish miracle. Two years later it is now time to ask where Poland is at economically. After all, each country, no matter what the macroeconomic outlook is, should be asking itself the same question. So 'Eurobuild CEE' provided the perfect opportunity to do just this by holding the second 'Executive Talks' evening debate in Warsaw.

Too full of ourselves?
The title of the first debate, 'Poland - complacency creeping in?', suggests that Polish confidence might not be that well-grounded, especially now, with the environment remaining hostile and countries such as Greece, Spain, Portugal and Ireland continuing to cause headaches in all the EU capitals. Some pessimists on the real estate market present in the audience might even have felt like they were experiencing déja vu as one question kept coming back: are we entering a second global crisis? "I don't think we are going to see a second global crisis, similar to the one in 2009. In my opinion, there will be a series of local crises. We are going to have around ten years of instability on various markets across the globe," argued professor Wojciech Orłowski, the chief macroeconomic advisor of PwC. "As for Poland, we got lucky and we should enjoy it. Nevertheless, that doesn't mean we don't have problems," he added.
According to the World Bank Poland still needs to push ahead with structural reforms aimed at consolidating public finances in a sustainable way, increasing employment, reducing poverty, improving the business climate, upgrading infrastructure and energy efficiency, and promoting more effective government. An acceleration in the pace of privatisation should also be high on the government's agenda, the bank suggests, as this would help to moderate a rising public debt-to-GDP ratio. As for the GDP growth in the near future, according to the bank this will be above 4 pct in 2011/2012. The recovery is expected to be driven by improving global conditions, higher investment supported by increased EU funds, moderate consumption growth, and strengthening financial markets.
This is how Poland is currently being viewed from the World Bank's headquarters. But are market players based in Warsaw seeing the same picture? Poland is on track to joining the euro-zone, but will there soon be a euro-zone at all? According to Professor Orłowski, the troubled euro-zone is not about to collapse. "There is enough money available to support the euro-zone," he insisted. Over the next six months Poland will hold the EU presidency. After the joining the EU in 2004, the country has been the largest recipient of EU funds. For those who haven't been to Poland for a while the change is visible, if not stunning. As work begins on the new EU long-term budget for the 2014-2020 period, the question arises: how much will Poland receive this time around? During the debate the consensus was that Poland is still most likely to be the largest recipient of EU funds, but with one significant difference - less money will be put on the table. And in the case of Poland a shift from infrastructure to creating a knowledge-based innovation economy is expected take place.

A new attitude
"It's about time," agreed John Banka, a partner and director of investment services at Colliers International Poland. "Poland should focus on education. Lots of great companies have come to Poland due to the talent the country produces, but it is now time for the country to become a developer of outstanding companies which can attract people to Poland," he added. The potential of the country is one thing, but doing business in Poland often turns out to be something completely different. Or does it? Things are changing, the panellists agreed. Ewa Kraszewska, a legal advisor specialising in PPP projects with the Trusiewicz & Siwko law firm, revealed that due to recently introduced legislation a positive change is taking place - the number of proposed projects is rising considerably. "The majority of the projects are still for sports and recreation facilities. It is too early at this stage for larger PPP projects. But the sentiment is changing and as the EU money starts to dry up we will continue to see improvements in this area," she believes. Poland still has a long way to go regarding PPP projects. ?In Poland money is also available through the traditional channel - the banks. According to Maciej Tuszyński, executive director of Westdeutsche ImmobilienBank in Poland: "I am always rather optimistic, but everyone would agree that more banks are coming back into play. We were asked to do more lending in Poland this year, so for our bank it is still a very promising market." What projects are the banks looking at? Who will be the main beneficiaries of the good news? "Warsaw is not a boring place these days. Large-scale projects, such as Ghelamco's planned Warsaw Spire skyscraper, are certainly brave. Creating over 100,000 sqm of office space in one building in a city like Warsaw is risky, but I believe the project has a chance of succeeding," Mr Tuszyński said.

Boomtown?
It takes much longer for projects like this to take off, but ironically, this might actually be a good thing. "Honestly, I am not sure how Poland has come to be considered a lucky country, given the red-tape the country is notorious for. Because of this we cannot have over-supply on the market. We can't really say that Poland has experienced a boom. A boom suggests something extraordinary, whereas the things happening here are very much ordinary. It is all part of the journey towards achieving normality. In my opinion, Poland in many respects still remains under-developed when compared to Western European countries, and even the Czech Republic," commented Paweł Graliński, the president of Arch Magic Group, adding that the Polish average salary is still only 50 pct of the average salary in Western Europe. By comparison, the average salary in the Czech Republic is 80 pct of that in Western Europe.
Salaries are important for all real estate developers - and for shopping centre developers in particular. Can they see anything to worry about lurking on the horizon? "I am not worried about a second global crisis. Working in a cyclical environment is a given in our industry," claimed Yann Guen, the vice president of Mayland, one of the largest retail developers in Poland. "But as we move forwards, we as developers need to be more creative. In Poland, nevertheless, we still have lots of work as the retail offer significantly varies between the cities. There is a lot of talk that the shopping centre concept is becoming outmoded, but as some malls get older we have a great opportunity to work with the existing material, repositioning and re-branding them. I think this is the main trend right now."
According to Paweł Graliński, the time has come for the first real regional shopping centre in Poland. "Clearly, more people are buying online, but they still need to go to the mall. A larger offer is one way of attracting them." We shall have to wait and see when the first such centre is launched on the market. Maciej Tuszyński thinks the focus should be on bringing customers back to city centres. "I doubt very much whether anyone would be willing to finance such an enormous project," he added. Colliers' John Banka is of the opinion that "multi-integrated centres, offering more things in one location, have potential. People get more things done and in that sense they are greener. As for financing, there is growing optimism on the market. I haven't seen a lender saying no to a good project for some time, and that is a positive sign indeed."