Things can only get better

The past 12 months on the property and construction market cannot be described as either simple or boring. But is the worst now over? The majority of those who participated in the annual conference organized by Eurobuild Conferences were optimistic. One can only hope they were not simply putting on a brave face

One of those who participated in the first discussion panel summed it up in these words: “Were you to get three heads of the investment sections of the largest real estate agencies together in one hall at 10am to pool their knowledge, the only conclusion they would reach would be that the market is in stagnation and nothing of any significance is happening.” Tomasz Trzósło of Jones Lang LaSalle, who moderated the discussion, pointed out that the year just ending was something of a return to 2000-2001. Łukasz Tarnawa, senior economist of PKO BP bank, first injected a dose of optimism by commenting that Poland had put the worst behind it and that GDP should increase 2 pct in 2010, but then went on to point out that unemployment is expected to rise while the real estate and construction market will continue to be treated harshly by the banks. The economy should get moving again only by 2011 and 2012. Łukasz Tarnawa in his summarizing remarks thought that we may be fortunate enough to be given a Christmas present in Q4 2010 in the shape of better economic results, but 2011 and 2012 seem to be the better bets. The panel discussion also struck a nostalgic tone with Robert Sztemberg representing HSH Nordbank wistfully looking back to the days when bankers rubbed shoulders with developers, setting conditions for loans that allowed the business to prosper.

But are developers going to adapt their projects to  the  current requirements of investors? That was the subject reviewed by the second panel. Jarosław Zagórski of Ghelamco Poland stressed that he just does not understand the mood of panic that takes hold of the market from time to time. Warsaw (city centre) rents have stabilized after the 
period of mind-boggling growth in 2007 and 2008, which is a sign that the situation is returning to normal. The temperature of the debate rose when the issue of sub-leasing arose (the estimated figure for Warsaw is nearly 60,000 sqm), which has resulted in the vacancy rate rising to around 9 pct. But Ghelamco’s representative claimed that this unoccupied space should not be a cause for alarm, since it is those companies that are planning to expand that have decided to take such steps and will later be looking for self-contained offices, or companies that are about to close down.

Andrzej Mikołajczyk, representing the board of Poleczki Business Park, remarked bluntly: “The thing is that sub-leasing influences demand. When the economic situation starts improving, tenants that currently sublet part of the space will want to make full use of the space they already lease. In a word, they will not want to enlarge their office area, but on the other hand will want to get rid of the sub-leasing tenant.” Karol Klin of CB Richard Ellis, who was the discussion moderator, as well as representatives of developers – including Radosław Sieroń of Mermaid Properties – despite this year’s demand being estimated by the agency at around 250,000 sqm (one half that of a year ago), claim that the second half of the year offers a ray of hope for a better tomorrow; and even though many potential tenants are dragging their feet over taking decisions to finalize contracts, the best buildings will be successful.

Warehouse developers are also facing problems. Tomasz Kasperowicz of Colliers International discussed their aches and pains with Ben Bannatyne of ProLogis, Robert Dobrzycki of Panattoni Europe and Craig Maguire of PointPark Properties.

Robert Dobrzycki eloquently described the situation thusly: “The demand for warehouses came to halt on a single night and we, that is, developers, are unable to halt the construction process at the same speed. The effect caused the wind to blow through the big boxes instead of them being used to store goods, while tremendous downward pressure was exerted on rents.”

Craig Maguire is pinning his hopes on demand from food industry tenants and those in the light industry sector. While looking back in time at the expansion in Poland of such companies as Gazeley and AIB, the question which must arise is: is there any room for new players on the market while the struggle between existing companies is intensifying? In the opinion of Ben Bannatyne: “No. The competition is too great. Of course I’m joking. Seriously, there is still room for new players. I would estimate the target for new warehouses as 6 mln sqm.”

But what about shopping centres – is there still any space for them on the Polish map, especially outside the biggest eight cities? Mariusz Kowalczyk of Echo Investment dampened expectations during a debate moderated by Grzegorz Dudziak of DTZ Management Polska, claiming that: “Following the period when companies that often had little development experience fell over themselves to invest in retail projects without any professional preparation, the time has now arrived to sort things out.” Mirosław Będnarek of ING 
Real Estate Development revealed that his company decided not to invest in smaller cities due to, among other reasons, a lack of interest by investors – and because it is also important to get out of an investment registering a profit. In Mr Bednarek’s opinion, new projects will appear but better adapted to the demands of the local market and not, as has been the case in the past, 30,000 sqm fashion outlets in small towns.

The time arrived for the residential session, following lunch and a business card lottery organized by Netia. The participants in the first discussion, moderated by Paweł Sztejter of REAS, dealt with such issues as the still-restricted access to finance for both developers and individual buyers – although Ryszard Danielewicz, board president of Pirelli Pekao Real Estate, declared that he is certain that next year there will be significant movement when it comes to starting new projects. The first signs of this might be such huge projects as one in Saska Kępa for almost 1,600 apartments announced in late October by  Dom Development – one of the  largest residential developers.

Zbigniew Malisz, the general director of Polski Związek Firm Deweloperskich, joked about the state’s role in expanding the sector: “What does a pessimist see in a cemetery? Lots of crosses. And what does an optimist see? Only pluses.” A group comprising Adam Polanowski, president of the Polanowscy Nieruchomości agency, Iwona Załuska of Upper Finance Consulting, Grzegorz Czaus, partner of Studio Architektoniczne Ozone, Iwona Dekarz, sales director of Echo Investment’s residential projects department and Henryk Feliks, deputy president of Gant Development, spoke on how to build lasting relations with buyers.

However, the conference was summed up by a discussion devoted to the construction sector. Moderated by Marcin Klammer of EC Harris, the panel also included deputy mayor of Radom Igor Marszałkiewicz, Paweł Kuglarz of Beiten Burkhardt, Richard Burleigh representing Skanska and Alfred Watzl head of Strabag Polska, and stressed the importance of EU funds for the growth of infrastructural projects.

The years to come will reveal who were the real winners of the tenders – not just those whose offers win, but those whose projects are profitable. The final event of the day-long meeting was the business mixer, during which the chat about property (and other matters) lasted well into the night. And a year from now – November 25th 2010 in Warsaw’s Hilton hotel – we will not only be summarizing the  previous 12 months, but also announcing the winners of the 
Eurobuild Tenant & Market Awards. (And)