Ben
Habib, the chief executive of First Property, a group of property
investment funds, believes in the Polish real estate market.
In the past year, he has bought a €20m supermarket in the central city of Lodz and a €11m shopping centre in the eastern town of Krasnystaw.
"We're very hungry to do deals in Poland at the moment,” he says.
He is not alone. Large property funds, many of them German, have shaken off their reserve about investing in central Europe and are plunging back into Poland, buoyed by its economic record – it was the only EU country to avoid recession in 2009 and in 2010 clocked up an economic expansion of 3.5 per cent.
After a very weak 2009, investment volume in 2010 came to €1.9bn, more than double the turnover a year earlier. Overall, there were 41 transactions, up from 19 in 2009. That compares favourably with the overall European market, which saw a 53 per cent rise in annual volumes to €95.9bn for the year.
"Poland had a decent crisis and it has become a target market for investors,” says Joanna Kowalska-Szymczak, an analyst with DTZ, the property consultancy.
One of the largest transactions was the €300m takeover by CA Immo of Europolis, an Austrian fund whose portfolio included eight Polish properties. Another high-profile transaction, in a deal expected to close in the first quarter of this year, was the sale by London-listed developer Carpathian of Warsaw's Promenada shopping centre for €170m to Atrium European Real Estate.
German property funds, which have traditionally accounted for about a fifth of the Polish property market, are also returning to the fray. They had been much more cautious in 2009 and in early 2010, after the German government proposed regulatory changes to the way that they did business. Now that most of the changes have been adopted, the funds are again willing to invest.
During the height of the crisis, they tended to be interested only in top-quality properties in the sub-€20m price range, says Ms Kowalska-Szymczak.
However, as the environment has improved, they have eased their criteria, as could be seen in the recent €76m sale of Warsaw Zebra office tower to Germany’s Union Investment Real Estate, which took place despite being only 75 per cent leased – something that would have been more of a problem a year ago.
Fabian Hellbusch, a spokesman for Union Investment, notes that "Poland has enjoyed impressive growth over the past 10 years and its economic structure increasingly resembles that of the original 15 EU member states. For us, the Polish market was the most attractive market in the CEE region in 2010 and will be on our watch list also in the next years.” He adds that the fund expects to invest about €1.3bn this year.
He says: "We strictly go for quality – also in terms of sustainability – and would also like to diversify our portfolio in Poland within the sectors where we are already active – hotels, retail with the focus on shopping centres and offices.”
That focus on quality is a hallmark of larger investors, who are concentrating their financial firepower on offices in the centre of Warsaw, an area where rents have remained stable at about €23 a metre, and where there will be relatively little new space coming on to the market, thanks to the slowdown in development caused by the economic crisis.
However, there is relatively little interest in "B” class offices further from the city centre, which would need a lot of investment to upgrade to the conditions expected by the large companies crowding into the core of the Polish capital.
John Duckworth, managing director for CEE of Jones Lang LaSalle, the real estate services company, says "It's been a good recession for Poland, as more fringe and less secure investment opportunities disappear and people focus on quality. Poland certainly looks like a good bet for the next two years.”
Polish retail, particularly shopping malls in the largest cities, is also attracting investor interest, thanks to the buoyant consumer, who continued to spend during the economic crisis – one of the main factors in keeping the country from falling into recession in 2009.
As a sign of its attraction, Poland pulled in five times more retail investment than Hungary, which brought in €185m and the Czech Republic, with €179m invested in retail real estate.
As capital has flowed back into the sector, yields have compressed, dropping to between 6.5 and 6.75 per cent, with DTZ expecting yields to continue falling this year. Two years ago yields of as much as 8 per cent were not uncommon.
The focus on quality prime properties, is leaving the field open for smaller and more aggressive players such as First Property. They hunt out deals that are either too small or too peripheral for the largest funds, but which could still prove to have good returns.
"We are looking at the smaller population centres, because we believe that Poland will continue to do well over the next few years,” says Mr Habib.
Source: ft.com