Nicklas Lindberg, the new CEO of Echo Investment, talks to Poland Today about how the company aims to be at the top of the office, retail and residential sectors.
You say that from now on Echo Investment will turn capital over quicker than before in order to develop more projects. There is a lot of space coming online in the office sector, there don’t seem to be many opportunities in big-box retail, and you were quoted as saying that the residential market is cooling. Is there space for greatly increased development?
In office, Q22 has leased out well at rents we are very happy with. We’ve never been into fighting for headline rent. It’s more about quality and a building that will serve all our clients’ needs. Echo is more present in the regional markets than in Warsaw. We’ll always be present in Warsaw, but it’s about hedging your bets. In residential and retail our activity is dominantly in the regional cities, with flagship projects in Warsaw. Our biggest challenge right now is to grow the residential part, especially in Warsaw.
In office, where is the demand coming from?
Mostly from international companies coming in. A lot of international companies go to the regional cities and once they’ve grown, they come to Warsaw. Warsaw is still a very big business services destination and will continue to be so. Look at Credit Suisse taking their second space in Warsaw. It’s the capital, there’s an airport to get in and out quickly. If you look at Warsaw and see the office space per person, there’s still a long way to go. The problem is the second generation buildings that are outdated. They will struggle. The new market is leasing up. But they need to grab their tenants from somewhere. It also depends on how you define new – here in Poland, if it’s seven years old it can be old. In Sweden an office can be 40 years old and still be new. But we’re a little bit early here to demolish buildings. There’s definitely a trend to come closer to the city centre – there are several tenants in Mokotów, for example, looking to come into the centre. Wola is taking a big part of this. Rents are slightly higher, but you avoid a lot of problems such as traffic jams.
Which cities are Warsaw competing with in international terms?
Frankfurt is on a different level, but Dublin has grown dramatically in the last year or so. Warsaw’s also competing with the regional cities. We see a lot of companies which grow (in Warsaw) and reach a certain threshold and say ‘I need to diversify my business’. Otherwise they’re cannibalising themselves.
You’ve completed Q22. Will Echo build other flagships?
We are always looking for flagship projects, especially in Warsaw. It’s important to show what we can do, but it won’t be the major volume of Echo. The biggest priority for us is to grow in all our areas. We’ve divided the company into an office part, a retail part, a residential part and a property-management part, and we now have much more focus and clarity as to which parts we are making enough money and which are not making enough. But what has been obvious over the last couple of months is that growth is crucial to us, especially in residential.
What gives you the confidence that the residential market will remain attractive when you said you think it will cool down?
It will cool down because today we are at a historical peak of instability in the world. But Echo needs to grow in residential because in the regional cities we are between 4-5 percent of the market whereas in Warsaw we are only one percent. We want to reach 4-5 percent in Warsaw. If you have that share in the market, if the market goes up or down, it’s not that relevant. But for that you need the critical mass. You have the same fixed costs, so you need to spread it out over a greater volume.
To achieve higher turnover, what are your sales priorities?
We’re only building for the popular, middle class segment. We’re not going to do high-end like we used to do in the past. We need to sell apartments quicker. The prices need to enable us to be fully sold 6-8 months after completion.
What will you do to speed up sales?
We will adapt the project to the market. Pricing must be right.
And you think the sales policy wasn’t done right so far with Echo Investment?
In the old Echo we looked at selling slower but getting the best square metre price. I’m of the philosophy that it’s better to get a slightly lower price per sqm and have a quicker turnover. Nobody wants to live in a project which is standing half empty too long, or is a construction site for a long time. Echo’s new philosophy is to create destinations, where everything you need is around you. What’s important is to get apartments sold so that once completed, people feel that they’re moving into a ready area. With Warsaw Brewery, there’s going to be office, retail, residential and leisure, so the area doesn’t die after 6pm. In the past it was either one thing or the other. When we came here to Mokotów, it was an office destination more than a residential destination. But we see that it’s turning.
Echo Investment has been a major retail developer in Poland, but now shopping trends are changing. What sort of retail projects does Echo plan to develop in the future?
There will not be so much big box retail as we saw in the past, although there will be a few more. We’re going to buy 1st and 2nd generation centres, change the tenant mix and refurbish them, although we don’t have anything on the radar today. We’re fully busy with Libero, Galaxy and the outlets, we’re working on re-letting the existing portfolio that we divested to EPP. It’s a long time since Echo has been as active in retail as we are now.
Your slogan is ‘The Biggest Polish Developer’ and you want to be no. 1 or 2 in each sector. Is that achievable with 4-5 big developers already in each sector?
For sure it is. In office I’d say we’re already there. If we don’t get up to that critical mass, then we won’t get the benefits that we’re looking for.
By what criteria do you measure the critical mass?
We only measure it based on how much we lease, or in the case of residential, by sales.
Why is it so important to be 1 or 2? If the leasing or sales are most important and they’re going well, is it necessary to be 1 or 2?
If you’re 1 or 2 you can change the direction of the market and you can be a guide to the market. You can more easily make strategic partnerships with investors or suppliers. We’re in a business where you need to reach a critical mass. You have fixed costs which are what they are. If you’re going to be a smaller developer, you need to be a niche developer, and that’s not our strategy.
Is there more pressure on the company now that there is international investment in Echo Investment?
I wouldn’t say that there’s more pressure, I’d say there is more focus. Echo Investment has always performed well. In the past we kept the assets we developed. Now we’ll be a pure developer where we’ll have a quicker capital turnover. We won’t keep the assets for a long time. That is of course an effect of the new shareholder structure. Like every other shareholder they want their returns.
Keeping the main office in Kielce – is that a political or strategic decision?
Strategic. Echo is founded in Kielce, we have most of our people and we have roots there. The front office will be in Q22 where the management team and some of the sales force will be. Kielce is going to grow in importance for Echo. That’s where we have the shared services, the architects, the designers – all the in-house services. There’s a good university in Kielce from which we can recruit. Moving from there makes no sense.
What are the geopolitical issues that can affect the real estate market in Poland?
Brexit has not affected Echo. Having said that, instability is not good, so how will it affect Poland? Some people say it will be good for Poland, some say it will not be good for Poland. Things like Brexit create a bit of a waiting period, when people sit and wait to see what will happen. That’s where we are now. Decisions take slightly longer. But the Brexit uncertainty seems to be blowing over quicker than I had expected. There’s a lot of investment in the different markets and things are moving on. It’s a bit strange with the low interest rates, but Poland remains one of the most stable markets in the region.
Are we going to see more business services companies coming into Poland?
We’ll see the players that are already here expand. They try it in a smaller scale then, if it works, they go bigger scale. They reach certain thresholds and then need to expand to bigger cities. You can do very sophisticated stuff here in Poland – the language skills are excellent, the education is good.
Polish people seem to be more hungry for success than the western or Scandinavian markets. Would you share that opinion?
For sure. That’s why I still love working here. There’s a hunger for success but also a drive to change things. It’s amazing how much has been accomplished in Poland. And the young generation still have enormous drive. People still work so hard to give themselves a better life. There are so many good examples of people who have succeeded, who are succeeding. I have very high hopes for Poland. I like the whole mentality. Living and working in Poland is a privilege.
How does this hunger and drive compare with Western Europe?
I think it could be a problem for Western Europe. If you have countries like this developing so quickly, and if you see what has happened in the last 27 years compared to the same period in Western Europe, it’s a huge difference.