Far East capital continues consolidation in Poland

What’s the deal with Poland’s real estate market? Piotr Mirowski, Senior Partner & Head of Investment Services in Poland at Colliers International, talks transactions, teaming up and trends.

This summer has seen a lot of significant activity, particularly in Warsaw, highlights being the sale of Warsaw Spire to Immofinanz and MBank’s 45,600 sqm lease in Mennica Legacy Tower. Are these exceptions, or will there be more big deals like this before the end of the year?

We expect several other large ticket transactions to close before the year’s end, both in Warsaw and regional cities, setting benchmark pricing along the way. It is a clear sign that Poland continues to enjoy ever-increasing liquidity. Office and logistics asset classes have dominated the landscape, accounting for about 75% of the overall activity. New buyers are also looking to team up with established asset and investment managers in JV structures, such as the acquisition of a 70% stake in EPP’s regional office portfolio, which allows them to extract even more value from existing assets and leverage the platform for growth via new acquisitions. Portfolio and platform – meaning a portfolio with the relevant scale and qualified personnel which often accompanies such a platform – are also in high demand, with large players looking to establish a significant footprint in Poland.

You hear mixed reports of the state of retail in Poland. How would you sum up the sector in a nutshell, both in terms of the leasing market and the investment market?

The activity of investors is limited as the general global sentiment towards retail is transmitted to local markets. However, in our opinion, retail fundamentals in Poland are still strong, both in terms of capital markets and leasing, with absorption levels still going strong, despite tightening labour markets across Poland’s major cities. This could be the biggest challenge going forward, in other words, how to increase the pool of new talent. still, around €450m in retail deals closed in H1 2019, some of which were legacy deals – transactions from 2018; however, there were also transactions initiated already this year.

One of the main stories in the investment market is the increase in Asian money coming into Poland. What’s the context to this, and will Asian capital continue to increase in the months and years ahead?

The Polish market has indeed witnessed increased interest from Asian investors, originating from singapore, Malaysia, China, Philippines, South Korea and Japan, and we expect the trend to continue. The main impetus behind increased investment activity is the search for yield. The inclusion of Poland into the FTSE Russell index, the availability of high-quality investment-grade products and the positive mid-term economic fundamentals all combine to ensure it will remain strong. Far east capital continued its expansion, in particular, in office – both in Warsaw and in regional cities – and logistics markets. The market also witnessed the first student housing transaction in CEE. Kajima, an institutional investor from Japan, acquired from Oaktree a majority stake in student Depot, which operates 2,000 beds in five Polish cities. We expect this segment of the market to grow strongly, together with the rental apartment market.

There is a lot of modern office space coming online in Warsaw in the next 18 months or so – is there the tenant demand to fill this space?

The vacancy rate in Warsaw continues to decrease: 8.5% overall as of H1 2019, and 5.6% in the city centre – and a number of projects currently under construction are either substantially pre-leased, pre-committed to tenants or under advanced discussions. The vacancy rate in the CBD is at its lowest level since 2012. Investors share the confidence in the leasing market, a fact confirmed by the interest in office assets. This translated into €1.1bn in closed office deals representing 25 sold buildings in 19 transactions – a new half-year record.

What trends or surprises might we expect in Poland’s commercial real estate market next year, or in the years ahead?

Liquidity and the diversity of investors are expected to grow. All market participants are waiting for the arrival of institutional domestic capital, which could be one of the final missing elements for Poland to be considered as a fully-developed market. However, given the demand, there could potentially be a supply gap in terms of availability of investment product. Pricing is expected to remain firm with further yield compression for prime office buildings in Warsaw city centre and core assets in regional cities, such as Wrocław, Kraków, Poznań and Gdańsk. The surprise could be that investors will be willing to accept a lower spread to Western Europe in comparison to what we have witnessed historically.

Piotr Mirowski, Senior Partner, Head of Investment Services in Poland, Colliers International, has been instrumental in closing numerous high-profile investment transactions, both sell-side and buy-side, across all main real estate asset classes with a cumulative volume in excess of €8 bn, including domestic and cross-border corporate, platform and asset deals. Piotr has been with Colliers since 2006 and his previous professional experience includes Deloitte’s audit department. In 2014, Piotr became an equity partner in the firm.

Piotr Mirowski will be a speaker at the 6th CEE Summit on 29-30 October in Warsaw. Register: theceesummit.com

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Written by: Poland Today Team