Good times roll at MIPIM 2019
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Record highs and strong demand continue to boost the real estate sector in Poland.
Poland’s real estate market does not operate in a vacuum – various sectors and factors contribute to its position as a dynamic country for investment. At the 30th edition of MIPIM, the world’s leading property event, Poland Today led the Polish conference content for the fifth year running. Politicians, investors, prop-tech gurus, and developers met in Cannes to discuss opportunities for companies and the country.
Vibrant RE Market
Changes in the legal landscape for investors in Poland have been a driver for a lot of new industrialisation, said Tadeusz Kościński, Undersecretary of State at the Ministry of Entrepreneurship and Technology. During the first panel, hosted by the Polish Investment and Trade Agency and moderated by Richard Stephens, Founder and Editor of Poland Today, Kościński also said people are becoming more affluent and are able to buy their own flats and homes, which is boosting the real estate sector. When asked about the labour shortage, he replied that Poland has a lot of economic migrants from Ukraine to satisfy the market, but companies also need to be more effective in upgrading the types of jobs available and increasing salaries. As a message to Poles living abroad in the US, UK and other countries, he said, “Poland has changed dramatically and it’s changing very quickly in all aspects of the economy.” In addition, he said Brexit is helping with this because “Poles who are coming back are seeing that it’s a very vibrant economy with lots of opportunities.”
With over €2.1bn of investment in manufacturing and the business service sector, Krzysztof Senger, President of the Polish Investment and Trade Agency, told the audience that 2018 was a record year for Poland in attracting foreign investment. He added that the best year so far in the agency’s history translated into a successful year for the real estate market, which also witnessed record highs. “There’s a huge opportunity for international companies and investors who are looking for different asset classes to find something that will yield higher investment returns,” said Senger. He also said that changing business models have created a different demand for infrastructure, such as the business service sector which is moving away from centres in cities to more modern regional centres. In terms of other sectors such as logistics, residential, commercial, Senger said, “Our agency is poised to work with the whole real estate sector because things we do impact the other asset classes. So we look at how to attract foreign investors to Poland to bring more yields in the coming years.”
Consistent economic growth is driving these investments, said Monika Rajska-Wolinska, Managing Partner at Colliers International. Poland is safe and stable, and long-term renter growth is very important. Plus, it’s not just about yields, she said, but also the potential and scale of the market. “It’s also about the new occupiers coming to our market,” said Rajska-Wolinska, “which are still mostly international, but we see demand for Polish companies and Polish government companies.” Investors are not just looking at Warsaw, but are turning their attention to regional markets such as Kraków, Wrocław, Lublin and Gdańsk by moving services there. Key drivers for this trend include a talent pool of well-educated people who speak different languages, offer a good quality of life and are able to provide more sophisticated services.
The demand for new spaces for work and leisure is still strong, said Marcin Juszczyk, Member of the Management Board at Capital Park. He added that his company had already managed to secure tenants in the Art Norblin project. The project is quite complex due to its historical aspects, but Juszczyk said Capital Park wanted to give this place back to the citizens of Warsaw. “On the one hand, it’s a great privilege to build a project like this, but it’s also a big responsibility because it’s an important part of a dynamic district in Warsaw,” said Juszczyk.
European Logistics Investment
The logistics sector is experiencing record highs in the CEE region, but along with the opportunities, experts are aware of the potential challenges that lie ahead. During the European logistics investment panel at MIPIM, hosted by Investment Briefings and Poland Today, leading market professionals from across the continent discussed the massive and relentless changes that the logistics sector is undergoing and what this means for investors, developers, service providers and end-users.
China’s Belt & Road Initiative (BRI) will cause major changes to the European logistics landscape and many questions about the potential plans are still unanswered. This was the core message presented by Frank Schuhholz, CEO of FMS Advisors and a global expert on logistics who has been tracking Chinese activities and interests in Europe with a key focus on the BRI. Schuhholz provided key insights into the massive infrastructure developments in China and how Europe can react to it.
Refocusing on the present, European logistics is still doing well according to Robert Dobrzycki, CEO of Panattoni Europe. It’s been another record-breaking year in Europe in terms of volumes and net absorption. Vacancy rates are going down, but construction costs continue to rise and land is becoming more and more scarce. The market, however, is in good stead with strong demand. “Overall, all of Europe is performing better than last year and our volumes are at a historical high,” said Dobrzycki. “It looks like this year’s going to be even better so it still continues to expand and the market is doing well.”
To back up that observation, Joseph Ghazal, Managing Director and Chief Investment Officer at Prologis Europe, said, “We see the momentum really continuing and our investors are actually increasing their allocation to logistics real estate. If anything, all of them are under-allocated to logistics as a sector.” However, the challenge for investors is to find the right products in the right markets because there are some products out there but “not all of them tick the boxes”. He warned that there are some headwinds, but demand is still very healthy.
Online retail is one of the drivers for the increased demand, said Kevin Mofid, Director of Commercial Research at Savills, as is the case in the UK. Online retail in the UK is the highest it’s ever been in the UK and across Europe. When online retail is high, the take-up and demand for warehouse space grows exponentially, according to their research. Ghazal commented that “online sales are definitely a driver for logistics, but they’re not the only one – most of our leasing is done for non-online customers and for typical regional big-box customers that we shouldn’t forget as well.”
Shortage of land is also a concern for the e-commerce sector, according to Raimund Paetzmann, Vice President Corporate Real Estate at Zalando. This has encouraged the trend of building multi-storey buildings to keep up with the demand. He expects the e-commerce sector to double in the next three or four years, meaning space will remain a concern in the future.
In terms of interest from the East, Asian funds have been considerably active in Poland, said Renata Osiecka, Managing Partner at AXI IMMO Group. Although Asian occupiers are not very visible, more are expected to arrive in the next couple of years. Speaking of Asia, Paetzmann added that fast reaction times are important in the fashion sector and therefore producing in China is not always the best option. “China will always play an important role,” he said. “But there are other countries closer to Europe with factories that are even closer to the final customer, so that’s also a trend. Not everything is coming from China anymore.”
Switching over to the topic of rents, Dr. Wulf Meinel, CEO & Managing Director of Frasers Property Europe, said: “There’s a quite attractive market for newly created products, whereas there is not much rental increase for existing or outdated stock unless it is located in very important areas.” The industry still faces challenges such as scarcity of land, permit delays and lags in the political system. Ghazal touched on the topic by saying he has seen rental growth with well-located products irrespective of age. He said rents increased in Poland last year after some “subdued performance”. He added that new products are more competitive and perhaps rents have been subdued due to existing properties, but location still matters. Osiecka, however, said that in Poland, new products cannot reach the rent level offered by older products because of construction, labour and land costs. “The vacancy rate is 4%, so it should be a landlord market,” she said. “But we have big differences between old and new products in terms of rent.”
The Future is Smart
There’s no stopping Poland’s large, dynamic and independent-minded cities which continue to grow and develop. As business continues to boom and investments pour in, experts from various sectors discussed how these cities are handling rapid growth, advances in proptech, the sharing economy and social, economic, transport and infrastructure changes.
During an on-stage interview with Richard Stephens, the Mayor of Warsaw, Rafał Trzaskowski, said Warsaw is one of the most dynamic cities in Poland and the city now wants to attract smart investments that will focus on sustainability and improving the quality of life. “We’ve got incredibly talented people with wonderful ideas, lots of startups, and quite a lot of companies that want to invest in technology and smart solutions for the cities,” he said. As a former minister of digitalisation, he has noticed a small revolution developing over the past six years with new solutions coming to the fore. He said that developers and city officials seem to be on the same page when it comes to focusing on how people spend their time, creating green spaces, adopting eco-friendly practices and improving the overall standard of living. “But it’s not only Warsaw,” said Trzaskowski. “There are 12 municipalities which are like the engines of growth in Poland and I’m especially proud of that. It’s not just one city, but we’re actually developing Poland in a very sustainable way of catching up, diminishing the differences between regions, and investing in people, which is fantastic.”
Tomasz Trzósło, Managing Director at JLL Poland, presented a snapshot at what has changed in Polish cities over the last 10 years in terms of real estate development. A number of regional cities have become attractive and important spots for the office market in Europe including Kraków and Wrocław and no other countries come close with Poland’s pace of development of the office product. “This was possible because of the growth of employment, because of investors, especially from the business services sector, coming to Poland, and creating a lot of jobs,” said Trzósło. “And we all hope there’s still a number of years for the strength to continue.” Other factors which must be taken into consideration when looking at the cities is quality of life, education, culture, and connectivity by all modes of transport. Two cities which have done a fantastic job in recreating the city centres include Łódź and Katowice.
Two experts in the Polish real estate market, Nicklas Lindberg, CEO of Echo Investment and Jacek Wachowicz, CEO of Immobel Poland, sat down with Richard Stephens to talk about transforming cities. Wachowicz said that the international movement of capital and people as well as organic economic growth is driving the real estate market. A lot of companies have been relocating to Poland for various reasons, be it Brexit or the allure of its skilled, dynamic workforce, while domestic companies have also been expanding. Lindberg said that there is a lot of things happening in Poland and there is an entrepreneurial population which is helping new companies get established here. Compared to other major cities in Europe, there is still quite a lot of growth potential in Poland’s capital market, according to the experts. Various sectors, such as office, residential, and logistics, are very strong throughout the country, Wachowicz added.
During the panel discussion, Aaron Block, Co-Founder & Managing Director of MetaProp NYC, outlined some new technologies currently in the works which impact the urban environment and involve machine learning, artificial intelligence and digitalisation. In terms of investments, Roelof Opperman, Principal at Fifth Wall Ventures, said, “There are a number of companies and funds that focus on smart cities, but the challenge from the VC perspective is finding things that are actually really good businesses that are going to have high returns and that doesn’t always translate to strategic ROI for the city. That’s where corporate VCs can step in.” He also talked about micro-mobility and the need to ban cars in certain parts of European cities to not only ease congestion but to cater to new modes of transportation, such as autonomous vehicles, in the future.
Alina Prawdzik, Managing Partner at Innogy Innovation Hub, said there are a lot of exciting technologies emerging in the sector but implementation is a challenge. Sean Tompkins, CEO, RICS, posed the question, “How do we really think about smart in a way which is about people? It’s about cities where people really want to live. It’s about cities where people are going to be happy. It’s about cities that are going to create engagement, and cities that are sustainable, prosperous, and inclusive.” One such Polish city is Łódź where, according to Adam Pustelnik, former Director of Investor Service and International Cooperation Bureau, approximately €1 bn of EU funding was used to make it a smart city and improve the city centre.
Jumping back to the topic of transportation, Wachowicz said, “Commuting is something that everybody encounters every morning and every afternoon …Technology that helps us commute from where you live to where you work is very important.” Warsaw is doing this not just through official city government programmes but also private initiatives, such as electric scooter and bicycle hire schemes. Technology is important, said Lindberg, but “people still need places to meet, socialise and integrate, because the technology is taking over part of our lives.” Nonetheless, technology is being used in residential buildings, offices and public spaces. Prawdzik said one trend in proptech is optimising the data and resources that are being used, such as energy, space, heating and cooling. But another trend is creating technology that improves the well-being of the tenant and air quality is quite an important one and there are technologies now that can improve it significantly. A lot of companies look at Poland for outsourcing tech, according to Block, and there are a lot of opportunities for implementing innovative solutions in new buildings, compared to Western Europe where the infrastructure has already been built. This is great, but as an audience member asked, what are the costs of putting them in place? Prawdzik answered that a lot of technology actually improves the costs significantly on things like energy and occupancy. “So it doesn’t have to cost extra. It actually can deliver savings.”