In the time of crisis

Poland is a country that, next to Germany, continues a positive trend in the real estate market - this has been unanimously affirmed by the participants of a session at the European Economic Congress that took place in Katowice.

The second wave of the world crisis will undeniably affect Poland and other CEE (Central and Eastern Europe) countries as the economic slowdown in world markets has caused the European commercial real estate market sales to drop since the beginning of the year – has been said at the Commercial real estate market in Central Europe session during the European Economic Congress. This may lead to a one-year economic slowdown in Poland that will be reflected in the commercial real estate market - explained Hadley Dean, managing Partner for Eastern Europe at Colliers International. However, he agreed with the other debaters that Poland and other CEE countries can still come out on top in this situation, and that in the long run, the economic foundation of the country will not be jeopardized.

Defense through stimulation

Regarding the positive trend in the real estate development, the Polish market is much more likely to be compared to the stable German market than e.g. to the Hungarian. The debaters, however, expressed their concern about how the Polish economy may be unfavorably influenced by the Eurozone turbulences related to budget problems in some UE countries. According to experts, in Poland, the real estate market is stimulated mostly by making improvements in the communication infrastructure which leads to a spring of new properties that  developers consider attractive. Other factors that encourage investments in Poland are the thriving economy and export as well as the increasing consumption. The latter is reflected in the rising demand for commercial spaces, however of different type than before. Now at demand are smaller and consequently cheaper spaces and smaller shopping centers.

Regarding the demand in the investment area in the European markets, the CEE region on the whole is not homogeneous. In Hungary the demand is very low, additionally, in Hungary, Romania and in other countries, development is thwarted by the unstable political situation and high investment risk. Also in Czech Republic the prospects are not very good. Europe is divided. In Italy, Belgium and France the situation is not looking good either. In Germany, on the other hand the demand as well as the expected capital value are growing. Similarly in Poland. After two years of growth the investment market is now stable.

Because of those disparities the debaters discussed respective countries individually rather than try to define the CEE region as a whole.

The smaller the cheaper

The topic of small shopping centers has been discussed by Jeroen van der Toolen, Managing Director for CEE at Ghelamco Poland which is mostly known for developing office buildings. According to Toolen, the office space market will be exhausted sooner than the commerce space market, hence the company’s decision to expand its operations to this new field that will generate more income. The Managing Director of Ghelamco also said that Poland has a great potential in the commercial sector which manifests itself in high retail sales in the country. Additionally, market research conducted by the company, showed a steady increase in the demand for commercial space in shopping centers. However, we see that a significant number of lessees prefer to take their businesses to smaller and cheaper  premises – said Toolen.

This has been confirmed by the other participants of the session, who also point to the shift in the commercial real estates preferences. On the one hand, lessees prefer smaller and cheaper premises but in turn they expect high standards. This propels the demand for high quality spaces. This is why new investments flourish in Polish towns and smaller cities. For investors, such as e.g. ECE Projektmanagement, Polish market is the leading market in retail sales, and it is just as stable as the Czech or German market. Rüdiger Dany - president of the board at ECE spoke about investment markers, such as retail demand and long run investment stability. ECE, which specializes in investing in shopping centers is now redirecting its focus, accordingly with the latest demands towards smaller objects located in towns and smaller cities. The ECE president expressed his hope that this innovative strategy will bring his company a significant profit.

Hungary with doubts

Other countries that ECE is interested in are Bulgaria and Romania. However, the political instability in those countries is an obstacle. ECE also has its eyes set on Russia and –even more- on Turkey, which, as Dany said, is going to become one of the most significant commercial real estate  markets. Regarding the development potential, Poland places close to Moscow, which is at the top of the list of places of interest.

This view is also shared by Manfred Wiltschnigg,  Member of the Board at IMMOFINANZ Group. Apart from Poland, for IMMOFINANZ Group the most important development paths in CEE (Russia not included) are Czech Republic Slovakia, Hungary and Romania. Wiltschnigg emphasized the significance of Romania, which, however risky, proved a prosperous choice. Romania is one of the most important markets to us - said Wiltschnigg. However, as to Hungary opinions were divided. Immofinanz is at the moment the only company making any investments in Hungary. The director of the company said that real estate there is cheap and that politics does not influence the real estate market so much as it used to.

Although crisis is a good time for takeovers and some investors are favorably disposed towards Hungary, Edgar Rosenmayr   Managing Director at Kulczyk Silverstein Properties said that his company has some serious doubts about the future of investments there. We have to be careful and take into account the macroeconomic spectrum - said Rosenmayr. His company is now focusing on Poland, mostly on office spaces. This is the market that we wish to invest in as Poland has the greatest potential in the region – said Rosenmayr.

Hurdles in finances

The debaters at the congress emphasized how hard it is to satisfy  the conditions for investment financing imposed on developers by banks. Credits are getting more expensive and hence less profitable, and the negotiations with banks can last twice as long as before. This is being accredited to some banks being unprepared for the crisis. The debaters presume that some banks will have to go out of business. The poor financial situation in Europe could be helped by the capital flow from hitherto not involved commercial regions such as Korea, Qatar, Malaysia and also Russia.

The debaters also discussed the matter of lessees, who, in this situation expect longer lease contracts, even for 10 years. They also eagerly  pre-lease on terms favorable to them. Also, lessees refuse to pay in Euro which is troublesome for developers and facility managers. Introducing common currency in the CEE countries would resolve the problem.

As has been summarized at the end of the session, Poland is a valuable representative for the CEE region. And Poland's cornerstone of course is Warsaw, which, however,  far exceeds the rest of the country. Since the beginning of the year a rise in rent rates has been recorded in the capital. Currently, it is 22.5 Euro per sq m in the center and 15,5 euro off center. The prices are likely to stay at the same level throughout the next 2-3 years.

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