by Ákos Budai | Interview

The Polish property market has long been the region’s frontrunner and it seems like that nothing can slow it down. In spite of all the fears of last year related to political instability and the Warsaw office market getting potentially overheated, investment volumes are up significantly and development activity is stronger than ever. Piotr Mirowski, Director of CEE Investment Services at Colliers International Poland talked to us about the country’s investment market. 


So far over €2 billion has been invested in Poland this year, indicating that 2016 could be a record year for the country in terms of investment volumes. What are the most sought after asset classes? 
 
It seems that 2016 could indeed be another record year, taking into consideration the volume of transactions, which are currently in due diligence and/or contract negotiations. Historically office and retail asset classes have accounted for in excess of 85% of the overall volume and I expect this trend to be continued into to the foreseeable future. However I note that other alternatives such as student / retirement housing are generating more interest, although there is limited availability of product that can be directed to institutional investors. Platform / corporate deals have also been in high demand.
 
Are there any segments of the market where investors have to face a scarcity of quality product?
 
In general, all the prime assets, which are placed on the market receive appropriate traction and subsequently trade, therefore given the current depth of the market in terms of availability of product for sale, investors would welcome more opportunities in each asset class, particularly for core properties given the demand.
 
Last year many have feared that the Warsaw office market is getting overheated. With annual supply expected to reach a record high level this year, do you expect a consolidation on the market in terms of developments?
 
The office development pipeline contains numerous projects that are under construction. Given the strong reputation of the developers behind the projects, there are to be delivered in line with the schedule. Naturally, the extension of the Warsaw CBD to the west is expected to witness more office development in the near term as all the largest players are already present in the area, therefore pricing and liquidity of CBD office properties is predominantly driven by the length of the residual cash flow.
 
Piotr Mirowski at CEE Property Forum 2016, a conference co-organised by Portfolio Property Forum and RICS.

Over 60% of investment transactions have been closed in regional cities. What are the most popular markets? Is there a strong competition between cities? 

 
Back in 2011, 85% of the capital invested in Poland was allocated to Warsaw and the remaining 15% to regional cities. We have witnessed an exact reversal of the above trend in the course of the last two years (ca. 85% of the volume allocated to regional cities), which highlights the fact that Poland as a whole has been underwritten by the international investment community. Investors are more willingly looking into secondary and tertiary markets in search of quality assets. In terms of office projects, Wrocław and Kraków have been the frontrunners, but we see increased interest in the Tricity, Katowice and Łódź. Cities compete for new occupiers and it also creates critical masses for investors in terms of the size of the market, one of the criteria which is important when considering potential of a given city.
 
There is also a race between CEE countries to attract investors. In your experience what are the most important factors that are driving investors’ decisions when it comes to choosing countries?
 
Performance of the economy, further growth prospects, level of FDIs and EU structural funding (ca. €105.8 billion allocated to Poland until 2020), depth of the qualified labour pool, quality of the legal framework, political stability, scale and depth of the domestic market and relative liquidity in  the real estate market. Poland has emerged as an undisputed regional leader over the last decade. It is the EU’s sixth largest economy, CEE’s largest consumer market and the investment gateway for the entire region. Currently Polish real estate investment volumes account for ca. 40% of the overall transaction activity in the region. 
 
Where are investors coming from? Have there been new entrants to the Polish market? 
 
The geographical composition of the investor pool continues to expand. Historically, German investors have been the market-makers, particularly for core product. Currently the landscape is more diversified, with the most notable group of new investors originating out of South Africa, South Korea and Singapore, both directly as well as through money managers. Successful deals involving investors such as Redefine and Rockcastle have generated more liquidity in addition to increasing the transaction volume and increasing Poland’s status as an established investment destination. In fact, the transaction involving Redefine at ca. €900 million was the largest deal in Europe in Q1 2016. I expect that Polish capital will ultimately become a larger contributor to the market, following establishment of REIT structures, which are currently in the pre-planning stage and as a result create additional liquidity for the market, which will facilitate its further growth.
 
What are your expectations for the next 12 months in terms of investment volumes?
 
Subject to the availability for sale of real estate product of appropriate quality, the investment volumes are expected to remain strong.
 
How have yields changed since the beginning of the year? What are your expectations for the next 12 months?
 
Yields have contracted meaningfully in selected markets over the last 12-18 months, and I do not expect similar dynamics going forward, rather the market to stabilize. However a further slight adjustment cannot be excluded.
 
This interview has been published in the latest issue of Portfolio Property Magazine.