Justyna Filipczak, Head of CEE at Cromwell Property Group, talked to Property Forum about the current investment trends, the attractiveness of retail and office properties and the company`s ESG agenda.
Cromwell Property Group has been intensively buying up attractive warehouse & industrial assets in Western Europe in recent years. Do you intend to move in the same direction in Poland?
Our investment strategy is to anticipate future product trends. At CMW, our Research Team constantly reviews megatrends - debt, sustainable buildings (including brown to green conversion), and housing. Within CEE in 2021, we acquired a logistics/light industrial portfolio of 12 assets across the Czech Republic and Slovakia totalling 147,000 sqm, reflecting its growing importance during and post-pandemic. Last year, we developed around 30,000 sqm of additional space in Lovosice and Nove Mesto. We continue looking at opportunities, although this remains challenging as market prices have yet to reflect higher capital costs.
Justyna Filipczak
Head of CEE
Cromwell Property Group
In Poland, CPG still maintains an impressive portfolio of retail and office properties. Do you believe in an increase in the value of these assets in the long term?
Definitely. The current situation is temporary, as anyone with experience in property cycles will tell you. Once financing costs become cheaper, the demand for new deals will increase, raising prices back to normal levels.
The fundamentals of the assets haven’t changed. I believe most landlords' assets are performing well and far above expectations immediately following COVID-19. Recently, the Polish Council of Shopping Centres reported that by August 2023, turnovers increased by 8.4% YoY and 12.5% YTD across all shopping centres, with a 10.1% increase YoY in large shopping centres. Entertainment increased by more than 68%, services by 27%, gastronomy by 15% and fashion by 8.3%. The new government may also rescind the ban on trading on Sundays which would further boost turnovers.
We believe in the value of our assets. We see their potential given recent market changes and we respond to customers’ and tenants’ needs. For example, we continue to add new amenities and improve ESG metrics wherever we can. A great example is the recent opening of a playground in Janki shopping centre that is designed to be inclusive for blind children, offering them tactile and auricular play.
While higher demand raises all property values, those landlords who have teams fully devoted to managing and imaginatively improving their assets will benefit the most.
ESG is an acronym that will completely define the future of commercial real estate in the near future. How do you implement ESG directives in your properties?
We acknowledge the significance of ESG and the challenges the sector confronts, yet we perceive these challenges as a tremendous opportunity to create meaningful change.
Our global ESG team provides technical expertise for local teams across Europe and our group Head of ESG holds a permanent seat on the investment committee.
We continually look beyond current ESG regulations and expectations to ensure we are future-proofing our investments. This holistic view of the entire ESG agenda, combined with locally gathered data and expertise allows us to prioritise investments where most relevant.
As fund managers, a substantial portion of our emissions and impacts fall within the Scope 3 footprint, so we must include the entire value chain in our activities and measurement. We proactively engage with clients and tenants through our green lease initiative. We conduct energy audits to identify carbon reduction opportunities. This data feeds into our capital expenditure plans and helps us to create ESG strategies.
Recently we arranged a green loan for one of our retail assets under the group’s Sustainable Finance Framework. The agreement specifies that CMW needs to report renewable energy usage and annual greenhouse gas emissions and ensure that at least 50% of new leases include green clauses that cover Scope 3 emissions.
Czech Republic, Slovakia or Poland? Which of the countries in the region where you are present do you currently consider to be the most promising?
Oxford Economics expects these countries to be among the top five fastest-growing European economies over the next five years. Despite similar strong economic outlooks, all have unique underlying strengths related to factors like politics, supply, demand, demographics and economic structure. This highlights the benefit of having a diversified investment strategy across different segments and locations as it enables investors to benefit from exposure to markets with different fundamental drivers.
Poland, being the biggest among the countries we are present in, is well positioned for future commercial real estate value growth. It is projected to be one of Europe’s strongest economies over the next five years. It has benefited from significant immigration from Ukraine, which has increased skilled labour availability and consumer spending. It has also received investment from the global supply chain changes in the manufacturing sector as businesses seek to reshore activity from Asia. Poland’s competency in dealing with the Ukraine invasion and its recent election result, which shall ease access and release billions in EU funding, has improved its standing amongst international investors. We expect rising capital flows into the commercial real estate market.
What is currently the biggest concern for investment funds operating in the CEE region? Is it just high interest rates and difficult access to financing?
The CEE is impacted by the macro trends impacting global real estate such as interest rates, inflation and the economic outlook. In the short term, investment funds are waiting for pricing to stabilise and investment liquidity to return. The conflict in Ukraine is also an impediment to higher allocation and activity. Consistent with other countries, there is an urgent need to address real estate sustainability which impacts existing portfolios including our own. However, against the backdrop of strong economic performance and growing occupier demand, these concerns are much easier to deal with.
Are you planning any new investments in the CEE region in 2024 and can you already tell us about them?
Given the investment sentiment, we will continue active asset management with a strong focus on green initiatives.
