News Article coronavirus interview investment MNK Partners Poland war in Ukraine
by Michał Poręcki | Interview

Małgorzata Cieślak-Belgy, Chief Investment Officer at MNK Partners talked to Property Forum about the current attractiveness of Polish the property market among investors and the growing popularity of ESG-compliant buildings.

What is the current position of the Polish real estate market on the international investment map? Could the war in Ukraine chill interest in our domestic assets in the long term?

The war in Ukraine has impacted much more than only the Polish real estate market. In the first weeks of the war, most of the property investment transactions on the Polish market were put on hold. Many investors, mostly from America or Asia, decided to pause their investment processes in Poland due to uncertainty. On one hand, it is understandable, as Ukraine is Poland’s neighbour. On the other, however, Poland is a NATO and EU member, which puts Poland in a much safer position, as Russia's attack on Poland would trigger article no. 5 of the North Atlantic Treaty.  We can see that many investors have already returned to the market, and they proceed with the transactions that were put on hold in the first weeks of the war. The investors' sentiment, however, has not yet returned to the pre-war level.

Poland offers good investment opportunities. Yields are more attractive than in Western European markets and we have a strong letting market in all sectors. In the long run, assuming Ukraine's accession to EU, Poland’s location is very favourable, too.

Małgorzata Cieślak-Belgy

Małgorzata Cieślak-Belgy

Chief Investment Officer
MNK Partners

Małgorzata holds the position of CIO at MNK Partners, where she oversees real estate investments and asset management of MNK Group’s funds in European markets. She has 25 years of experience in markets across Europe in the real estate and finance industry (PWC, Hypo Real Estate Bank London, Reino Partners). Małgorzata is a graduate of the School of Business and Business Administration, as well as Sheffield Hallam University in the UK. She is a property appraiser and a member of RICS. More »

And what about the effects of the pandemic? In your opinion, has our market already recovered from the effects of the Covid-related restrictions? Can this be said of all its sectors?

I think the market has recovered from the effects of the Covid-related restrictions. The retail sector has witnessed growth in sales compared to 2021 figures. There is approximately 250,000 sqm of retail space being developed, mostly retail parks. This type of retail asset has proven to be resistant to the effects of the pandemic and the restrictions associated with it. Retail parks, previously treated somewhat neglectfully by most investors, have been gaining more interest and, consequently, their prices are rising. One of the downsides of this asset class is the rental rates sometimes specified in PLN. This unfortunately reduces the attractiveness of the project for euro investors, including us, due to the exchange rate risk and the need to finance a project in zloty (which, in many cases, makes it unprofitable as the base rates of NBP continue to rise).

The office sector has experienced very good results in the last quarter: increasing rents and falling vacancy rates. After the initial turmoil caused by the Covid-19 pandemic and the introduction of remote working, it is clear now that fears of a big drop in demand have not materialized. Of course, we are seeing some trends of change in the way we work, and in the requirements of tenants, but these were present before and the pandemic has only accelerated these changes. Now, with the increasing construction and fit-out costs caused by the inflation and uncertainty arising from the war in Ukraine, the upward pressure on both headline and effective rents is becoming even more evident.

The warehouse sector was the one that gained during the pandemic, due to the increasing scale of e-commerce. As Ukraine is one of the most important steel producers and exporters, the war caused disruption of the steel supply cycle, which impacted the construction industry across Europe. If you add gas supply disruption, rising energy costs and the increasing inflation hitting all countries across the globe, you can expect a slowdown in construction, and this already is happening, not only in Poland. There is already very low availability of space in the warehouse sector and one can expect that this will not change soon. Lower supply should lead to further rental growth.

MNK Poland is an uncommon case of an investment fund focusing on a specific group of properties in a single market location. Can you please tell us what these properties are?

Currently, MNK Partners is investing the capital of 3 different funds: MNK One, Polska FPS by MNK and the recently launched MNK Europe +. Each of the funds has a different strategy. MNK One is a pan-European fund. MNK Europe + concentrates on core+ assets in a few Western European countries. Polska FPS focuses on the Polish market, while the strategy of MNK One allows investment here, too. In Poland, we have already acquired two office buildings (both for MNK One) and two retail properties (both for Polska FPS). The most recent acquisition of a retail park in northern Poland was closed in June. We are in the process of 3 additional transactions for Polska FPS (2 retail and 1 office), which should be closed this year.

Apart from office assets, are you also interested in the latest market "hits", i.e. warehouses and flats from the PRS segment?

We find the logistics segment very interesting, and we are intensively looking for an opportunity which would fit our investment criteria. PRS is not excluded from our strategy per se, but we do not concentrate on this asset class.

In your opinion, is the Polish real estate market keeping pace with Western countries when it comes to implementing the ESG concept in new buildings?

ESG has been a “hot topic” in the Polish real estate market for some time already and there are developers who made ESG an important part of their business strategy a while ago. It is visible that more developers and property owners/investors pay attention to ESG matters. There are banks, who will finance and there are investors who will purchase only ESG-compliant buildings. One of our funds, Europe+, invests only in ESG-compliant projects. The two remaining funds also are in the process of enhancing ESG aspects of the properties already purchased, where needed.

However, Poland is still behind countries like the Netherlands, where Dutch Building law requires each “office building” (defined as buildings which are used for office purposes) to have an energy performance label “C” or higher as of January 1, 2023; and as of January 1, 2030, all office buildings should have an “A” class energy performance label. Additionally, as of Jan. 1, 2021, all permit applications for new buildings in the Netherlands are being tested against new criteria which aim to ensure that these new buildings are (almost) energy neutral.

What is your opinion on the current financing conditions?

After Covid-19 restrictions were introduced, the market was facing difficulties with obtaining financing, with retail or office buildings being even more carefully analyzed by the banks. Retail centres and hotels were extremely difficult to finance. Now, we are facing new obstacles due to the war in Ukraine, rising inflation and increasing base rates in the case of PLN financing. The latter makes the PLN deals particularly challenging if not impossible for many investors as the cost of PLN debt finance became too high. This will also impact the new supply as construction is financed predominantly in PLN.

What are MNK Partners’ investment plans in Poland for the next 12 months?

As I mentioned, we are in the process of 3 transactions to be finalized this year. We are analysing further projects, hoping the war in Ukraine will end soon and the market uncertainty will cease. We see good opportunities in the market, but we must bear the best interest and security of capital of our investors in mind.