Polish Investment Market - Summary of 2007

8 Jan, 2008, Warsaw

According to global property consultant Cushman & Wakefield, the Polish commercial property investment market saw €2.83bn of assets traded in 2007, which reflects a drop of 40% on the 2006 level of €4.75bn. Despite the slow down, 2007 was another year of intense activity among investors - retail was again the most preferred sector, followed by offices.

Although the 2007 investment level in Poland was lower than in 2006, the volume is still the highest in Central Europe with the Czech Republic at €1.85bn and Hungary at €2bn.

In 2007 there were fewer substantial volume deals with the sale of the Simon Ivanhoe portfolio to Macquarie CountryWide Trust for €232mn being the largest deal of the year. In 2007 there were 77 transactions with the average volume size of €37mn, compared with 97 transactions with an average volume size of €49mn in 2006. The average lot size in 2007 was smaller due to the lack of substantial portfolios or high value assets that were traded in 2006.

The largest financing transaction was the €750mn deal between Whitehall Funds and Mayland, which have agreed to co-develop four shopping centres across Poland. The properties are currently under construction and complete in 2009 and 2010.

In 2007 the most active players on the Polish market were the German, Dutch and Austrian funds, which generally are equity buyers or with lower leverage, for example Deka, Degi, SEB, Union, Meag and ING, Australian investors such as Macquarie, and the local Polish investment funds of AIB Polonia, WBK and BPH.

At the start of 2007 there was still the expectation for further appreciation in commercial real estate prices, but at a less dynamic rate than in the previous years. After the credit crunch in the United States the demand was still high, but investors began to approach real estate offers with more caution, predominantly caused by the increased finance costs.

Michael Atwell, Partner, Head of Cushman & Wakefield’s Capital Markets Group in Central Europe, says: “Pricing and yield compression shift had finished in the second quarter of the year before the credit crunch even came come to light. Initially viewed as a US problem it very soon became apparent that the sub-prime US crisis was severely impacting banks lending abilities and directly impacting the CE real estate market.”

Banks and lending institutions have started to insist on higher margins and lower Loan To Values, as a result the higher leveraged buyers could no longer secure the same debt terms.

The strong occupational markets help to counter the effect of the Credit Crunch and investors are still keen to invest quite aggressively, particularly in the office sector. As a result of rapid rental growth in the past year, particularly for Warsaw’s Central Business District, many buildings leased prior to this have excellent rental growth potential. When such buildings are sold, investors are willing to offer very low initial yields of say 5.5% or even lower. For buildings located in regional cities investors were willing to offer prices calculated on the basis of initial yields of 6.5-7% and even 6% for A class buildings in the very centres.

The demand for retail properties in larger cities remains high throughout Poland with modern retail galleries and retail parks enjoying the greatest interest. At present, the yields for prime retail properties are below 6%.

The warehouse and logistics sector showed strong growth in volume from 2006 to 2007 but overall volumes still remain very low compared to other sectors at only 6% of total volume. However, prices still increased through 2007 with prime yields for modern logistics at below 7%.

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