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Investing in the real estate sector

On 23 February a meeting in the Property Talks cycle took place, organised by DTZ under the auspices of Dziennik Gazeta Prawna, Financial Times and The City magazine. The gathered guests and speakers discussed the influence of the turmoil in the European market on the commercial real estate sector in Poland.

Among the speakers of the panel discussion, there were Ben Habib, CEO of First Property Group, Jakub Borowski, PhD, Chief Economist, Kredyt Bank S.A., Magali Marton, Head of Continental Europe and Middle East Research, DTZ, Robert Woreta, PhD, Polish Financial Supervision Authority and Paweł Grząbka, PhD, Adam Smith Research Centre and CEO of CEE Property Group. The meeting was chaired by Jan Cienski, the Warsaw correspondent of the Financial Times. The account of this meeting is stated below.

How do you see investing in the Central Europe real estate sector?

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As a property investor, you must also have an eye on the direction of investment yields and therefore what is happening to the value of your property - even if you think the tenants are doing well and rents are likely to be sustainable. In 2009 we believed in the macro picture, but we were nervous of what might happen to the banking sector and therefore what might happen to property values.  The other nervousness we had in 2009, and something which has not really been commented on, is the fact that the commercial property investment market in Poland trades in Euros, whereas the underlying currency that tenants earn their money in is the Zloty. It is a direct foreign currency risk. Just when we were beginning to think we could invest more confidently last year we were again reminded of the risk that this exchange rate presents. Many transactions last year were in the retail sector and it is retail tenants who are going to be immediately affected by a weakening Zloty. Rents for retail tenants represent a significant part of their cost base and a weakening Zloty means an increasing cost base. The situation is even worse for retailers who import their products.

At the moment, it is too early to tell where the retail market in Poland is going in view of what happened during the second half of last year and what affect it will all have on the sector. None of it is positive, I am afraid. It is encouraging that the Zloty has recovered and I think the 2012 picture looks reasonably positive as a result but when you are buying a property you are not buying it for a 12 month view – you are really buying it for 5 or 6 year view. So one must have a long-term perspective and the events in the second half of 2011 do not bode well.

The other aspect to consider is that the EU cohesion policy contributes a significant part of Poland’s growth and this is going to wind-up at the end of 2013. What happens to the Polish economy when the EU cohesion policy funding comes to an end? What happens when those 67 billion Euros have been dispersed? The EU is not in the mood to give money away easily anymore.

I think we are living in the time of great uncertainty. As property investors we have to look at the long term and therefore, as a firm, we are behaving very cautiously at the moment.  

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