BRIEFING: Smaller CEE countries catching up with Poland for savvy investors

Poland remains the investor darling in Central and Eastern Europe (CEE) with huge potential for real estate growth to meet increasing occupier demand, but smaller countries in the region are catching up, PropertyEU’s CEE investment briefing in London heard in mid-September.

Huge potential remains for real estate growth in Poland to meet growing occupier demand, according to Adrian Karczewicz, transaction director CEE at Skanska Commercial Development Europe.

Karczewicz said that demand was less in the Czech Republic and Hungary. 'We estimate around 150,000 jobs could be created in Poland in the next five years,' he said. This translates roughly to around 1.5 million m2 of office space. Skanska is developing office buildings across the region, including in Warsaw, Bucharest and Prague. 'We are quite positive for the next couple of years. Our only issue is buying land,' he said.

But political risk and difficulties in raising finance are still issues. International investors are sensitive about entering areas such as Hungary, Russia and Ukraine.

'I don’t know of anyone looking at the Ukraine at the moment, and Russia is also at the top of the risk list,' said Andreas Ridder, chairman, Central & Eastern Europe, CBRE. 'I was in Moscow a couple of weeks ago and there the economy is contracting by 4% with retail spending 9% down this year. Office demand is 50% below the long-term average with office rents falling by 30-50% in US dollar terms, but there are lots of opportunities.

'New investors are coming, mainly from China and also Russians with cash who don’t want to invest outside the country but see investment in residential development in Moscow as the answer.' As a result, some developers are changing planned office developments to residential, he said.

E-commerce is driving real estate development for European logistics developer Panattoni. Companies such as Amazon are serving a Western consumer base from huge warehouses in the CEE: A Czech Republic or Polish labour force serving German customers.

Bounce back
Árpád Török, CEO at TriGranit predicted that Hungary will bounce back to pre-crisis volumes within the next 12 months, despite perceived political concerns. 'All CEE countries are at different stages of development. There is no such thing as Central Eastern Europe any more. Pre crisis yields were often the same in Poland, the Czech Republic, and Hungary; even in some sectors in Romania. And volumes were relatively balanced out based on the overall size of the individual markets. Now Poland remains stable, transactions are happening in the Czech Republic and although Hungary transactions are not up to pre crisis levels there is clearly interest.'

Investment continues to pour into Poland, according to Michael Sternicki, general manager Aareal Bank Poland. “20% of the smaller country’s populations are located in their capital cities,” he said. “In Poland there are around 13 cities with populations in excess of 200,000 people.”

Banks are not only competing for product amongst themselves, but with prime equity funds on the debt side. Sternicki added: “The American funds cannot make the funds work yet, but sooner or later they will get their heads around the issues. They need a ticket for a €100 mln plus. Poland can probably deliver that, and not only in Warsaw.”

Banks and investors are going up the risk curve, added Aareal Bank’s Sternicki. The good news is that money will probably stay cheap for the moment.