International investors seized on the continued strong economic momentum in Central and Eastern Europe (CEE) – notably Poland – to trade high-profile office and retail assets during the first half of the year.
Poland lived up to its name as the favoured destination for international property investors in the first six months of 2019 with several high-profile office – and a handful of significant retail - deals across its main cities. The country captured the majority of the biggest transactions recorded by PropertyEU in Central and Eastern Europe in H1 (for which the price was disclosed), confirming its reputation as one of Europe’s most stable economies with compelling macro fundamentals.
Its low unemployment rate and high levels of disposable income, coupled with the presence of a growing number of major international corporates, have contributed towards establishing Poland as a high-performing, service-driven economy.
According to Deloitte’s first-ever Real Estate Confidence Survey for Central Europe, carried out in the first half of 2019, a clear majority (62%) of the xx respondents expect the overall economic climate to remain stable, while nearly a third whose primary market is Poland expects overall conditions to improve. This optimism is based on anticipated GDP growth of 4.2% for Poland in 2019, compared with 2.6% for the Czech Republic and 3.7% for Hungary.
Despite increasing competition driving lower yields for offices (below 5% in Warsaw and Prague and less than 6% in Budapest during 2018), the sector is again set to be the hottest market throughout the rest of 2019, with investor interest focused on prime buildings in capital cities, according to the Deloitte survey.
Warsaw Spire crowns deals
This is borne out by the transactions tracked by PropertyEU in the first half of 2019, with the €386 mln acquisition of the Warsaw Spire in the Polish capital by Austrian property group Immofinanz crowning a clutch of transactions all in the €100 mln-plus range. The 220 metre-high tower was completed by local developer Ghelamco in 2016, with US investor Madison taking a 50% stake two years later in a deal valuing the landmark tower at €350 mln.
Not entirely incidentally, perhaps, Madison was on the buy side of a major corporate deal in Poland in May this year when it acquired a 65.9% controlling stake in developer- investor Capital Park from Patron Capital Partners. Founded in 2003, Capital Park is one of Poland's largest developers, and Patron had been involved with the firm since 2005. Capital Park is currently redeveloping the two-hectare former Norblin, Buch Brothers and T. Werner factory in Warsaw's Wola district.
In another substantial Polish deal, private equity investor Henderson Park entered the market in June with the acquisition of a 70% interest in a portfolio of three office parks held by EPP. The assets total 105,000 m2 of primarily new Grade A office space across 11 buildings, which are located in three of Poland’s top five largest cities: Kraków, Poznan and Lódz. Explaining the rationale behind buying into the €250 mln joint venture, Nick Weber, founding partner of Henderson Park, said: ‘This transaction marks our entry into the Polish market, where we see great potential, and at an attractive entry level.’
AIM-listed property firm Globalworth scored a double Polish whammy by acquiring the Warsaw Trade Tower for €133 mln and the Rondo Business Park in Krakow for €37 mln as it continued its ambitious acquisitions strategy in Poland. The 38-storey Warsaw Trade Tower is one of the tallest skyscrapers in the capital, while Rondo Business Park in Krakow is located near Quattro Business Park, also owned by Globalworth, bringing its Polish portfolio to almost 500,000 m2 of GLA in office and mixed-use properties.
Office was not the only flavour of H1 in Poland; after a weak first quarter, retail rebounded in Q2 with two major deals. The first saw German investor ECE acquire two shopping centres from Atrium in a deal totalling nearly €300 mln. In the second, EPP picked up four M1-branded shopping centres in the lesser known cities Bytom, Czestochowa, Radom and Poznan for €224 mln. EPP is already the largest owner of retail real estate in Poland by gross lettable area (GLA), and this deal adds a further 141,000 m2 of GLA to its portfolio.
Czech appeal
Poland may have stolen the limelight in H1, but the Czech market also captured two high-profile office deals during the period. The first in March saw Munich-based fund manager GLL Real Estate Partners and LB Asset Management buy the 80,000 m2 office component of the Waltrovka complex in Prague on behalf of South Korea’s Hanwha Investment & Securities in a transaction worth over €250 mln. And in the second, South Korean capital in the shape of the similar sounding Hana Financial Investment purchased an office asset in the Czech capital for over €115 mln in a deal carried out by Mint Investments Group. Continued growth prospects for the Prague office market are the main pull factor behind such deals.
As Yong Seok Choi of Hanwha Investment & Securities commented: ‘We believe a quality asset such as Waltrovka will provide sufficient risk adjusted returns together with great upside potential. The Czech Republic is expected to continue with solid economic growth, and we are very pleased to acquire Waltrovka from Penta together with our partners GLL and LB Asset Management.’
Underscoring the appeal of CE markets, South Korean capital also made its first foray into Slovakia this year. Seoul-headquartered AIP Asset Management, together with The Valesco Group, bought the newly built Twin City Tower in Bratislava’s central business district for €120 mln on behalf of unnamed Korean investors. The fully let prime property, with Amazon as main tenant, was acquired from its developer, HB Reavis, in a deal reflecting a yield of 5.75%. Describing the asset as a 'compelling investment opportunity', Shiraz Jiwa, founder and CEO of Valesco said: 'It is rare to find an alignment of macro, micro and real estate fundamentals that will together drive value over our holding period. Furthermore, we are seeing substantial blue-chip corporate migration to the city and an influx of international capital attracted to the investment thesis.’
Milestone Baltic transaction
The Baltics likewise hit the headlines with a deal which saw Nordic property investor Swedish Eastnine purchase an office portfolio in Vilnius, Lithuania for €128 mln from developer MMM projektai. ‘This transaction is an important milestone for the Baltic commercial real estate market, primarily due to its large size,’ said Max Barclay, head of Newsec Advisory, which brokered the deal. ‘The Baltic region looks very solid and still offers a very attractive price/yield gap compared to investments with similar quality and risk profile,’ he added.
The Latvian capital Riga was the scene of a major retail deal in late May when Baltic Horizon Fund bought out the owners of Galerija Centrs Shopping Centre in a deal worth €75 mln. Reflecting an initial yield of 6.7%, the deal makes Baltic Horizon Fund, managed by Northern Horizon Capital, the largest diversified real estate fund in the region, with nearly €350 mln of assets under management.
Betting on student housing
Outside of the office and retail sectors, a striking deal in the residential sector involved London-based developer-investor Kajima partnering with Poland’s Griffin Real Estate Partners to acquire Student Depot, Poland’s largest provider of student accommodation, from Oaktree Capital Management for around €60 mln.
Poland is the sixth largest student market in Europe with 1.5 million domestic students, in addition to a growing international body of students representing over 5%, increasing 15% year-on-year, according to Kajima.
By September, Student Depot will operate 2,000 beds across five sites in Poland, representing half of the Polish purpose built student accommodation (PBSA) market.
The deal came as a study by Colliers International and CMS suggested that most major CEE cities will face a significant shortfall in student accommodation by 2028, with Warsaw having the highest deficit. Indeed, Poland was surveyed as the most popular market for both existing investment activity in student property, and in future activity, owing to this shortfall.
Commenting on the takeover by Kajima and Griffin, Jolanta Bubel, CEO at Student Depot, said: ‘Student Depot has grown into the largest and most recognisable PBSA brand in Poland, and we have commenced an ambitious development programme to continue this growth to capitalise on the demand from our customers for high quality accommodation.’
