Skanska's commercial development division has launched a concerted outreach initiative to Canadian and Asian capital sources to support an ambitious sales programme for its office projects in Central and Eastern Europe.
Skanska recently held road shows for institutional investors in Toronto and Montreal, Canada and the South Korean capital Seoul, Adrian Karczewicz (pictured), head of divestments at Skanska commercial development business in Central and Eastern Europe, told PropertyEU. Skanska's CEE commercial development unit had many meetings there with executives responsible for investing huge pots of investment capital.
The outreach had a number of aims. On the one hand, Karczewicz introduced the development division as a reliable partner, and part of a global construction and development concern. The Swedish group employs 41,000 people worldwide, generates €16 bn in annual revenues and has a market capitalisation of €9 bn.
On the other hand, Skanska is keen to develop relationships with end-investors and to learn more about their wishes and requirements. It transpired the attendees were particularly interested in Skanska's home markets in the Nordics and Karczewicz's beat, which radiates frim Poland to cover the other CEE markets.
Poland is in the spotlight, according to Karczewicz, because the region is experiencing consistent year-on-year economic growth, in contrast to Europe as a whole.
'I can tell you that there was a lot of interest. We quickly received follow-up correspondence and parties are signing non-disclosure agreements,' Karczewicz said. Korean investors were also 'very interested' in the Nordics, while the Canadians wanted to hear also about the London projects.
China and beyond
The initiative builds on Karczewicz's participation in PropertyEU's inaugural European Real Estate Opportunities Investment Forum for Chinese investors which was hosted in Shanghai by global law Dentons in April 2016. About 40 investors attended the event.
Skanska's CEE commercial development business also has a tradition of meeting with investment managers and if possible investors as well in Germany and the UK at the start of every year to maintain a strong relationship and to help match the developer's plans with those of the buyers. 'Investors like this as they can formulate their plans based on the projects in different countries in which Skanska is operating,' Karczewicz said.
CEE has long been a diversification play for big investors and funds who were more focused on western Europe and the US. But with Poland and the Czech Republic offering yields for prime office buildings of 5% in capital cities or higher (up to 7.5% in Polish regional cities) compared to lows of 3.5% in main markets in Germany, investors are increasingly willing to take a deeper look at CEE.
Asian investors, meanwhile, are working to get some of their capital out of their domestic markets such as Korea and China, and into economically safer environs, with Europe on top of the list. Asian investment into CEE during 2016 was six times larger than the year before.
The types of Asian investor in European real estate vary wider. In the first instance, there are sovereign wealth funds such as Korea Investment Corporation, Government Investment Corporation of Singapore (GIC) and China Investment Corporation.
Institutional players like Korean Federation of Community Credit Cooperatives (KFCCC)are also active in the market, as are asset managers such as Korea Investment & Securities.
And, Hong Kong-listed developers and industrial conglomerates diversifying into real estate are a major factor in the London office market.
Repeat business
The four Central European markets are central to Skanska's commercial development activities. In fact, the region accounted for a record-breaking transaction volume of nearly €500 mln, or 55% of the €900 mln of Skanska's commercial development sales in 2015. Skanska usually seeks to sell 5-7 office projects in CEE annually, depending on local markets conditions.
The largest office sale so far this year involved Germany's Union Investment Real Estate acquiring the 26,000 m2 Maraton complex in the Polish city of Poznan for €62 mln. The deal underscores two things: European investment managers are and will remain the top buyers of Skanska kit, and much of the transaction activity is repeat business with investment managers Skanska’s CEE commercial development division meets annually.
German-based fund managers are the main clients. Maraton was Union's second deal with Skanska, while Deka Immobilien, another German fund manager, has done three deals, and GLL and Deutsche Asset & Wealth Management (formerly RREEF) have also bought assets from Skanska in recent years.
London-headquartered Invesco Real Estate has acquired two offices in Prague; while Polish fund manager Reino and Globalworth of Bucharest have also done two deals each in their domestic markets. Swedish fund manager Niam carried out the first portfolio deal with Skanska in CEE when it acquired three projects (four buildings) in 2015.
Expanding the outreach to globally-minded end-investors comes as Skanska's management board has set an ambitious target for Skanska’s commercial development business in CEE. 'This year I have my hands full with work. We are going on the different trips because we have quite a lot for sales on the agenda for this year,' Karczewicz said.
Pipeline
Skanska's business model concept in CEE is to regularly divest newly constructed assets provided to the market. In the region Skanska currently has 10 office buildings under construction, among which there are Mill Park in Budapest, Five and Visionary in Prague, first out of four buildings within Campus 6 complex in Bucharest, and five assets in Poland: two buildings in Warsaw – Spark and Generation Park, and three assets located in regional markets – Nowa Fabryczna in Lodz, High5ive in Krakow and Green2Day in Wroclaw. All of these office developments are top-quality investment products offering almost 190,000 sqm of office.
While Skanska in CEE has travel far in search of new business the trail often leads back to the established investment management platforms here in Europe, as the Koreans, in particular, use local expertise. 'After my trips I had calls from Germany about what I have for sale. These enquiries came of course not from people who were at the road shows but who have been contacted from Korea.'
