beyondbrics

A glance at the headline number for commercial real estate investment transactions shows that Poland had a banner year in 2011, racking up more than €2.5bn in sales, a 37 per cent increase compared to 2010.

That should be a signal that all is well with Polish real estate, even in light of a looming recession in western Europe, a slowdown in Polish growth, and increasing bank reluctance to lend.  But things aren’t so straightforward.

Magali Marton, head of continental Europe and Middle East research at DTZ, the consultancy which compiled the figures, says about €800m of those €2.5bn sales came from a single source: a new real estate fund set up by Blackstone, the US investment company [Corrected from a previous version of this post where the investor's name was mis-stated].

Blackstone’s Polish subsidiary, King’s Street Retail, is busily buying up shopping centres in primary and secondary cities, often paying top dollar for its acquisitions as it quickly builds up a substantial portfolio.

Other investors are a lot more cautious.

“We’re being pretty careful,” says Ben Habib, the CEO of First Property Group, a British investment fund focused on Polish retail.

Habib’s reserve was echoed by a lot of other participants at a real estate panel held in Warsaw on Thursday looking at the potential impact of European turmoil on the Polish real estate market.

“It’s pretty nerve-wracking,” says one investor, munching on a sandwich before the panel began. “We have money to invest but it’s really unclear what’s going to happen this year. There’s an awful lot of unknowns so for the moment we’re waiting.”

The list of potential pitfalls is long.

The office market, dominated by Warsaw, saw only 120,000 sqm of new construction completed, one of the lowest levels in recent year – in large measure because builders pulled back in the wake of the 2008-2009 crisis. However, completions this year are expected to come to 230,000 sqm and by next year they will be as much as 350,000 sqm. There is a question about how much new product will be absorbed.

Then there is the possibility that Poland’s GDP growth will slow to below 3 per cent this year compared to a 4.3 per cent expansion in 2011. As the government tightens its budget discipline, investments are expected to fall, a process likely to be exacerbated in the second half of this year after the European football championships, which have been a driver of infrastructure spending.

Poland’s banking sector is putting out signals that it plans to restrict lending, particularly for personal loans and mortgages, which could put a dampener on spending and on the moribund residential real estate market.

Finally, Poland’s wildly gyrating zloty also creates issues for investors. Although commercial real estate transactions in Poland are valued in euros, not zlotys, and shopping mall rents are also in euros, the merchants who have to pay those rents can only collect zlotys from their customers. That means when the zloty loses value against the euro, as happened in the last half of last year, tenants quickly run into deep trouble, causing headaches for property owners.

Still, when compared to the troubles facing investors in western Europe, Poland still seems to offer the hope of decent returns – as evidenced by Blackstone’s strategy.

“There is a huge amount of liquidity targetting European markets. Considering how difficult it is to find opportunities in developed markets, some of that money is going to find its way to places like Poland,” says Marton.

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Poland: banks braking lending, beyondbrics
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Poland: Special Report, FT