Investment and lending into Poland’s fast-developing real estate market looks set to continue, despite concerns over the country’s populist Law and Justice government.
The influence of the ruling party needs to be considered by prospective lenders. It is anti-EU, socially conservative and economically interventionist. Among other measures, it has slapped domestic lenders with banking tax legislation.
However, economic growth across Poland and the wider Central and Eastern European region makes it a compelling prospect. The €635 million financing provided by UK bank HSBC for one of the largest-ever portfolio deals in the market demonstrates that, for the right transaction, lenders’ confidence in Poland’s maturing property sector outweighs concerns about the destabilising influence of its government.
Retail – which comprises the HSBC portfolio – is particularly interesting, propelled by economic tailwinds.
Despite recently approved controls on Sunday trading – which will limit trade to just two Sundays a month from March and one from 2019 – investors remain determined to pour money into a sector benefiting from rising consumer spending, up by 4.8 percent in Q3 2017 year-on-year, and wage growth, which last year rose 7.3 percent, according to official data.
Retail dominates investment. Of the €2.4 billion recorded by CBRE to the end of Q3 2017, more than 50 percent was accounted for by retail, demonstrating investors’ faith in the market.
Industry participants canvassed by Real Estate Capital agree that retail portfolio deals with the potential for high-volume debt financings in Poland are not rare. “Last year we worked on a €300 million deal involving four retail properties across Poland. More recently, we had another retail portfolio transaction of about €200 million,” notes a lawyer who specialises in real estate finance operating in Poland.
As well as the consolidating retail sector, hotels and build-to-rent residential are increasingly popular as investors require greater portfolio diversity. This is expected to bring more opportunities for lenders with the know-how to finance these types of assets.
Polish offices also look promising. The office market stands at around 5 million square metres, with another 800,000 square metres under construction. The country already absorbs 300,000 square metres of office space every year, and further demand is expected, driven by the uncertainty of Brexit and Poland’s lower costs profile. JPMorgan, for instance, is planning to open an operational centre in Warsaw and is poised to hire more than 3,000 people. Other companies in financial services, such as UBS, Goldman Sachs, Credit Suisse and Citigroup, already have operations in the country.
The market commands a pricing premium. Typical senior margins of prime offices are between 2.20 percent and 2.80 percent, the highest in Europe, according to CBRE. Margins for the retail and logistics sector are understood to range between 1.5 percent and 2 percent, depending on the asset.
While the populist government’s policies cannot be overlooked, Poland is proving resilient. Last year’s total investment volume in the country reached €4.9 billion, up from 2016, which itself broke records with more than €4.5 billion transacted, according to CBRE. Due to investors’ drive, Poland is likely to keep featuring high on lenders’ target markets.