Australian property companies are seeking to cash in on Poland’s heady 28-year run of economic growth – RF CorVal has recruited a Polish partner for a €750 million ($1.22 billion) closed-ended investment fund and Cromwell Property Group is now in the soft-marketing phase for new investors in its restructured retail fund.
For the uninitiated, Poland still brings to mind images of World War II devastation and grim, grey communist streetscapes. However, those sinking money into it, or those trying to lure that money in, tell visiting journalists a different story.
“There is incredible energy here. There is investment, investment and investment coming in,” Warsaw mayor Rafat Trzaskowski says.
“There will be a gravity shift of economic and political influence from Western Europe to Central Europe,” declares Rafal Milczarski, the Cambridge-educated CEO of Poland’s national airline LOT.
“If you look at growth expectations across Europe and the globe, it’s difficult to find economies that really have that strong, sustainable GDP growth and a liquid market to go with it. Poland does have those key fundamentals: it has the GDP, it has the educated workforce, it has the high disposable income, it did come from a low base and it’s building up quickly.”
Investors from China, the Philippines and Singapore have reportedly elbowed their way alongside the traditional German investment crowd, and the Australians are getting in on the action.
RF CorVal and Roberts Constructions signed a deal with Poland’s Reino Partners recently to invest in commercial and residential projects, via a 50-50 jointly owned fund set up in Luxembourg that can also take on additional investors.
The vehicle can also buy other development and property services companies, which Reino can operate.
In the memorandum of understanding for the venture, the fund is described as RF CorVal’s first major European foray: “Cooperation with the Issuer [Reino] will be the first investment project of unprecedented size and scale executed by RF CorVal in Europe.”
In August, Cromwell bought out the investors in its closed-ended Polish Retail Fund, which holds seven assets worth about €600 million – part of a broader €1 billion portfolio that also includes office (26 per cent), logistics (9 per cent) and industrial (3 per cent).
“From a structuring point of view it’s a slightly different structure going forward but effectively it’s replacing existing investors with new to complete the business plan,” Mr Cotterell says. “It’s the soft-marketing period at this stage, it’s not formal at this stage. We can have an opportunity to grow this vehicle, there are more opportunities in this market.”
Retail is unusual in Poland – and to some extent elsewhere in the continent’s east – because the malls aren’t struggling to the same degree as in Western Europe.
Many Polish cities were flattened during World War II, and so they don’t tend to have retail “high streets” – Poles are thus accustomed to shopping in plazas.
“They as a culture go to shopping malls, they spend their money that way, that is how they do their spare time,” Mr Cotterell says.
Broader set of experiences
There are some challenges. New mall development is at its lowest levels in a decade, so the focus is on creating a broader set of experiences within existing malls, and expanding their size in smaller cities. Governmental curbs on Sunday trading have not helped.
But the online threat is not as daunting in Poland: only 7 per cent of purchases are made over the internet.
“That will grow, but not to the same extent we’ve seen elsewhere, and it will take longer. So we think fundamentally you will get the rental growth and you will get the demand still through these centres,” Mr Cotterell says.
Last month, Unibail-Rodamco-Westfield rebranded its Arkadia mall in Warsaw, the country’s largest, as a Westfield centre.
Office investment also looks attractive, as more companies relocate back-office functions and research and development to Poland, to take advantage of a well-educated, multilingual workforce that comes a lot cheaper than in Berlin, Paris or London.
There’s potential supply to meet demand, as Warsaw has plenty of under-utilised land. Factories that were built very centrally in the communist period now lie abandoned.
The capital has about 800,000sq m under construction – due for completion by the end of 2021 – and the vacancy rate is heading down below 8 per cent.
“In Warsaw, you’ve got to be a little bit careful. There is a big supply line, there is a lot of land in Warsaw, because of the history,” Mr Cotterell says. But “you get a lot of these developments fully let, or at least 90 per cent, by the time they’re finished – so it’s not oversupplying the market which is always the fear when you see that sort of dynamics.”
The nationalist government, which is expected to be re-elected on Sunday, has been making discouraging noises about the level of foreign investment in Poland. But Mr Cotterell is comfortable with the inflow.
“You will always have some sort of discussions around politics in Poland, but all our experience has been that the property market continues to keep going,” he says.
“From what we see, it’s still strong liquidity, it’s still strong international investors in that market, they’re always the gauge: if people see the political risk as being high, you will have the international investors step aside; but they are still there wanting to invest and don’t see that as a key risk going forward.”