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The Warsaw Voice » Real Estate » September 30, 2009
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Poland Still Attractive to Investors
September 30, 2009 By Michal Jeziorski   
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Despite the financial and economic crisis, Poland remains attractive to investors. The country is among the top five investment destinations in Europe and the only European economy expected to record positive growth this year.

Poland has turned out to be more resistant to recession than most of the world's developed economies. According to experts, this is largely because the country's GDP growth has been chiefly driven by domestic consumption. Additionally, foreign trade accounts for a relatively small portion of the GDP here. As a result, Poland was less affected than other countries when exports and imports declined recently.

Central and Eastern Europe is considered to be the most attractive investment destination for the next three years. In this respect, the region has moved ahead of China, which until recently was the leading country in terms of investment appeal. The other BRIC countries-Brazil, Russia and India-have also ceded their place to Europe, which shows that investors are returning to well-known and secure markets close to their home countries.

In recent years, Poland has become a leading manufacturer of LCDs and TV screens, thanks to major investments made in this country by Asian companies. Poland is also a leading producer of household appliances. Aerospace companies have invested in a Polish aerospace industry center known as Aviation Valley. The Polish automotive industry, which mainly manufactures small and mid-sized cars, is also doing well.

In the first half of this year, foreign direct investment in Poland totaled 962 million euros. Poland ranked second in Europe in terms of the number of newly created jobs. The number of such jobs totaled 15,500, a decrease of more than 10 percent from a year earlier, but other countries in the region recorded much sharper declines. Slovakia was hit the hardest, with a 57-percent decrease in the number of newly created jobs. Investment is declining throughout the world. The reason is simple: investors do not have access to money because banks have reduced their lending activity.

There are many reasons why Poland is attractive as an investment destination. These include its large labor market, low labor costs, good prospects for economic growth and the availability of skilled labor. Poland is the largest country in the region. Poles account for 24 percent of the region's population and generate almost 40 percent of its GDP, which illustrates the potential of the Polish economy. By investing in Poland, foreign companies gain new development prospects. They have an opportunity to expand their exports and reach new customers thanks to Poland's proximity to both western and eastern Europe.

Investors can count on direct assistance in Poland, including tax incentives offered by district authorities, preferential terms in the country's special economic zones and structural funds from the European Union. In 2007-2015, Poland may receive over 67 billion euros from the EU budget. The money, designed to enhance the competitiveness of the Polish economy, will be spent to finance the construction of new roads, airports and freeways. EU funds will be available for projects in almost every area of the economy.

Poland offers investors a well-educated work force. The country has almost 2 million university students, a figure that accounts for almost 50 percent of all residents aged 19 to 24. Many of the graduates hold engineering degrees and can work as highly qualified specialists in various fields. Polish engineers and scientists are highly valued around the world.

Poland's upbeat economic performance is reflected by the developments on the commercial property market here. The global economic slowdown has had a relatively mild impact on the commercial property sector. Most developers on the office market have put on hold large projects, focusing on smaller, but high-standard, premises instead. They increasingly choose to carry out build-to-suit projects in which office properties are developed for specific clients, because it is easier to acquire funds for such projects. The supply of modern office space increased considerably in the largest cities in 2008, when many large office buildings were completed. The greatest increases in office space were recorded in Warsaw and Wrocław. Slightly smaller increases were reported in Cracow and the Tricity of Gdańsk, Sopot and Gdynia. According to real estate services company Colliers International, Warsaw now has around 2.5 million square meters of modern office space. The breakdown of demand has changed, with most tenants now looking for smaller premises ranging from 50 sq m to 300 sq m in area. Demand for high-standard offices is the highest but medium-standard premises are also increasingly in demand.

The economic downturn has also affected the warehouse market. Developers have reduced the number of premises under construction. Most of the projects scheduled for completion this year were started still before the crisis. New projects will be carried out mostly as premises intended for specific tenants.

Over the past three months, some 172,000 sq m of warehouse space has hit the market in Warsaw and vicinity. The largest project was the Tulipan Park center developed by Segro in Nadarzyn near Warsaw. Although almost 75 percent of modern warehouse space is still located in the Warsaw area, the supply of new property is growing rapidly in regional business centers. At the end of the first quarter of this year, the total supply of warehouse space on regional markets exceeded 3.2 million sq m. In the first three months of the year, the largest amount of new warehouse space appeared in the Poznań area.

The number of tenancy contracts decreased by 50 percent compared with the first quarter of 2008. This is chiefly due to a deterioration in the transport and logistic services sector. In the first three months of this year, transport and logistics companies accounted for 26 percent of all warehouse space rented out in Poland. As demand falls, rents should remain unchanged in the next few quarters, according to experts. The highest rents are in central Warsaw and Cracow, 4.50-6.00 euros and 4.00-4.80 euros per square meter respectively. In other locations, the rents are around 3.00 euros per square meter.

The crisis has also hurt the hotel market. Banks are more cautious these days and require "hard" collateral. In order to reduce lending risk, banks expect high downpayments of up to 40 percent from investors. Investors experienced in hotel projects have a greater chance of getting a loan.

Hotel services are to a large extent used by institutional clients, who take part in and organize congresses, conferences and other events. As a result of the crisis, many companies have decided to reduce costs by cutting down on training courses, team-building events and business travel. This policy has had an adverse impact on the hotel industry.

Much hope is being pinned on the European soccer championships to be hosted by Poland and Ukraine in 2012. The event is expected to attract tourists from across the world, generating extra revenue for the hotel business and raising Poland's profile abroad.
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