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The Warsaw Voice » Special Sections » March 3, 2014
The Real Estate Voice
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Prospects for Growth
March 3, 2014   
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Jan Motz, president of developer Capital Park, talks to Witold Żygulski.

How would you describe the state of the Warsaw real estate market? What are its prospects?
Warsaw is now the most important market in Central and Eastern Europe and ranks high in investment attractiveness tables, ahead of Prague, Bratislava, Budapest and Bucharest. The Polish market is perceived as one with long-term growth prospects and is rapidly expanding, with the pace of expansion linked to Poland’s economic growth rate. The Polish real estate market, especially in Warsaw, is also the most liquid market in the region and has the largest stock of office space, when compared to other Central and Eastern European capitals. However, if Warsaw is compared to more mature European markets, it is clear that we still have a big potential for expansion. It is said that there is a large supply of offices in Warsaw—4.1 million sq m. But the truth is that the figure is not really impressive compared to other European capitals. Growth in retail space is also very slow. Last year, only around 19,000 sq m was put on the market in Warsaw. To sum up, Warsaw is a market with big prospects for expansion because of its investment attractiveness and its role as a financial hub for Central and Eastern Europe.

So what’s blocking the development of the market? What are the reasons behind the diminished interest from investors?
The main reason is difficulty in acquiring the required permits and other documents necessary to carry out an investment project. Formalities take a long time to complete while administrative and legal barriers effectively discourage investors. One example is that the law permits neighbors, or other interested parties, to block projects. The neighbors often do so not because they want to defend their interests, but to receive a pay-out from the investor.

Another important issue is that Polish pension funds are not allowed to invest directly in Polish properties. This means that Polish pensioners, that is all of us, people who work, pay taxes and rents for these properties, do not benefit from the increase in the value of the market, even though we are indirectly helping it to develop. Almost all commercial properties in Poland, like shopping centers and offices, are in the hands, directly or indirectly, of foreign pension funds. German, Austrian, French and American pensioners receive dividends from the rents paid by tenants in Poland.

For example, the office building on Marynarska Street where Capital Park is headquartered was sold in 2003 to a group of Irish farmers who now receive pensions from the rents paid for this and several other office buildings. Large Polish financial institutions, such as banks and insurance companies, do not create attractive investment funds based on the real estate market. Consequently, Polish pensioners cannot directly invest in the market, which is regarded internationally as a stable one. Of course, a constraint is probably that they do not have enough money to buy high-class properties. We can see that such investment products are needed and should be made widely available to future pensioners. This is why we have created the first product in Poland intended for retail investors based on high-street properties: the Real Estate Income Assets Fiz AN fund. This is composed of a portfolio of 39 leased out properties located along the main shopping streets in Poland and generating stable cash flows. We have broken the capital barrier and offer people an opportunity to reap the benefits of investment without the need to have millions for buying the whole property.

Tell us about your company’s plans for the coming years.
First of all, we are working intensively to keep the promises we gave investors at the time of our IPO, which means successfully completing the special office and retail projects we are conducting in Warsaw—the Eurocentrum Office Complex, Royal Wilanów and Art Norblin. We are also interested in buying further attractive and well-located properties, including projects already completed. We will be leasing them out anew, redeveloping them if needed, and preparing for further, more efficient operations. One of our strategic goals is to create closed-end investment funds based on the properties we have in our portfolio, just as we did with high-street buildings. Our properties are located in city centers and the redevelopment work under way there will help further increase the value of our portfolio, something that should benefit our investors as well. For example, ¦wietokrzyska Street in the center of Warsaw will greatly change its appearance once the construction of the metro line running along it is completed. Additionally, this area will be visited by many more people than at present because of the entrances to the metro that are planned. And we have our buildings in the area.

Which districts in Warsaw do you consider to be the most promising in terms of real estate investment?
We are now interested mainly in locations in city centers. Apart from the downtown area, the Wola district also has very good prospects for development because it will benefit greatly from being better connected to the city center once the second line of the metro is up and running. There are many modern investment projects being conducted in the district. They will significantly change its character and the district will become a new business center in Warsaw. We are also interested in Wilanów as we believe that it has huge potential.

We are conducting this interview at our headquarters in the Służewiec Przemysłowy neighborhood, which was once an industrial area and now plays a major role as an office center. But because of the lack of adequate road infrastructure, it is still very difficult to work here. It takes a lot of time to get to the office while car parks are virtually nonexistent, so I think the district does not have the potential for further office development any more. We need another site on the outskirts of the city to take over this function and such a site has to be well-connected to other parts of the city. The area along Jerozolimskie Avenue past Zachodnia Railway Station in the direction of Pruszków is developing rapidly, with many modern office properties under construction. But this is not enough to fully meet market demand. Another good office location, I think, will be Wilanów because of the potential offered by the expanding Miasteczko Wilanów residential estate, if not for other reasons. The area has attracted many young, well-educated people on high incomes. In the most elegant part of Wilanów, next to the planned new town hall, we are developing a big office and retail building, with a town square, landscaping features and restaurant gardens. Another advantage of Wilanów is that the freeway—the latest section of Warsaw’s southern ring road—will soon reach the district.

Could you tells us something about the concept for multifunction buildings?
Such buildings have to be constructed in specific locations because they are not a good fit everywhere.

Among such buildings in Warsaw are Plac Unii and Złote Tarasy. Our most important multifunction project is Art Norblin located on the premises of the former Norblin factory on Żelazna Street in Warsaw. I think it will change the appearance of this part of the city. The ground floor will contain services, retail and exhibition space, many restaurants and cafes, and a BioBazar with fresh organic food, with offices located on the upper stories. Work comfort is much better in a building of this kind. People can go out to have something to eat, and take care of many routine matters during their lunch break. There are still not many locations like that in Warsaw. It is difficult to find offices with good access to food services and shopping premises. But the market is developing. Until recently investors did not appreciate such buildings fully, but they are now increasingly interested in them because they see their potential. I think this is linked with the quality of the workplace being increasingly important to workers.

Another noticeable trend is the construction of “green” office buildings, full of environment-friendly solutions, which make work much more pleasant and consequently more efficient. In the Eurocentrum Office Complex building, which we are developing on Jerozolimskie Avenue and which has already received LEED CS Gold pre-certification, we have managed to reduce water consumption by up to 60 percent and electricity consumption by up to 25 percent, which translates into lower costs for tenants.
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