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The Warsaw Voice » Special Sections » March 3, 2014
The Real Estate Voice
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Why Warsaw’s Attracting Investors
March 3, 2014   
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Michał Borowski, CEO of developer Tacit Development Polska JS Sp. z o.o. s.k., talks to Andrzej Jonas and Andrzej Ratajczyk.

The Polish economy is starting to pick up. Fitch ratings agency has upped its 2014 GDP growth forecast for Poland to 3 percent. Everything seems to suggest that this year will be better than last and that 2015 will be even better. Is the real estate market showing signs of revival as well?
The 44-story Cosmopolitan residential high rise in Warsaw that we’ve been building, that we’re completing now, belongs to a rather niche segment of the residential real estate market: exclusive apartments. Looking at this segment, I can’t say there’s been much of a revival. But that’s because this is a special kind of market. Every year in Warsaw, there are just several hundred transactions in this market segment while, at the same time, there are more than 10,000 transactions on the primary market as a whole. Annual growth at 10 percent would only mean a few dozen more transactions on the market for exclusive apartments, a figure you may not even notice. People in Poland are clearly getting richer, interest in exclusive apartments has been on the rise and will continue to grow, but for now, the increase is barely perceptible.

What’s your definition of the market for exclusive apartments?
In Warsaw, we’re talking about apartments whose prices start from 5,000 euros per square meter. Such prices are a result of the location, what services and standards a building offers, and so on. You could compare exclusive apartments to luxury goods, with the difference that unlike a purse or a car, your apartment doesn’t go down in value as soon as you buy it. On the contrary, an apartment is a good investment. Global experience shows that over a period of 10 years, apartment prices in buildings such as the Cosmopolitan increase by at least 100 percent. The majority of our customers aren’t buying apartments exclusively as capital investment or exclusively as residences, but for both reasons. I’m sure, though, that there are also buyers who treat exclusive apartments as a good business opportunity. They know that prices of exclusive apartments in some big cities abroad are reaching 20,000-30,000 euros a square meter and are still going up. These buyers know that prices will grow in Poland as well.

Do you think more buildings like the Cosmopolitan will be constructed in Warsaw in the coming years?
I believe the Cosmopolitan at 2/4 Twarda St. will remain an exception. A high rise is a very complicated structure to build in the downtown area. You start by finding a plot of land where a putting up a building of that kind is feasible. You have to make sure, for example, that it won’t block sunlight from other buildings in the neighborhood. Besides, high rises are expensive projects, hence the high prices of apartments. Poland doesn’t have a big market for luxury residences for the time being and apart from the Cosmopolitan, there’s just one other building under construction with a similar size and standards. I think that no more residential towers will be built in Warsaw for another 10 years or more.

Can the Warsaw market for exclusive apartments be compared in any way to those in Western capitals such as Paris and London?
No, you absolutely can’t compare Warsaw to those cities, for example because the prices are totally different. In London, which is short of sites for new projects, exclusive apartments can cost up to £30,000 a square meter in some locations and the prices are further jacked up by rich Russians, Indians and the Chinese. You can see similar prices in some neighborhoods in Paris.

And what about construction costs, are they comparable?
Construction costs are similar in different countries in Western Europe and roughly twice the costs in Poland. That’s mainly because Poland has a cheaper labor force, as otherwise construction materials cost more or less the same everywhere. Whether you’re in Poland or England, you will pay the same price for Carrara marble from Italy. A Miele washing machine costs the same in London as it does in Warsaw. But the prices of land in cities like London are incomparably higher than in Warsaw. I think the price for a comparable plot of land is often 10 times more than in Warsaw.

You were Warsaw’s chief architect for several years and now you head a company developing a residential tower in the city. With experience such as yours, would you recommend Warsaw as a good investment location?
I think Warsaw is an extremely interesting place for investors from around the world and many investors are here already. They include both developers and institutional investors, including investment funds. Warsaw is attractive to developers for its extensive undeveloped areas. It is probably the only capital in Europe to lack a clearly defined city center. This is a major drawback at present, but at the same time it presents unique opportunities to create something completely new. But there’s only so much developers can do. While they can build apartments, they can’t create a whole city. Cities are about well-organized public spaces, services, transportation, culture... You can’t accomplish any of that without an active contribution by the local authorities.

The Polish constitution and other laws assign responsibility for urban planning to local governments. They are the ones to decide where new projects should be developed. The task of local government is to create public space, build streets, squares, roads and take care of urban planning as such. And yet, local government authorities seem oblivious to all of that. The prevalent belief is that a liberal approach in a democratic state means that a local government authority should hardly ever intervene in how urban space is planned. There may be times when an approach like that is justified in order to allow faster development, but in the long run it has a number of many negative consequences, mainly because the resulting projects are of substandard quality.

This approach also takes its toll on the quality of public space. For example, Warsaw lacks a real public square, except for, maybe, Zamkowy and Piłsudskiego squares, where military parades and church services are held occasionally. The other open spaces referred to as public squares are, in fact, transportation hubs and huge parking lots. But before public space can be put in order, policy makers need to muster the will to do it.

Another thing that obstructs urban development in Poland is a lack of regulations on projects developed through public-private partnership. There are practically no such projects in Warsaw, but I hope the next generation of politicians will take responsibility for urban planning and giving shape to urban space. When that happens, Warsaw will become a modern, well-organized and resident-friendly city.


Opinion
Rapid Growth
Monika Rajska-Wolińska, Managing Partner of Colliers International in Poland:

Colliers International appeared in Poland in 1997. We were not the first international real estate services firm to arrive here. Several other companies were already active on the market, and there were only a handful of modern office buildings in Warsaw. The competition was stiff. The rents were fantastic from the point of view of owners—at $45 per sq m per month. It was a landlords’ market, but we decided to represent tenants. That was a crucial decision on our part. Thanks to it the entire company developed. With time, we began to represent investors interested in buying office buildings in the Polish capital. Then the property management department was set up. In 2007 just a few people were working in it; today the department has several dozen licensed managers. For two years, we have also been providing services to developers, offering advice on the process of certification and marketing of green buildings. Over the years, the Polish market has developed very rapidly, and not only in Warsaw. This is precisely what sets Poland apart from other countries in the region. In the Czech Republic, Romania or Hungary, it’s chiefly the national capitals that count on the market. In Poland, in addition to Warsaw, there is also Cracow, Katowice, Poznań, Szczecin, the Gdańsk-Sopot-Gdynia “tricity,” and Wrocław—and we have branches in all these cities. Colliers started out with a team of several employees. Today, we have nearly 250 on staff. And I believe there’s still room for growth.


Huge Potential
Mirosław Bednarek, Country Manager, Matexi Polska:

The Matexi Group, the leading residential real estate developer in Belgium, had long been looking at opportunities to use its expertise to enter markets abroad. In 2011, the company chose Poland as the main focus of its international expansion, seeing that this was a mature market with tremendous potential to grow. The Polish real estate market has, obviously, been growing very rapidly over the past 25 years. What we find the most interesting about the market’s residential segment is the increasing experience of buyers, so we can tailor our products to their needs and growing expectations. Our strategy in both Belgium and Poland is to offer apartments in a wide variety of locations with excellent access to urban infrastructure. We also stand out with the quality of the buildings we offer, complete with refined and elegant architecture. Products such as ours are best targeted at mature and demanding markets, hence our long-term plans to invest and develop extensively in Poland. Now that a new “quarter of a century” has begun, we are ready to put over 1,300 homes on the market in Warsaw, including in the districts of Ursynów, Bielany, Bemowo, Marymont and Wola. And we are only getting started.


Not Just Profits
Radosław Sieroń, President of the Management Board, Mermaid Properties:
Mermaid Properties has been operating in Poland for 15 years, which makes us a relatively young company, but we have vast experience, especially on the office real estate market. We operate in Warsaw and ŁódĽ and these two cities are where we have been searching for land for new projects.

The majority of our projects are historic and postindustrial buildings that we renovate and convert into state-of-the-art office space, making sure we preserve their historical value. Projects we have carried out so far include Cross Point in ŁódĽ and the Młodziejowskiego Palace in Warsaw’s Old Town. The final touches are being applied to Jasna 26, a project we will deliver for occupancy in Warsaw by the end of this quarter.

We also develop office and residential projects from scratch. These include the Libra Business Center and the housing estates River House in Warsaw and Aleksandria in ŁódĽ.

I believe renovation of historic sites is a difficult and delicate process, especially when it comes to buildings under a conservator’s care. But for us as a developer and for investors who work with us, projects of this kind are not just an opportunity to make a profit, but a contribution that we can make to improving the appearance of cities. There is no doubt that Polish cities have changed radically over the past 25 years. While under communism change was determined by state-owned cooperatives and enterprises, recent changes can be mainly attributed to developers. Interestingly, the residential real estate market is dominated by steadily growing local, Polish companies, whereas commercial real estate is the domain of foreign businesses. Small companies rule in towns and small cities, while large and stable enterprises are the key players in big cities. To a large extent, the market for residential real estate has been shaped by the so-called Developers Act. This caused many small businesses to go bankrupt as they were unable to meet the requirements the act ushered in—requirements that aimed to protect consumer rights. The commercial real estate market has been growing rapidly, driven mainly by interest rates that for some time have been very low.
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