A stop in Warsaw
There is probably no other region in the world like Central and Eastern Europe (CEE) that has been experiencing such a boom in demand and supply of property in the past few years. Large real estate investment projects, lending and economic growth, new technologies in construction and many more novelties are creating the appeal of an area that forms more than half of Europe and is destined to become highly developed in the next decades.
The CEPIF
The prospect of investing in the future of CEE is what will bring for a third year in a row participants and customers to the annual CEPIF (Central Europe Property & Investment Fair) that will take place in the Polish capital Warsaw on May 11-12 2006.
As Richard Stephens, head of the commercial department and CEPIF organiser put it, CEE is one of the most dynamic regions in the world, where the general increase in prosperity and growth have laid the conditions for a good property market.
The inclusion of giants like Russia and Ukraine on the map of real estate developers has enormously contributed to the interest towards the property industry in CEE.
Each year, CEPIF brings to Warsaw people from all over the CEE region to meet real estate professionals from the West and vice versa. It is all about making contacts and spreading knowledge and information, Stephens says.
The 2006 edition of CEPIF will mainly focus of the new approaches towards Public Private Financing (PPF) in CEE. It will take, as the organisers say, a “fresh top-to-bottom look at the issues involved in PPF”.
It will be led by Aleksander Granowski of WS Atkins, who also co-ordinates on the issue for the American Chamber of Commerce (AmCham) and the British Polish Chamber of Commerce (BPCC), and supported by a European Union body dedicated to the promotion of Public Private Partnerships (PPP). The session will hear from leaders in the field, like CMS Cameron McKenna, the legal firm that advises Polish policy makers, led by Poland’s leading legal expert on PPP, Andrzej Kozlowski; TriGranit, a leading regional developer, part of whose Millennium City Centre project on the banks of the Danube in Budapest - The Palace of Arts - was developed along public/private principles; KUD International, the major international programme management and development services provider; ARUP, one of the world’s leading engineering firms and experts in PPP initiatives, and many others.
How can municipal authorities deliver public projects in the most efficient and cost-effective way by harnessing the drive and initiative of the private sector? With public debt rising this is a major topic of interest in Poland and the whole CEE region.
The fact that it goes under different names - Public Private Partnership, Public Private Initiative, and Public Finance Initiative - is symptomatic of the lack of clarity as to what exactly the process entails. How does it work? Who does what? What is the legislation? How can the two sides work together to achieve a common aim? How can your company get involved?
CEPIF 2006 will have several key panels of discussion, including the CEE commercial property market, where CEOs and regional managers of commercial property companies active in CEE will set the tone and the pace of the market. This panel will bring together some of the most-recognised real estate figures in the CEE region to give their viewpoints on the market, present and future. No presentations, no pre-agreed statements, simply back and forth debate and discussion about the issues facing the market today.
While the CEE commercial property market main panel will look at the market through the eyes of the major international commercial players, another panel will come from the perspective of the home-grown developers and consultants operating within the different countries in CEE. The session will also provide a useful overview of market conditions in CEE country markets.
Benchmarking in CEE will debate about the importance of implementing benchmarking systems in the countries of the region. It will be led by Dr Nassos Manginas, IPD’s Germany-based regional head for CEE and director of DID - Deutsche Immobilien Datenbank GmbH. With its unrivalled experience and resources in the field of property performance measurement and property portfolio analysis for institutional investors with property investors, no organisation is better placed to talk about benchmarking in the CEE region.
The Urban Land Institute (ULI) will host a discussion on emerging trends in real estate. ULI is a non-profit research and education organisation supported by its members. Its mission is to provide responsible leadership in the use of land in order to enhance the total environment. Founded in 1936, the institute now has more than 26 000 members from about 80 countries worldwide, representing the entire spectrum of land use and real estate disciplines, working in private enterprise and public service.
Professionals represented include developers, builders, property owners, investors, architects, public officials, planners, analysts, real estate brokers, appraisers, attorneys, engineers, financiers, academics, students and librarians.
The RICS (Royal Institution of Chartered Surveyors) panel will be the leading source of land, property, construction and related environmental knowledge. The organisation supports 120 000 members worldwide, promotes best practice, represents consumers’ interests and provides impartial advice to society, businesses, governments and global organisations.
Whereas only a couple of years ago residential development in CEE was considered a local affair, raising barely a flicker of interest from international and regional commercial property investors and developers, it is now of major interest to investors of all shapes and sizes. It will also be among the key discussion at CEPIF 2006.
As will be the topic of turning agricultural land into commercial property. With well-located commercial land at a premium in all CEE countries, what possibilities are there for turning agricultural land, often sitting in prime locations around towns and cities, into land for commercial development? Many investors have made serious money from this.
The property market in CEE
A report by the European Research Group of Cushman & Wakefield (C&W), a leading global property solutions company, shows that Europe’s economy is at last showing signs of improvement. While not enough to trigger significant short-term rental growth, a firming in the business environment should signal a further good year ahead for real estate.
With yields already compressed to at least a 25-year low, some are questioning whether recent performance can be sustained. However, in C&W opinion, given the level of demand and reducing property risk premium, yields will in fact fall further.
Following a total return of 15 per cent in 2005 for prime Western European property, performance may ease in 2006, but modest rental growth and further yield compression should ensure it still beats its historic average.
The strongest area of growth in 2005 was retail, but current performance is more uniform - with offices showing the better rental growth and industrial the sharpest yield falls.
Western Europe is expected to show faster short-term rental growth in 2006 of four per cent versus three per cent in 2005, with offices leading retail by a narrow margin.
The drivers for the market will be a mix of low interest rates (albeit rising), higher building and material costs, a slow uplift in economic activity, ongoing margin pressures and occupier and investor interest in new markets.
And indeed, as C&W has found, the medium-term outlook for CEE markets is good, albeit that short-term growth will be constrained as they continue to adjust to new supply.
The research group believes that there are several key macroeconomic factors that are boosting the performance of the region. Those include the gradual, though not significant, fall in unemployment, the gradual decrease of inflation to realistic levels close to the ones in the European Union, as well as increasing consumer spending on the back of lending and income growth. But, most importantly, the CEE region has seen in the past few years gross domestic product growth above what is registered in Western Europe.
Approximately two billion euro was invested in CEE institutional property in the first half of 2005, an increase of about 40 per cent year-on-year. After a strong first half of the year, the property investment markets in CEE are expected to exceed by the end of 2005 (results still awaited) the record 4.1 billion euro that was invested in 2004.
Almost 10.5 billion euro has been invested into CEE institutional property since 1998, with more than 80 per cent of the total volume being invested since the beginning of 2003 alone. More than 85 per cent of the total invested volume in CEE consists of office and retail (shopping centre) property. Office transactions have been primarily centred in the capital cities, while retail (shopping centre) and industrial transactions have been finalised in regional cities as well.
Almost all properties sold in CEE in 2005 were office buildings and shopping centres. Retail continues to make up a significant portion of the total investment volume. In fact, retail transactions account for about 50 per cent of the total volume in 2005, the same as in 2004.
Based on three main factors, namely macro figures (including the EU accession, politics, economic and foreign investment), property market activity (maturity, occupier and investment activity and values) and property market structure (transparency, foreign ownership, leases, property taxes and costs, legal structure and planning), C&W has made a ranking of emerging Europe’s top commercial property markets.
The ranking is led by the Czech Republic, which was the top location for a second year in a row, followed by Hungary, Poland, Slovakia and Estonia, forming the top five destinations for commercial property developers. Next the ranking has Russia (the absolute giant among the countries of the region), Latvia, Lithuania, Romania, Bulgaria (firmly occupying the 10th position), followed by Croatia, Slovenia and Turkey.
In terms of the economic growth, which is the most important factor boosting the property market, it is Latvia and Estonia that are on top of the chain (with seven per cent and higher GDP growth in 2005), followed by Lithuania and Slovakia, as well as Bulgaria, Russia, Romania and Turkey (all with more than five per cent GDP growth in 2005).
The flow of new funds and indirect vehicles in Europe shows few signs of slowing, with a growing presence of diversified open- and closed-ended funds. While emerging markets remain a focus, a growing number of funds are concentrating on core locations due to investors’ aversion to risk as well as the greater size and liquidity of these markets.
Key targets remain France, Sweden and Spain as well as the CEE region, with very strong demand growth in Romania, for example, but interest is increasingly global, with Asia of growing interest due to its diversification benefits.
The key investors in CEE are more diverse than in the recent past. German and US money is highly significant but Dutch, Irish and UK buyers are strongly manifest, as is money from the Middle East, mainly Israel. Danish, Norwegian and French investors are also extremely active.
In the first half of 2005 (a process which evidently was preserved in the second half of the year, too), 97 per cent of the total invested volume in CEE property was concentrated in the core CEE markets - the Czech Republic, Hungary, and Poland. However, a gradual increase is observed in activity in markets such as Bulgaria, Romania, Russia and Slovakia, with most of the transactions in these markets finalised during the last two years. Bulgaria, for example, witnessed its first institutional investment transactions in 2005.
Prime yields in CEE are constantly under downward pressure due to a shortage of available product and ever-increasing demand. Prime office yields are now approximately 7.25 per cent in the Czech Republic, Hungary and Poland. Analysers expect that prime yields will continue to fall in 2006, with prime office yields in the core Central European markets quickly approaching seven per cent and below.
The investment markets began to emerge first in Romania and Russia in 2003 followed by a very active year in Slovakia in 2004. Bulgaria joined the ranks in the first half of 2005, with several institutional transactions being finalised, including the sale of Bulgaria’s first modern shopping centre - the Mall of Sofia.
The Polish example
Poland is undoubtedly one of the champions in both economic and property development in the CEE region. In 2005, the Polish economy continued to grow. Analysts believe that with GDP of over 254 billion euro and growth rate estimated to reach 4.3 per cent in 2006, Poland will continue to preserve its leading position in CEE in the coming years.
Since the beginning of the 1990s, Poland has attracted more than 70 billion euro foreign direct investment. This amount, according to C&W, not only assures its leading position among other countries of the region but also indicates that the Polish economy is competitive and steady growth oriented.
Poland attracted 3.4 billion euro foreign investment only in 2005 with its economy being driven mainly by foreign demand.
The office investment market in the country continued to grow as proved by increased absorption of office space, reducing vacancy levels and reduced level of incentives offered by landlords.
The largest number of investment transactions was concluded in Warsaw, whose market is highly penetrated by investors. Nevertheless, regional markets continued to develop and more deals were closed in other big cities like Krakow, Poznan, Wroclaw and others. This trend is likely to continue, as more private investors and smaller funds are looking for higher-yielding investment opportunities and ready to accept additional specific risk.
Similar trends were observed in 2005 and are expected to continue in 2006 also in the retail and industrial property markets in Poland.
In the past two years, Warsaw has seen the launch of some large business property development projects, which could serve as an example for the entire region of CEE. They are representing some of the most important real-state sub-sectors - office and retail, hotels and residential.
ZloteTarasZlote Tarasy
Zlote Tarasy is a mixed-use development in the centre of Warsaw. It is designed as a lively, multi-levelled canyon that combines nature with retail and entertainment. The park is protected from the weather by a glass roof, creating the ambience of an external shopping centre and, with the addition of a minimum of heating, allowing it to be comfortable in the harshest of Polish winters.
With its underground connection to the adjoining train station and connections to streetscapes on the upper levels of the project, the park exposes the project’s interior to the street, thereby reconnecting the surrounding public spaces and fabric.
The project is interwoven with a “basket weave” circulation plan designed to create a synergistic environment.
Recreational zones offering a multitude of activities are organised to create a 24-hour destination.
Investors in this project are ING Real Estate, which is among the largest property investors in the Polish Capital; Arup - consulting engineers, designers, planners and project managers, which have provided structural, acoustic, geotechnical, civil and traffic engineering design, pedestrian modelling, sustainability and building physics services; as well as Cushman & Wakefield, which are the sales agent for the project.
The project was awarded Best in Show and Best Large Scheme Retail Development at the Retail Future Awards on Nov 16 2005 in Cannes, France.
Zlota 44 and Le Regina
The French Orco Property Group is planning to develop the most spectacular apartment high rise in Europe, situated in Warsaw. Zlota 44 will be based at 44 Zlota Street - in the very centre of Warsaw - and it will be an extra-luxurious apartment high rise offering a unique standard to its residents. Sophisticated amenities and an original building shape will give Warsaw a new symbol, a new dimension of the sky above the capital of Poland.
The author of the project, Daniel Libeskind, is a world-famous architect of Polish roots. His projects have become a living symbol all over the world and his ideas have influenced a new generation of architects and those interested in the future development of cities and culture.
Libeskind’s work has been exhibited extensively in major museums and galleries around the world and has also been the subject of numerous international publications in many languages. His buildings have appeared on the covers of Time Magazine, Newsweek, Architectural Record and The Wall Street Journal, among others.
Orco Property Group was also the developer of another project that is considered to be of crucial importance for Warsaw, as it shows the symbiosis of the Polish capital’s historic buildings and their modern use.
Their Hotel Le Regina is an elegant and sophisticated five-star hotel, on three levels of a historic building in Warsaw’s Old Town, which was faithfully restored to the style of an 18th- century palace and outfitted with all the modern amenities.
It is an ideal, intimate destination, full of harmony, elegance and comfort, where age-old ambience blends seamlessly with sophisticated functionality and outstanding personalised service.
Hotel Le Regina happens to be the first, and only, hotel in the quaint and prestigious old part of the city. There are numerous landmarks of historic importance in close proximity to the hotel, including the Royal Castle, the National Opera House, the Umschlagplatz and many old churches and monasteries.
Le Regina is located only 500 metres from the famous Old Town Square and is also within walking distance of the Palace of Culture and Warsaw’s Business District.
Miasteczko Wilanow
Miasteczko Wilanow (or Wilanow Town) is a top-level residential project. It is located across from the Royal Palace and is surrounded by formal gardens in the most distinguished area in Warsaw. The community architectural concept respects the historical environment and refers to 18th-century prime residential neighbourhoods in Paris and London.
A diverse character similar to the organisation of a town ensures the functionality and efficiency of this community. Miasteczko Wilanow will accommodate schools, kindergartens, a town centre with shops, offices and a hotel with conference centre as well as leisure centres, restaurants and cafes. Most daily amenities and activities will be found within walking distance.
The model for this community comes from finest neighbourhoods in Poland, Europe and North America. The master plans set limits for the land uses as well as the development parameters. A height envelope of 18 to 20 metres (up to 5 levels) has been established for the town centre.
The dominating spot in Miasteczko Wilanow will be the Temple of Providence that will punctuate the otherwise low-profile skyline of the community. The temple will be located on a 6-ha plot. Its already built underground crypt has a symbolic grave of the Poles’ beloved Pope John Paul II.
