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edition 10 (234)
October 2018
Investment & finance

The whole world on the Vistula

Several of the largest hotel chains in Poland are aiming to acquire around 30–50 properties in the next five to ten years

Interviewer Tomasz Szpyt-Grzegórski

The whole world on the Vistula

The investment market has been having another very good year, with rising transaction volumes in almost every real estate segement. Well, almost. Because the one exception is the hospitality segment, where the investment turnover has been negligible this year. Piotr Mirowski, a senior partner at Colliers International and the head of the investment advisory department, along with Rafał Rosiejak, the director of the consultancy’s hotel advisory department, tell us what all this means and what lies ahead

Tomasz Szpyt-Grzegórski, ‘Eurobuild CEE’: How would you sum up the situation on the Polish investment market in H1 2018?

Piotr Mirowski, senior partner, head of the investment advisory department, Colliers International: It was good – very good in fact. In the first two quarters there was more than EUR 3.2 bln in investment turnover. This is the best figure in the whole of the CEE region and much better than in the same period of the previous year, which was much calmer. I think that we could significantly exceed last year’s figure. A few major transactions are underway and a lot depends on how they pan out, but it is still within the realms of possibility that a volume of EUR 5 bln will be achieved. It is also worth noting that the pool of investors has been expanding. American, South African and European capital is active in the country. We are in regular contact with investors from outside Europe who are interested in purchases in Poland. These are mainly Asian players – from Singapore, South Korea and Malaysia – as well as Canadian, who are interested in high quality assets of the right size and that provide attractive returns. It’s quite difficult to meet these three requirements at the same time, especially with the ongoing appreciation in property values.

The whole world seems to be investing in Poland. But what about the Poles themselves?

Piotr Mirowski: Polish capital is barely present on the real estate market here and it seems like there isn’t going to be any radical turnaround in this regard in the near future. Especially now that commercial real estate has been excluded from the bill on Polish REITs.

Nevertheless, some investors are reclassifying Poland from being a developing to a developed market.

Piotr Mirowski: This is very good news – it means that there will be more and more passive capital here, which pays out the most for real estate. I can’t go into any further details at this point, but I think that transactions involving new German investors will be announced in the next few weeks and there should be more players from southeast Asia by the end of the year.

Which kinds of properties are topping the list?

Piotr Mirowski: This year was dominated by the retail sector, which is consolidating intensively. I’m very curious about the direction the sector will develop in – how the funds will evolve and restructure their portfolios. This can open up opportunities for new transaction activity. I’m also optimistic about offices – the demand for them is enormous. Last year turned out to be record-breaking for the office market in regional cities, with several significant transactions. Meanwhile, in Warsaw, where office buildings are already being sold at yields of under 5 pct, we have excessive demand.

So what has happened with hotels? In H1 the investment volume for this market collapsed.

Rafał Rosiejak, hotel advisory department director, Colliers International: I wouldn’t call it a collapse, although we did see fewer transactions than in previous years. Initially, investors generally look for hotel properties in three cities: Warsaw, Kraków and Gdańsk. Only later on do they consider Poznań, Wrocław, Bydgoszcz or Olsztyn. However, there is not much product available on the market and investors may not be attracted to what little is on offer – it might be too small in terms of value for foreign capital and too big for Polish capital at the same time. However, it is worth paying attention to the fact that there are many hotels currently under construction. According to our research, around 150 hotels, each of which will have at least 100 rooms, are under development in Poland. In my opinion, there should be a boom in hotel transactions in two or three years. I also believe that we will see some consolidation on this market and the creation of hotel property portfolios. These are much more attractive to investors than single buildings.

Piotr Mirowski: Large institutional players have been looking at the Polish hotel market for more than two years. They are following the same paths they took when they entered the Polish market years ago. First, they establish bases in the main cities, Warsaw and Kraków, in which there have been several flagship transactions in the last two years. In this way they familiarise themselves with hotels as an investment product. And once they have finally acclimatised themselves to this market, I expect that there will be a wave of investment in regional cities and even in resorts.

What kind of capital structure is preferred by investors when it comes to hotels?

Piotr Mirowski: In the case of passive capital, it’s lease agreements with a guaranteed level of rent. Such hotels sell very quickly at an attractive yield.

What kind of yields are we talking about?

Rafał Rosiejak: A hotel investment is long term. Chains are no longer willing to sign contracts for 10–15 years, and instead go for 20–25, which means cap rates of around 5 pct in the case of the best real estate.

So should we be expecting years of plenty for the hotel investment market?

Rafał Rosiejak: A number of the largest chains present in Poland are aiming to acquire around 30–50 properties within the next five to ten years. The Polish market also has a lot of catching up to do. There are now more than 130,000 hotel rooms in Poland, but in the UK there are more than 700,000. In Western Europe chains account for more than 70 pct of the market. In Poland it is the opposite, but this has been slowly changing. For example, AccorHotels, which has dozens of locations, is looking for more properties. There is also interest in smaller cities and towns, of 100,000–300,000 inhabitants, where the land is still relatively cheap and much easier to obtain. And those that get to them first usually win. The philosophy for running hotels and how such buildings should function is also changing. These are now often mixed-use projects, with office, retail and hotel sections. And as such they are more challenging.

Is the development of the country’s infrastructure having as significant impact on the hotel market as it has, for example, on the warehouse segment?

Rafał Rosiejak: This is one of the factors that accelerates development. Business, new plants, factories and office buildings are developed in towns that have better transport links. Hoteliers follow them. It should also be noted that it also prolongs the hotel season. One good example of this phenomenon is the TriCity, where the season used to last three or four months. Now that the city can be reached by plane, motorway and high-speed train, the season has been extended to eight or nine months.

So the real estate market is going through a prosperous period. How long will the good times last?

Piotr Mirowski: The sale of a few dozen assets worth up to EUR 500 mln is currently being negotiated. The demand for Polish properties is very high. In fact, the current level of growth is healthier than it was before the collapse of Lehman Brothers. The healthy economic data is a factor in this, as is the professionalism of investors. ν

Two men in the know

Rafał Rosiejak, hotel advisory director, Colliers International

At Colliers Rafał is responsible for advising on and providing the best solutions for the rapid development of existing and newly developed hotels on the Polish market. He has been employed in the hospitality market since 2004. He was one of the people responsible for organising the hotel base during the Euro 2012 football championships and the World Cup in Russia in 2018.

Piotr Mirowski, senior partner and head of Poland investment services at Colliers International

Piotr advises international investors and owners looking to buy/sell office, retail and industrial properties in Poland. He has been instrumental in the completion of high-profile investment transactions with a cumulative volume in excess of EUR 5 bln, including domestic and cross-border corporate deals.

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