A viable alternative

Image: Angel Care

Student housing, senior centers and other alternative asset classes seem to have a great future in Poland

By Adam Zdrodowski

With the global markets being awash with money, investors are ready to consider investing in alternative assets, a trend that was widely commented on during the latest edition of the MIPIM property fair in Cannes, France. In Poland, this is still a nascent sector, but one that seems to have a very promising future ahead of it. Developers are already churning out new student and senior housing projects across the country, with many more schemes currently in the pipeline.

An attractive product

“The list of the investment products in the property market that attract investors around the world has been expanded in recent years and includes healthcare facilities, nursing homes, rental apartments and dormitories,” said Tomasz Trzósło, managing director at JLL in Poland. Joanna Mroczek, a senior director, research and marketing department, at CBRE, also enumerated amusement parks, sports and cultural facilities, infrastructural projects, data centers, parking lots, self-storage warehouses and real estate debt among alternative assets.

In the opinion of Trzósło, the main reasons for the investor interest in the emerging sector are the growing number of available alternative assets and the investment characteristics of those assets, that is the fact that they are defined by long-term lease agreements with operators. It is also worth noting that commercial assets in the main asset classes – offices, warehouses, shopping centers and hotels – are becoming more expensive, Trzósło said.

These cash-flow generating asset classes presently offer higher returns than the commercial property market

For their part, developers build assets of this kind in response to new social trends, but also because they are aware of the existing – and growing – investor interest which is making the market more liquid and means they will be able to exit their projects, Trzósło added. Indeed, a poll conducted by CBRE at the beginning of this year among more than 400 funds and investors showed that 56 percent of the entities are already present in the alternative assets market, whereas 57 percent are actively looking for new investments in that market.

“In the current low interest rate environment, large capital-rich institutional investors such as pension funds look for sustainable income-producing assets with low risk profiles,” according to Maximilian Mendel, partner, transaction advisory, at REAS. The residential real estate market – including the private rented apartments sector, retirement living and student housing – fits perfectly into their profile as these cash-flow generating asset classes presently offer higher returns than the commercial property market, Mendel said.

“Moreover, due to the dispersed tenant structure in these asset classes, the vacancy risk is much lower,” Mendel added, pointing to the risks related to the potential loss of an anchor tenant in a shopping center or a built-to-suit warehouse building. According to Mroczek, investment in private student housing and healthcare facilities in Western Europe offers yields of up to approximately 6 percent, which is around 200 basis points more than in the case of the best office buildings.

No longer alternative

In the opinion of Mendel, in many countries student accommodation and senior housing are no longer perceived as alternative asset classes, but rather as parts of the mainstream investment sector. The UK remains one of the largest markets in this regard, with the combined value of the investment in student housing exceeding $6 billion last year. “The interest in investing in Continental Europe has increased over the years, too,” Mendel said.

According to Mendel, in the mature markets around the world, the student housing sector shows very strong fundamentals as there is very little existing supply and the student demand for quality product remains strong. Mendel argued that with populations across Europe ageing, the demographic potential for senior housing is even bigger than that for student accommodation. Admittedly, the management of investments in the senior housing sector is more demanding, Mendel said.

The CBRE poll showed that apart from real estate debt, student halls of residence are the most popular alternative asset class in Europe. The lack of public spending in the sector is attracting private capital, with the market growing fast in the Netherlands, the UK and Spain. In markets including Germany and the Netherlands, private investment in medical care facilities has increased rapidly in recent years. According to the poll, 17 percent of investment funds are planning to invest in healthcare facilities or nursing homes.

Critical mass needed

Whereas the investor activity in the alternative asset classes sector has been on the rise globally, the availability of alternative products in Poland is still very low. Meanwhile, there are investors in the country who would potentially be interested in such assets, Trzósło said. “We know that the number of companies which want to build such products in Poland has been rising, but it will take time and critical mass for the product to be delivered. Only then will the demand of the investment market be fully satisfied,” Trzósło added.

Mendel noted that in recent years there has been a very positive change in the perception of Poland by investors interested in the residential sector. The demand fundamentals are robust due to the shortage of homes and the poor quality of the existing stock in the country. Residential development for sale has traditionally been strong in Poland, but the demand for rental housing has also been on the rise in the country for some time now. “The prospects for more specialized products also look promising,” Mendel said.

Ageing gracefully

According to Sławomir Horbaczewski, a real estate market expert, senior housing and private healthcare facilities are a very promising property sector in a situation where life expectancy is increasing and the Polish society is becoming more and more affluent. In his opinion, the demand for services of this kind will continue to grow in the country, especially since competitive prices will likely also attract a number of foreign clients from markets including Germany and Scandinavia.

New nursing homes are also in the pipeline and for good reason as the nursing care market is valued at PLN 5.5. billion. Local investors are going to open two facilities at Godów in Silesia this and next year, one of them dedicated to German clients. Next year, a project called Leśny Dom Seniora will open in Piastowo in the Kujawsko-Pomorskie Voivodship, offering 94 places in single, double and triple rooms, as well as a medical center and a spa. Altogether, Angel Poland has announced it wants to add some 2,000 places in 10 senior housing projects, targeting “middle-income retirees.” In April firm delivered its first Angel Care facility in Wrocław, which offers services starting at PLN 3,000 a month for a place in a double room.

Rising expectations

The demand for student housing will also be on the rise. The existing dormitories of public universities in Poland can only house a small fraction of the student population of the country, which is one of the largest in Europe. The growing number of foreign students in Poland has also generated additional demand in recent years. Horbaczewski pointed out that many students today are very different from their counterparts a few decades ago in that they work and are well paid, and thus also have higher expectations with regard to the location and standard of their accommodation.

No wonder then, that the first private-run projects have already appeared to cater to their needs. Griffin Real Estate, one of the pioneers in this sector of the market, for one, has delivered three major student housing projects to date – in Poznań, Łódź and Lublin. For its part, Budner is planning a number of new schemes in Warsaw. It is expected that within the next few years new student housing investments will be developed in all major academic centers across Poland.

Andrzej Cytrycki, the person responsible for the development of the Student Depot chain of dormitories at Griffin Real Estate, which comprises the three above-mentioned schemes, said that the success of the facilities shows that there is huge growth potential in the sector. He added that the new developments have been particularly popular with international students. For example, in Lublin, students from Taiwan account for around 90 percent of all occupants, Cytrycki said.

Griffin Real Estate is now preparing to launch new student housing investments across Poland. Planned developments in Poznań, Kraków, Warsaw and Wrocław are expected to deliver a total of approximately 2,500 beds, Cytrycki said. More schemes are to be developed in subsequent years. Cytrycki added that Griffin Real Estate has the ambition to build, within the next few years, a portfolio of projects located in the main academic centers in Poland that would comprise a total of approximately 8,000 beds.

Real estate experts agree that new alternative assets in Poland have so far represented a drop in the ocean of demand. However, the schemes “act as benchmarks and pave the way for other investors,” Mendel said.

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