Institutional investors interested, but few buy Warsaw properties
Brokering multi-million dollar property deals to institutional investors can net commissions of 1-3%, so why aren't Warsaw's brokers rolling in the readies?
Despite the large number of institutional investors specializing in buying property, such as insurance companies and pension funds, few transactions have actually been concluded, according to real estate sources.
"This is frustrating for agents," said Chris Grzesik, head of the Warsaw office of King Sturge, the U.K.-based property consulting firm. "I hope that (the number of deals will increase) so we can finally start earning more."
In developed markets, property is a popular alternative for institutional investors, which usually invest in fixed-income bonds or shares. Such investors typically plow money into office buildings, shopping malls and warehouses, and earn a return on their rental.
Grzesik said that about 25 institutional investors (see the List) are looking to buy properties in Poland. Despite that number, few acquisitions have been made. In one of several recent deals, U.K.-based insurer Commercial Union paid $14.5 million last month for the Wisniowy Business Park's 5,500 square-meter building A, located near Warsaw's Okecie airport.
A year ago, Pricoa, the property wing of the U.S. insurance giant Prudential, shelled out $40 million to acquire the Atrium office building on ulica Jana Pawla.
In addition, two other major property deals were concluded in September. Chelverton Properties, the U.K.-based developer, sold Wisniowy Business Park's buildings C, D and E to a joint venture of two international investors, Heitman International and GE Capital Real Estate. The terms of the deal have not yet been released.
Also in September, Europolis Invest, an Austrian institutional investor, spent $70 million to acquire the 20,600 square-meter Warsaw Towers on ulica Emilii Plater.
But there are many more investors interested in acquiring properties. These include Pioneer Real Estate Advisors, which manages the Polish Real Estate Fund, as well as the U.K.-based Europa Fund, which said it was looking to acquire a property by the end of this year. Parkes & Co., a London-based property fund, also said it is considering buying one of the 25 properties it short-listed for purchase in Poland.
Apart from those deals, few others have been made.
"Most of the funds are not buying real estate," said Pierre Couderq, partner with Couderq & Partners, a Warsaw-based property consulting firm.
One of the reasons, Couderq said, are Poland's high interest rates, which make investing in bonds more profitable. "Interest rates are high so it's hard for local investors to move to real estate," he said.
In developed markets, institutional investors that buy property earn higher returns than via bond investments. In Poland, bonds now offer a 13-15% rate of return in zloty terms. Property yields run 11-12% in dollar terms, but bonds are seen as far more secure than real estate, property sources said.
The other reason preventing international buyers from entering the property market is that Poland's market is still volatile.
Falling rents are changing the profitability of office investments on a monthly basis, Couderq said.
As a result, international investors with longer negotiating processes are unable to conclude deals since they have to continually travel between their home countries and Poland to update contract conditions, he said. "I see people ping-ponging between Poland and the U.K.," he said.
In addition, developers are pushing to have their properties valued similarly to those in Prague and Budapest, thus discouraging many buyers, institutional investors said. "The expectations of developers are generally too high; they would like to see yields like in Prague or Budapest, which is unrealistic for this market now," said Bernhard Mayer, managing director of Europolis Invest.
Yet another problem for institutional investors is that many Warsaw landlords don't actually own the land on which their buildings are located; they have 99-year leases on them, Mayer said.
But property sources said that sooner or later a landslide of property investments would happen.
"This will come; there will be more transactions," Couderq said.
Grzesik said that the current market is ripe for short-to-medium term funds looking to buy properties at a yield of 11-13% and sell them in a few years when Poland is closer to joining the European Union. At that time, yields could drop to as low as 6%, he said.
"Then big pension funds that don't need high returns but a lot of security will come," Grzesik said.
