The big deals
Office buildings in Warsaw are selling like hot cakes. Plum addresses such as the Metropolitan, Renaissance Building, Viking House, Trinity Park I, and Rondo 1 have all changed hands this year, with the latter being sold twice before it was finished. Another host of prime buildings have been or are about to go under the hammer, including the Warsaw Trade Tower, the Warsaw Corporate Center and the Europolis portfolio, including Saski Crescent, Saski Point, Sienna Center and Warsaw Towers.
According to CB Richard Ellis, the total value of transactions closed in 2006 has already hit EUR 700 (zł.2,834) million, with Rondo 1 (EUR 260 million or zł.1,053 million) and the Metropolitan (EUR 169 million or zł.684) constituting more than half that amount. By comparison, last year 33 sales transactions were completed (which was twice 2004's figure), whose total value amounted to EUR 950 (zł.3,846) million, according to Knight Frank.
Yield is the key
According to Marcin Klammer from EC Harris, which provided transaction-support services to London & Regional Properties (LRP) in its acquisition of Rondo 1, the intensified activity on the market started with Poland's accession to the EU. "This is a symptom of investors' confidence in the Polish market and a sign of a maturing market," he says. "Developers and some of the opportunity funds are selling to new funds that entered the market. These funds have a longer term perspective," says Jeroen van der Toolen, the managing director at Ghelamco, which has just sold its Trinity Park I for EUR 62.5 (zł.253) million and in September this year is planning to start marketing its Trinity Park II and Prosta Office Center.
Indeed, investors expected that the risk connected with long-term investments would lower after Poland joined the EU, as was the case with countries such as Spain and Ireland. One of the risk indicators is yields, which reflect the relation of the profit on a property to the cost of the purchase. If the risk is high, investors want to regain their money as soon as possible, which is why in countries with high yields properties can be acquired relatively cheaply. Once the risk lowers, which is reflected in smaller yields, it is a sign for investors to go for long-term schemes.
Sell, sell, sell
In 2002, yields in Warsaw averaged 10 percent. At the same time, the rate for Moscow was 18 percent. In Q1 2006 the figures dropped to six and 10 percent respectively. This brings Poland closer to the EU capitals, where yields vary from 4.5 percent in the City of London to 6.25 percent in Brussels.
The drop in yields in recent months is the reason why Rondo 1, one of Poland's most modern and most expensive buildings, has changed hands three times, although it was only completed at the beginning of the year. "The sales of Rondo 1 were connected with the yield compression," says the head of the investment department at CB Richard Ellis, Paweł Welo. While the first transaction was closed at seven percent, the second was done at 6.5 percent and the last at six percent. This means that in a few months the investor could have earned tens of millions of euro. Welo claims that now, with average yields at six percent, the owner could only consider selling Rondo 1 at a yield of 5.5 percent to be successful.
"Now investors are again more careful. In future, transactions at below six-percent yields will only be considered with very good buildings, which are well-located and leased by high-class tenants for long terms," says Welo, pointing out that 2006 will be a year of verification for the market. Having the choice of investing at a five-percent yield in Poland or any other EU country with a stable economy, investors might think twice before deciding on Warsaw. However, with two million sqm of office space available, the Polish capital is still a shallow market. Moreover, office rents are expected to grow and this could be a sufficient stimulus for owners to think about selling their assets. In the hope that the dropping yields will not discourage investors, more companies, including local firms, plan to benefit from the major transactions.
The underdogs
The big deals are generally handled by the big fish in the shallow Warsaw pond, which include, among others, EC Harris (Rondo 1), CB Richard Ellis (Renaissance Building), DTZ (Viking House), Cushman & Wakefield and Jones Lang LaSalle (Metropolitan). But there are also smaller local firms aspiring to benefit from the market.
"A year ago the number of [office-building sales] was relatively small. These were in the majority corporate transactions, between large foreign players, assisted by the international real-estate agencies operating on the Polish market. With Poland joining the EU more smaller investors appeared, partly private persons, and partly smaller investments funds, which are more and more active in Poland," says Andrzej Brochocki, explaining why his company, Kancelaria Brochocki, which until recently assisted with office-space leases, decided to enter the world of bigger transactions. Brochocki admits that it is difficult for his company to get ahead of the international firms and nab the biggest deals, but the company has found its own niche in the market, which is dealing with smaller transactions, such as the sale of historical tenements.
"When it comes to lease transactions we function very well on the mid-size market. We know this sector, our offer in this respect is even greater than our competition. We try to find objects that are not seen with the naked eye, we can dig out different interesting buildings. I think that in the case of buy/sale transactions it will be similar. Probably, it will be difficult for us to get through to such transactions as the sale of Rondo 1 or Metropolitan," says Brochocki.
His company recently completed the sale of a building on ul. Nowogrodzka. The buyer was the Cervantes Institute, which bought the building for its own headquarters. The company has also finalized the sale of several smaller buildings for private investors, usually tenement houses of 1,000 to 3,000 sqm situated in the city center. The value of such transactions varies from EUR 1 (zł.4.05) million to EUR 5 (zł.20.2) million.
"One of the biggest transactions we are dealing with at the moment is the sale of a large office building for EUR 30 [zł.121] million; this is at the negotiations stage. We are also preparing a portfolio of a few historical tenements in Warsaw for one customer," says Brochocki. "There are a few tenements that have been modernized and can now function as modern office buildings, and we participated in most of these transactions."
