THE RENTAL ALTERNATIVE

WBJ: Over two years have passed since Catella decided to acquire a package of 72 luxury apartments in Warsaw’s Złota 44 skyscraper. Has the company’s decision to enter Poland proved to be the right move?
Dariusz Węglicki: Yes, by all means. Poland is a large and interesting market that keeps developing and offers a lot of attractive real estate product. Of course, we are talking about a very young sector – we are actually a pioneer in it with our two projects in Warsaw and one in Kraków – and renting in Poland is not as easy as in Western Europe. We need to put a bit more effort to rent here, but we do see good prospects for the market in Poland and plan to acquire more projects in the country.
Will that be luxury or upper-standard projects?
The luxury segment is by definition very small and we are pleased with the size of our current portfolio in that segment. Another thing is that the luxury rental property market is much more demanding now than it was ten or fifteen years ago when you could rent every project very quickly and easily. Many foreign companies have smaller budgets now and send fewer employees to Poland, so you need to try a bit harder to find clients. We have to remember that the supply in this segment in big markets like Warsaw, the Tri-City or Kraków is on the rise. In the near future, we want to focus on projects that are not defined as luxury but are still in very good locations.
How many No.44-branded apartments in Złota 44 have you rented so far?
I cannot reveal the total number, but I can say that we now sign from four to five deals per month, which is a satisfactory pace for us. Our clients include CEOs (who tend to choose the biggest apartments), senior and middle managers, and entrepreneurs.
How high are the rents in those apartments?
With rental prices we are on the market level. They range from approximately PLN 8,000 to more than PLN 22,000 per month and include utilities and maintenance fees. By comparison, the rents in our second project in Warsaw – Pereca 11, which is also located in the center of the city but is targeted at a much bigger pool of potential clients – start from around PLN 2,000 per month. In the case of that scheme, we aim to attract all those who want to live in a central location but prefer to rent rather than buy their own apartment.
How big could the institutional rental apartment market in Poland become?
There is certainly room for growth. In Poland, the rental sector currently accounts for only around five percent of the residential market and is dominated by individual investors. By comparison, in Germany it is some 40-50 percent. I do not think we will reach the German level in any foreseeable future. The nascent institutional rental apartment market will not see the kind of boom that we have witnessed in the retail market in recent decades, but it will rather continue to grow steadily in the coming years.
How much do you want to invest in Poland in the coming years?
This always depends on the strategies of the funds that we manage. The BERF fund, for instance – which owns Pereca 11 and the project in Kraków – can allocate approximately 10 percent of its capital in Poland. This translates into around €100 million, which is enough to acquire a few new schemes. When we make those acquisitions will mainly depend on the availability of proper product. The fact is that even if we make the acquisitions now, we will get the finished and partly furnished flats in about two years.
You would rather buy completed buildings than pipeline projects…
Of course, but this is virtually impossible in the current market situation. With new apartments selling like hot cakes you cannot find buildings at an advanced construction stage in which no apartments have been sold. We have to either buy planned residential projects and wait or look at other types of buildings that can be rebuilt. We are now actually considering the acquisition of office projects which could be relatively easily redeveloped and converted into rental apartments.
Some developers do not want to sell packages of apartments to investors, as the latter expect discounts and developers know they will sell the individual units at the regular price anyway…
That is true, but sometimes the margin is not everything. Cash flow matters too. If a developer launches a project which has many phases, he may wish to sell one or two buildings to an investor like us so that he automatically has the pre-sale level required to obtain bank financing. Of course, developers have their own problems today – the prices of land and construction services have increased significantly in recent months, which is having a negative impact on developers’ ability to start new investments. We hope to build stable relations with developers. The first project is always a test, after making a deal it is more simple to make future purchases as the parties know each other and their requirements.

In which Polish cities do you plan to invest in the near future?
We are looking at Gdańsk and Wrocław, which are growing office markets. Where there are offices, there are also our clients. As the commercialization of our rental apartments in Złota 44 and Pereca 11 proceeds, we will also be thinking about starting a third project in Warsaw, which will be located in the center of one of the districts. For sure, we will continue our growth with new purchases.