Having read Anna and Stan's article I came across an article from the Poland Monthly magazine which was delivered to the office today - it shares some similar sentiments to what Anna and Stan are telling us about the Polish Market.

I have taken some key points from the article.

In terms of real estate America is taking a bath and Western Europe is in the shower. But Poland, it is only drizzling.

Like any other asset type, real estate is subject to two fundamental rules. First, something is only worth what someone else will, or more importantly now, can pay for it. Secondly, price is subject to the laws of supply and demand. And like the rules of most games, if you break one you have a small problem, break two or more and then you are looking at trouble. In the US both rules have been broken. A broad and overheated supply side has now created more product than the market can absorb and ownership in the US is very highly leveraged.

In Poland it isn’t nearly as dangerous. The relatively young commercial real estate industry has not accumulated sufficient inventory for sudden changes in demand to be an issue. In addition funds and other institutions who are now risk averse in mature markets, because of the risk of diminution in value, are harbouring cash that they need to allocate.

So, how is Poland doing with the rules?

The current banking liquidity crisis while triggered by the collapse of real estate backed monetary instruments is really about the collapse in confidence among bankers themselves as they have watched the balance sheet strength of their peers literally evaporate. They are not so much worried about their clients ability to repay but of their peers within the banking industry. It’s now all down to relationships and there is going to be a flight to quality. The flight is also evidencing itself in the world of real estate finance with the successful developers with long established relationships with their bankers, their histories and reputations will carry them through this period of uncertainty.

It is not only the client who is important now, it is also what they are selling. Financing will be available for “land mark” developments. Projects considered to be strong investment grade assets based on location, tenant and cash flow quality. These types of transactions can still be got in Poland:
The Von der Heyden Group’s recent sale of its Andersia Tower project in Poznan to DEKA Immobilien a German investment fund for around €85m drew breath for its sub 5.7% yield in what even some CRE professionals consider an unsettled market.

Poland’s GDP is projected to grow at a more sustainable 5.5% next year and will hang around that level for the medium term. Wage inflation is a concern but its labour costs still offer a discount to those suffered in the rest of Europe, sufficient to justify investments in Poland. Labour quality and availability is now driving tenants and therefore developers to invest in the provincial cities as much as in Warsaw.
Now that low-cost airlines offer flights from nearly all the key regional cities to most of the important hubs of Europe, the need to have your Polish office in Warsaw is abating. Krakow, Poznan, Wroclaw and now Lodz all offer easy access to Poland. And the labour shortages in Warsaw mean a lot of big names are looking for space in the regions.

As labour costs equalise with those in Western Europe the spending power released will drive GDP from a domestic base rather than an FDI one giving extra impetus to Polish companies for they too are a big driver behind office demand. The level of investment that is pouring into cities such as Lodz and Wroclaw, also from manufacturing and retail sectors, is now fuelling new service sector demand.

The lack of modern commercial real estate, including logistics and industrial, means that for the foreseeable future demand will exceed supply and with concerns being raised about Poland’s ability to deliver the infrastructure for Euro 2012 due to a lack of capacity in the construction sector, the supply and demand support will be in place at least for the next four years.

Investors still have cash and are looking for quality product. Yields have compressed as far as they can reasonably go in the region but rental growth is now supporting the transaction market. Warsaw’s central business district saw a 30% increase in rental last year on the back of the excess of demand over supply. Obviously this can’t continue at this pace but there’s still a lot of momentum out there.

The article concludes there is no significant risk in Poland for the foreseeable future. The demand dynamics mean rental growth will drive investment. There’ll be no bargains but solid returns can be made if assets are developed or bought at the right price.