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Foreign Property Investors “believe in” Poland

Expanding economy and low real-estate prices lure buyers. So foreign Property Investors “believe in” Poland. An increasing number of new investors from the U.S., Asia and other parts of the world are striking commercial real-estate deals in Poland.

The commercial-property market, one of the largest in Central and Eastern Europe, has long been dominated by European investors. But lately new faces are showing up, attracted to Poland’s expanding economy and low real-estate prices compared with other markets on the Continent like the U.K. and France.

In the past 12 months, U.S. firms bought $1.4 billion of commercial property in Poland, more than anybody else, according to data firm Real Capital Analytics. German investors topped the list with $1.3 billion of deals in the previous 12-month period.

“If you look at the last five to seven years, the market was dominated by German funds,” said Dan Harris, managing director at London-based Tristan Capital Partners. “Now, you’re seeing a lot more U.S. capital and are even starting to see investors from Asia.”

TH Real Estate, an overseas investment manager owned by U.S. firm TIAA-CREF, is set to announce on Wednesday its first Polish investment. The firm paid about $62 million for a 50% stake in three properties—an outlet mall in Warsaw, and an outlet mall and retail park in Krakow—from Spanish outlet-mall developer Neinver, with which it has a joint venture.

“Poland has a bigger population than Canada, and more people than Australia. For us, the retail sector is a good way to play the consumer-spending angle,” said Chris McGibbon, head of real estate at TIAA-CREF’s general account.

Bank of China Ltd. and South Korea’s National Pension Service have been among the first Asian investors in Poland, spending a combined $1.1 billion in the past two years, according to Real Capital Analytics. Last summer, the National Pension Service bought two shopping malls, including the Galaxy shopping center in Szczecin for $233 million.

Investors spent about €3.13 billion ($3.5 billion) on Polish real estate in 2014, the market’s fifth consecutive year of rising activity, according to broker Cushman & Wakefield. Poland, which has the largest population in a region that includes Hungary, Slovakia and Romania, had a 43% market share of foreign commercial-real-estate investment in the region. Czech Republic was second with a 26% share, Cushman & Wakefield said.

The pace of investment has tapered off in recent months. But investors are predicting sales volume this year will exceed 2014, barring any major geopolitical shocks, including contagion from Greece’s crisis or any further Russian interference in Ukraine or elsewhere in the region.

Investors are attracted to Poland partly because the country pulled through the financial crisis stronger than most. It was the only European Union member country to avoid recession, according to the International Monetary Fund. It also has a transparent legal system and multiple cities besides the capital, Warsaw, with the type of high-quality properties investors like.

“We look at Poland as the [Central and Eastern European] tiger,” said Philip La Pierre, head of investment management in Europe at German real-estate firm Union Investment Real Estate GmbH.

Poland’s gross domestic product expanded 3.4% in 2014 compared with 1.7% in 2013, which are both well above the 0.9% growth seen in the 19-country euro area in 2014, according to Eurostat data. Retail sales in Poland rose 4.7% in April from the same month in 2014, compared with 2.2% in the euro area, the data show.

Poland also is benefiting from the rise in commercial-property values throughout the world, caused by low interest rates and central banks pumping money into their economies. This was felt in major cities like New York and London first.

But now prices have gone so high in those markets that investors are searching for deals with higher returns in other markets. In Poland, the average capitalization rate, which measures the annual income from a property compared with its original cost, was 7.3% in the first quarter, compared with 6.7% in Germany, according to Real Capital Analytics. Cap rates fall as prices rise.


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