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Oct. 10, 2013

EXPOReal Special Report: Office vs Retail in CEE, PPPs in the Mix Once Again

By Alex Girda, Associate Editor

Munich, Germany—As the second day of the International Trade Fair for Property and Investment in Munich began, the focus was on emerging markets and the unique kind of potential that can be seen in some countries of the Eastern Bloc. Poland has probably been the most successful Eastern European country of the past decade, with relatively strong financial indicators and a growing BPO-driven office market.

In the context of heightened development in Warsaw’s CBD, Daniel Harris, managing director, investments, with Tristan Capital Partners, expressed disbelief in the amount of new tower developments in the city’s pipeline. “Everyone seems to be planning another tower. I’m not expecting ten new towers to be constructed during the next 10 years,” he said. Harris added that the developers who manage to secure pre-leases for their properties will be the first to break ground on their projects as the market is very much based on supply and demand, leaving little to speculative development. According to Harris, Warsaw should be able to support the development of an office tower every five years, but the current costs and realities of the market leave everything to the amount of leases that are being completed.

In terms of investment, Harris also noted that the majority of office investments that will be made in the CEE countries, Russia excluded, would be made in Poland. With Hungary virtually non-existent at this time and the Czech Republic being a highly fluctuating market, the best bet property investors have right now in the area is the Polish market.

According to Dr. Martin Sabelko, managing director CEE/Green Team with CBRE Global Investors, the company is seeing sustainability in retail investment in Eastern Europe, and as a result is starting to shift its focus towards a more retail-minded strategy. Other companies are seeing more concentrated approaches—for example Marcin Juszczyk, board member and head of the investment department at Capital Park, said that his company’s current strategy is focusing on high street retail and the development of smaller assets such as convenience stores. The company began developing its portfolio in 2005 and now has 39 separate properties completed in 26 cities, with 100 percent leasing rates. With those properties now generating revenue for the company and a successful business model in place, the company is sure to continue its focus on this smaller, but seemingly consistent sector.

Elsewhere, smaller markets are trying to gain some more notoriety by proposing game changing opportunities to investors. A 200-hectare project dubbed Innovation City in the Romanian city of Cluj-Napoca was presented at this year’s EXPO Real and its proponents have laid out their arguments in favor of the idea. The project would supply mixed-use space including campus expansions for a few of the 12 universities in the city, as well as residential units to accommodate those populating the new innovation district. The city is betting big on a recurring theme at this year’s conferences: Private Public Partnerships.

With new legislation currently under discussion in the State Parliament, and infrastructure development projects including the expansion of the local airport and the new transportation ring surrounding the city, it is clear that local authorities have identified what it takes to attract interest to the area. The current Mayor of Cluj-Napoca and former Romanian Prime Minister Emil Boc told MHN that “Private Public Partnerships have driven the entire European continent for decades, and Romania has missed out on the opportunities due to its communist past. It is now time for us to look to that aspect and come up with a strategy where we provide investors with the land and accommodate their needs for a mutually beneficial outcome.”

The PPP trend has been discussed extensively over the first two days of EXPO Real and promises to be a focal point for emerging countries in both the commercial and multifamily development environments.

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