FT SPECIAL REPORT Central & Eastern Property

Tuesday April 12 2016 www.ft.com/reports | @ftreports

Inside Investors hold their nerves Money is flowing back into the region Page 2

Political risk Populist policies unsettle observers and professionals Page 5

Clouds over Kiev Conflict with Russia Aleksandar Vucic (centre), Serbia’s prime minister, at the unveiling of Belgrade’s Waterfront development scheme — AFP/Getty has taken its toll Page 6 New kids on the Serbs divided over Waterfront block Rivals compete with western backers Inside A prestige $3bn development in Belgrade is under close scrutiny, Page 4 Page 9 2 | FTReports FINANCIAL TIMES Tuesday 12 April 2016 FINANCIAL TIMES Tuesday 12 April 2016 FTReports | 3 Central & Eastern Europe Property Central & Eastern Europe Property

region’s role as a destination for IT lower-costcountriestoperformback- Contributors andoutsourcingservices. Central and eastern Europe investment volumes office or other tasks, is continuing to In Serbia, reforms to property laws 2012–15, €bn support commercial developments, Henry Foy have raised investor optimism in a particularly in , though also in Central Europe correspondent Investors hold nerve as deals roll on country whose government is eager countriessuchasRomania. 9 to benefit from its lower-cost advan- Other CEE Companies that pioneered offshor- Slovakia Zosia Wąsik reporter tages over neighbouring countries Romania ingtotheregionadecadeagoareadd- Deal flows property investors was “keep calm inside the EU. Serbia’s accession to Hungary 8 ing increasingly more complex tasks andcarryon”. the28memberbloc,though,remains Czech Republic totheircentralEuropeanoffices. Andrew MacDowall Money is returning “We do receive questions from somewayoff. Poland To facilitate this, they are tapping Freelance writer to the region in spite investors who are interested in the The flow of property deals in the 7 large numbers of well-skilled gradu- latestchangesinPolandandtheinflu- region has been helped by a surge of atesinsuchcitiesasWarsawandKra- Roman Olearchyk of market jitters. ence these events have on the coun- funding from new sources, such as kow in Poland and in the Romanian Ukraine correspondent Henry Foy reports try’s investment real estate market,” Asian and South African investors. 6 capital Bucharest. They are also tak- says Tomasz Trzoslo, managing Theyaremusclinginonamarketpre- ingonmoreofficespace. Tadas Povilauskas director of Jones Lang LaSalle in viously sewn up by German, UK and 5 Demand for premium retail space Senior economist at SEB Bank Group t is a region marked by concerns Poland. US-basedinvestors(seePage9). is rising fast, too. Investors look to in Lithuania over the actions of illiberal, pop- Yet “real estate investors base their The new investors are attracted by profit from the growth of the region’s ulist governments, worried by investment strategies on a long-term the theme of central Europe property 4 middle classes, who are showing off Michael Kavanagh clashes over policies with Brus- perspective,” he adds. “Investment being a low-cost, high-return bet that newly acquired spending power by Commissioning editor I sels and the rest of the EU and decisions take into account a number offers a foothold and training ground shopping for western brands in mod- Steven Bird with some states under threat of sov- of economic factors and as a result, forthewiderEUmarket. 3 ernmalls. Designer ereigndebtdowngrades. knee-jerk reactions to unexpected “In Romania the first institutional Investors poured €2.3bn into retail Alan Knox Central and eastern Europe is sup- eventsorsuddenmarketfluctuations investors are returning,” says Ernst projects in Poland last year, the most Picture editor 2 posedly becoming a trickier place for aretakenoutoftheequation.” Vejdovsky, chief executive of since2006.Another€1.1bnwentinto investorstodobusiness. “Political risk can’t be ignored S-Immo, an Austrian property group Czechretailschemes. For advertising details, contact: You would not guess this, however, and . . . the immediate impact is with operations across the region. 1 The sector saw some 42 per cent Lyn Thompson, +44 (0) 20 7873 from gazing at the steel and glass sky- almost always one of investor — and “Thesearenottheclassicalonesfrom of total real estate transaction 4967, [email protected], or your lines, colossal shopping centres and often occupier — hiatus,” says Dam- the UK or the US but, for example, volumes in the region. Retail usual FT representative. office atriums of Warsaw, Budapest, ian Harrington, head of European investors from South ,” Mr 0 accounted for the largest chunk of PragueandBratislava. research at property advisers Colliers Vejdovskyadds(seePage6). industry dealmaking in the south- All editorial content in this report is Including the Balkans and other International. Investment may slow The trend of offshoring, in which east Europe group of Croatia, Serbia, produced by the FT. Our advertisers 2012 2013 2014 2015* south-east European countries, down “but significant transactions western companies such as banks Bulgaria and Slovenia, according to have no influence over or prior sight €9.1bn flowed into the region’s mar- keeponhappening,especiallywhena and technology firms use offices in * Preliminary figures Source: JLL, 2015 JLLresearch. of the articles. kets last year, the third highest widermarketisbuoyant.” annual amount on record. Projects in Further afield, the lack of resolu- the pipeline and estimates of deal- tion to the military stand-off in east- making suggest 2016 will be just as ern Ukraine and political turmoil in active. Kiev have kept most investors away “Investor interest in the CEE real from that country. Before Russia estate market has been growing over annexed Crimea in 2014, many had the past few years — and that trend is hoped Ukraine would become a prof- continuing,”says Richard Wilkinson, itable market, on a par with Poland a chief executive of Erste Group decadeago(seePage6). Immorent, the real estate financing Other countries are showing strong arm of Vienna-based Erste Group. growth. “Investors from Germany, the UK A surge in deals at the end of 2015 and are focusing in saw the Czech Republic, the region’s particular on prime real estate and theofficeandlogisticssegments,with healthy inflows spread across most of theregion’smarkets.” ‘Political risk cannot be Some countries appeal to short- ignored and the term investors. However there is a growing interest in longer-term immediate impact is projects as the region’sproperty mar- almost always one of kets mature and the quality of devel- opmentsincrease. investor — and often “There is much more focus now on occupier — hiatus’ theintrinsicvalueofrealestate,”says James Chapman, head of capital mar- ketsforcentralEuropeatCushman& second-largest market, record trans- Wakefield. “In CEE, we have reached actions of €2.65bn last year. The fig- the point in the development cycle ure is 65 per cent higher than that of where . . . you can see defined loca- 2014 and just shy of the pre-crisis tions where the best asset classes are record. performingandstandout.” In Hungary, where investors are He adds: “That is where the core regaining confidence despite a series money is coming in, which values of business unfriendly policies since long-termgrowth.” Viktor Orban returned as prime min- The change in government in Ups and downs: Moves by the ultraconservative Law politicalstrifewhenitcomestodraw- ister in 2010, the market is bubbling Poland and subsequent fall in inves- shoppers flock and Justice party’s new government, ing up future plans, however, and again. Commercial deals were up 62 tor confidence over political stability, to Warsaw’s including changes to the workings of Poland’sgrowingpotentialmarksitas per cent last year and total market top the list of immediate concerns for new malls the top court which critics say threat- still one of the most attractive desti- size of €790m was the highest since manypropertyspecialists.Thisraises Bloomberg ens its independence from the execu- nationsforinvestmentinEurope. beforethefinancialcrisisof2008. eyebrowsacrosstheindustrybecause tive, have caused a constitutional cri- Increased risk in the region was Investment flows remain strong in ofthePolishmarket’simportance. sis, international condemnation and among the hot topics at Mipim, the the Baltic states of Latvia, Lithuania Poland takes the lion’s share of a lowering of Poland’s investment propertyindustryinternationaltrade and Estonia. Lithuania adopted the property investment into central and creditrating(seestory,Page5). fair, which took place in Cannes last euro last year, which boosted its eastern Europe. Anyone active in the The property industry typically month.Themessagefromdevelopers appeal, particularly to commercial regionislikelytohaveintereststhere. considers more than just short-term and sales representatives to nervous developers keen to enhance the 4 | FTReports FINANCIAL TIMES Tuesday 12 April 2016 FINANCIAL TIMES Tuesday 12 April 2016 FTReports | 5 Central & Eastern Europe Property Central & Eastern Europe Property Investors worry over political direction

The ruling moreencouragementinstead. Poland Foreign investors provided party has startled the overwhelming majority of capital that led investment in those who have Poland’s property market to become used to hit €4.1bn in 2015, according toJLL. stability, reports This was the highest volume Henry Foy since 2006, with commercial and industrial markets hitting recordlevels. During its annual European Poland’s market accounted investor roadshow in Febru- for almost half the total ary, members of Cushman & invested in property across Wakefield’s Poland capital central and eastern Europe markets team soon discovered last year, underscoring its thatthosekeentoputcashinto importancetotheregion. central and eastern Europe’s “It seems to be lost on the property market tended to government that there are talkonacommontheme. knock-on effects to their pro- “Every meeting we had gramme,”saysMrHabib. startedwithadiscussionabout “I am rather hoping that Polish politics,” says James serious shift in sentiment In Hungary, prime minister Hot topic: Beata Szydlo, targeting foreign investors. therearesanevoicesinsidethe Chapman, head of central towards Poland since the elec- Viktor Orban’s controversial the Polish prime minister Some Polish government min- government that would advise European capital markets at tion. Investors are concerned interpretation of democracy Getty isters have called for overseas against more actions that the property services com- about two policies. Firstly, the and moves to squeeze foreign investors to lose “privileges” would upset the international pany. “There are lots of ques- government’s steps to impose capital make some overseas and for local funds to be given financialcommunity.” tions,” he adds. “It is a slight control on state-run media investors wary. Ukraine suf- cloudonwhatwaspreviouslya andtochangethewaythejudi- fers from long-running con- clearbluesky.” cial system works have led to cerns over political stability Waterfront plan raises Serbian ire Since coming to power in accusations of undermining and rule of law, while Slovakia October, Poland’s new ruling democracy and the rule of law. raised fears over its political party has startled investors Today, investors must price direction in March, when Sprawling is wrong with Serbia. They accuse the easily sold and that the hotel and Not ducking side investors, says Claus Graggaber, and shocked political analysts political risk into their plans it elected fascists to its Belgrade government of bulldozing through shoppingmallwillboom,”hesays. the issue: managing director of Erste Group who had become used to sta- morecarefullythanbefore. parliament. development for the the development with minimal pub- Unlike some of its neighbours, street protests Immorent. “With regard to downside bility in the EU’s sixth-largest Secondly, moves by the gov- Developers, fund managers River Sava area has lic consultation, amending planning Serbia did not experience a property against risks, Serbia is still burdened by economy. The party’s pro- ernment to raise taxes on the and estate agents in Poland legislation to fit the needs of the boom in the mid-2000s and so Belgrade administrative issues.” The legal nouncements have prompted banking and retail industries point to examples of banks prompted strong projectandusingpublicfundstosup- avoided a bust when the economic Waterfront and tax systems “show room for international concern about — both majority foreign- increasingthecostofcapitalor portprivateprofiteers. crisis hit in 2008. However, some AFP/Getty improvement”. the direction of this pivotal owned — have had a direct tearingupfundingagreements criticism, reports Protest groups such as Ne Davimo projectswereputonholdafter2009. Office and retail properties have member of the central and effect on property, driving up as a result of Warsaw’s tax on Andrew MacDowall Beograd (Don’t Drown Belgrade) Following a stagnant period, devel- vacancy rates of less than 5 per cent. eastern European group of the cost of finance and raising bank assets, which came into warn that the development could opments are pushing forward again, Rents are stable and comparable to countries. questions over the future of force on March 1 and has been becomeafocusformoneylaundering particularly in the office and retail other cities in central and eastern Ultra-conservative, popu- investinginPolishretail. earmarked to help pay for a elgrade’s Co-operative andcorruption. sector. Europe, Mr Graggaber adds, with list, broadly Eurosceptic and “Although international €5bnriseinchildbenefits. building is one of the city’s The developers and the govern- “We’ve seen more liquidity in Ser- office prime rents at about €15-€17 nationalist, the Law and Jus- fundsarenotinterestedinpol- “Where we have seen deals fineststructures,amaster- ment insist that all dealings will be bia over the past six months than in per sq m. Retail rents in modern tice party has wasted little itics, they are interested in its wobble is with the banking piece embellished with transparentandthatBelgradeWater- thepastsixyears,”saysOliverHurley, shopping centres vary greatly, from time in using the first parlia- influence on the country’s tax,” says Mr Chapman. Such B statues,bustsandreliefsof front will rejuvenate a neglected riv- managing director of Poseidon €15to€60persqm. mentary majority in Polish economy and investment deals may not have fallen wreathsandflowers. ersidearea. Group, a property developer and Investorsarenowtargetingprovin- democratic history to push attractiveness,” says Tomasz throughbuthavebeenrenego- It was built in 1905 and is a monu- Severalarchitectshavecondemned investorintheregion. cial cities, with retail parks opening through a range of political, Trzoslo, Poland managing tiated “because banks have ment to a time when this part of the BelgradeWaterfrontasoutofkeeping Mr Vujicic cites office projects recently in Subotica and Zrenjanin in economic and social reforms. director at property services changedtheirterms”. city, beside the River Sava and with the city’s geography, architec- including the 30,000 sq m GTC theaffluentVojvodinaregion. Overseas investors have been company Jones Lang LaSalle. Although the new tax, and a beneath the ridge on which central ture and character. The large-scale Squaredevelopment,the25,000sqm Dragoljub Cibulic, a partner at Bel- left to worry and work out “Foreign investors will not levy on supermarkets that Belgrade sits, was the commercial model of the planned district on dis- Sirius Offices being developed by grade lawyers BDK, says the invest- whatthismeansforthem. could dampen demand for heart of the Serbian capital. It is also play in the Co-operative Building Austria’s Erste Group Immorent, the ment environment has improved “Oneofthegreatadvantages large-scaleretailprojects,have theheadquartersofanambitiousand seemstoomitoneofBelgrade’sdefin- 22,000 sq m Navigator Business Cen- with the introduction of a one-stop of doing business in Poland raised investor concern, the controversial project that could ing features — its hills. There is doubt tre and the 15,000 sq m fifth phase shop for construction permits, which had been that you could rely ‘Within two months, majority of developers say transform the city — Belgrade Water- about whether the scheme’s hotels development of Airport City Bel- can be issued within 35 days in most on a stable and predictable the new government they have no plans to with- front. and restaurants will cater for ordi- grade. All are in New Belgrade, on the cases. political landscape that was drawfromPoland. The project, led by UAE-based nary Serbs. In a country with an aver- plain between Nikola Tesla airport However, privatisation of state pro-business,”says Ben Habib, managed to get Indeed, some have cheered developerEagleHills,isa$3bndevel- age wage of €400 a month (albeit andthecitycentre. land and the restitution of property managing director of First Poland’s A-minus the government’s moves to opment that would cover 1.8m sq m considerably higher in the capital), ‘We have The airport is the hub for Air Ser- confiscated under communism — a Property Poland, a fund man- increase social benefits and on the right bank of the Sava, near its cansuchaprojectbesustainable? seen more bia,inwhichAbuDhabi’sEtihadtook thorny problem across the region — ager with more than €300m in credit rating reduce taxes on the poorest confluencewiththeDanube.Thecen- Srdjan Vujicic, director of property a 49 per cent stake in 2013. The deal areproceedingsluggishly. thePolishpropertymarket.“It downgraded’ members of society, suggest- trepiece is to be an outlandish 200m operations at Savills’ local partner, liquidity in has resulted in a rapid improvement Sceptics say the Serbian govern- is interesting that throughout ing that these policies will tower, called Kula Belgrade. The Coreside Serbia, says the project may Serbia in in services and connectivity. The ment’s plans for attracting invest- the credit crunch, Poland increaseconsumptionofgoods developmentwillinclude“thebiggest not emerge in its entirety but he is hope is that the city can establish ment and transforming the country maintained its A-minus withdraw from Poland, and services across the wider mall in the Balkans”, 6,000 residen- upbeat about the momentum the six months itselfasaregionalbusinesscentreand have borne little fruit. Growth [credit] rating and within two although a more cautious atti- economy. tial units, 24 commercial office “clus- developmentcouldgenerate. than in the tourist destination, with knock-on remainslowforanemergingmarket. months the new government tude and some changes in At the same time, the gov- ters”andeighthotels. “The whole project will probably benefitsforthepropertybusiness. As for Belgrade Waterfront, it is an managedtogetdowngraded.” investment strategies cannot ernment’s stance towards For critics — including many not be in the quantity presented in past six Serbia is on a path towards joining open question whether it will emerge That one-notch downgrade, beruledout.” overseas capital has raised among the city’s middle class — the model, but we are sure that years’ the EU, while its educated and cheap as a remarkable success or a white by Standard & Poor's in Janu- Those concerns echo wor- eyebrows and comparisons Belgrade Waterfront epitomises what several residential buildings will be workforce has broad appeal to out- elephant. ary to BBB+, was the most ries elsewhere in the region. withMrOrban’sprogrammeof 6 | FTReports FINANCIAL TIMES Tuesday 12 April 2016 FINANCIAL TIMES Tuesday 12 April 2016 FTReports | 7 Central & Eastern Europe Property Central & Eastern Europe Property

way involving three potential new “The volume of office space occu- foreign investments in the country’s pied today is higher in gross terms commercial property market. “The thanitwasbeforethewar,”MrCotton market is structurally undervalued,” says. Conflict in the east weighs he adds. “A number of assets are He points to Ukraine’s booming IT availableatbelow-buildcosts. industry—whichisanimportantfor- “The interest is coming from pri- eign currency earner as a software vate equity investors,”he notes, add- development outsourcing hub — as ing that the high cost of borrowing in one part of the economy with a grow- heavily on asset values Ukraine has kept some investors out ingworkforce. of the market. “The opportunities Back in the Epicentr DIY store, will really come when significant Vadim continues with his shopping. investors who have assets outside of “If I ever get to selling my apartment, t is hardly a surprise that the part of a popular local chain. Locals Kiev’s main street, it is difficult to Ukraine will be able to leverage debt even with the upgrades, I will not get Ukraine two-year war with Russian- shop here for building materials and miss the “For Rent” notices in the from outside Ukraine,” Mr Cotton what I spent purchasing it years ago,” Prices are subdued backed separatists over the far- furniture to smarten up their often- windows of about a dozen retail says. “Only then will we see material hesays. eastern breakaway region of dilapidated apartments built in the storesthatarenowvacant.Twoyears volumesandlotsinsize.” but development I Donbass would have a devastat- Sovietera. ago, these were fashionable and Property development from com- ing effect on Ukraine’sproperty mar- “Itisonlylogicaltoaddvaluetomy expensiveclothingshopsandcafés. mercial to residential has not ground continues away from ket. The turmoil has further flat.”Costsformaterials,Vadimadds, Yet a short walk from Khresh- to a halt. Cranes erecting high-rise ‘Ukraine has really stayed Donbass, reports depressed investment, building areboundtogoup. chatyk the scene is more encourag- apartmentbuildingsarestillvisiblein off the radar screen of activity and prices that had already His family has not been in a finan- ing. Scores of new cafés have popped much of Kiev. Such development is Roman Olearchyk been battered by the global financial cial position to take advantage of fall- uponShotaRustaveli,astreetserving largely in the hands of domestic busi- investors since the crisisof2008-2009. ing residential property prices. Some everything from halal food to diner- nessgroups. global financial crisis’ But as the packed parking lot at a flats that eight years ago sold for stylesandwiches. Low costs for office space has been DIY hypermarket in Kiev, Ukraine’s $3,000 per sq m, for example, are on A few kilometres away where a source of opportunity for some. “We have just put 20,000 hryvnia capital city, illustrates, the market themarketatathirdofthatprice. rental prices are lower, the market is Vacancy rates in Kiev have increased ($775) into fixing up our bathroom. has not died. Far from the conflict, For Vadim and many others, sur- also showing positive signs. In areas from 17 per cent in the fourth quarter But I reckon our flat is valued at life in such areas goes on, and people vival is about hedging against cur- such as the up-and-coming Podil dis- of 2013 to nearly 22 per cent by the $20,000 less than it was in past continuetobuild. rency risks that have seen Ukraine’s trict, newly-opened hipster cafés full revival have emerged some 540km Life goes on: apartment blocks Ukrainiansfromthewar-torneastern radar screen of investors since the end of 2015 amid the roll out of new years.” “It is time to upgrade our kitchen currency, the hryvnia, lose half of its of youth from a nearby university west of Kiev in Lviv. The city is being built near the Dnieper river regions are snapping up residential global financial crisis,”says Nick Cot- stock, says DTZ. Yet the space occu- “We will probably put more into and living room,” 29-year Vadim valuesinceearly2014andinflationof havebrightenedthemood. blessed with medieval architecture in Kiev, Ukraine property,particularly the more afflu- ton, managing director of property piedhasincreasedby100,000sqmin the improvements than our apart- says, looking with his wife Anna at some40percentlastyear. An even more vibrant street cul- and a picturesque, cobble-stoned Bloomberg entaddresses. consultantsDTZUkraine. Kievsincethestartofthewarin2014, ment is worth,” his wife Anna says, sinks and counter tops at Epicentr, Walking along Khreshchatyk, ture and signs of a property market byway. Rumours abound that rich “Ukraine has really stayed off the He points, however, to talks under reaching1.4msqm. withasigh. Bucharest market hits the road to recovery

fundamental economic data is Timisoara in the west, Cluj in satellite developments are Romania stable, the country leads a Transylvania and Iasi, a city coming to market around determined fight against cor- close to the Moldovan and Bucharest, offering generous Stability and growth ruptionandtheoutlookisvery Ukrainianborders. living space and connections have caught investors’ promising.” JLL estimates that yields on to the city centre. The capital’s The anti-corruption cam- prime offices stood at 7.5 per patchy public transport and attention, writes paign saw some 1,250 public cent in 2015. Rents in Bucha- traffic congestion, however, Andrew MacDowall officials indicted last year rest ranged from €10-€18 per remainconcernsforinvestors. alone. These included then sq m depending on location, If the overall picture is rosy, prime minister Victor Ponta, according to research by Col- risks are emerging. A new The resignation of a prime who stood down in November. liers Romania. Further devel- mortgage law before parlia- minister under pressure over Investors have welcomed the opment could mean oversup- ment could allow debtors to allegations of corruption, the campaign as evidence that ply becomes an problem in handpropertybacktobanksif run-up to a close-fought elec- Romania is getting to grips parts of Bucharest, but other- theyareunabletoservicetheir tion and an armed conflict in a with serious problems in pub- wise growing demand should housingloans. neighbouring country are not licadministration. mop up extra space, says Ms Suchlegislationwouldmake generally conditions that send Property transactions in Paun. banks more reluctant to lend propertyinvestorsyourway. 2015 reached €650m, down Retail premises have per- against property at a time Romania has powered from€1.17bnin2014,ayearin formedsolidly,largelybecause when financing is just starting through such difficulties over which results were distorted of rising wages and purchasing to ease, says Bucharest-based the past year, however, and by large deals. But yields are power, according to Colliers economic commentator Cris- clocked up GDP growth of 3.7 attractive and “the market Romania. Foreign retail chains tian Pantazi. Mugur Isarescu, percentin2015—oneofthe remains liquid and is main- are an increasingly common Romania’scentral bank gover- highest rates in Europe. This taining momentum”, accord- feature and more are expected nor, criticised the proposed has fed a recovery in the prop- ingtoconsultantsJLL. totargetRomania. mortgagelawinMarch. erty sector,which was hit hard Industrial property had a A pipeline of 500,000 sq m Concern is also growing by the global economic crisis record year in 2015, account- of shopping-centre space is about the status of property from2009. ing for 41 per cent of transac- In demand: Dacia’s factory in Pitesti — Bloomberg expected to enter the market seizedundercommunismand, An EU member since 2007 tions, followed by the office by 2020, with 95,000 sq m to theoretically, eventually eligi- but not yet part of the euro- market with 38 per cent. Deals of the biggest sources of tries has been growing by as be delivered this year in the ble to be returned to its origi- zone, Romania has impressed included the Czech developer demand among industrial cus- much as 20 per cent a year, capitalcityalone. nalowners. outsiders with the way it has CTP’s acquisition of six indus- tomers,boostedbythesuccess says Ilinca Paun, managing Residential property had a A spate of legal cases in pickeditselfup. trial properties of more than of Dacia, the local carmarker director of commercial prop- recordyearin2015,withhome recent years have seen state “Romania has done its €130m in total, among them acquiredbyRenaultin1999. erty experts Colliers Romania. sales exceeding even the bodies fail to act on court homework,” says Friedrich west Bucharest’s industrial Office property remains an This has led to the develop- boom-timepeakof2007. directions to hand such assets Wachernig, member of park. Prime industrial yields important destination for for- ment of more office space, not Sorin Blaga, general man- back, raising fundamental the board of S Immo, the Aus- are9percent,saysJLL. eignfunds.ThevalueofRoma- just in Bucharest but also in ager of developer Liebrecht & questions about property trian property investor. “The Theautomotivesectorisone nia’sITandoutsourcingindus- regional centres such as Wood Romania, says more rights. 8 | FTReports FINANCIAL TIMES Tuesday 12 April 2016 FINANCIAL TIMES Tuesday 12 April 2016 FTReports | 9 Central & Eastern Europe Property Central & Eastern Europe Property Warsaw millennials Wave of investors hunts for high returns

Capital sources want creature comforts Arrivals from and South Africa are competition for western ntil last year, spacious kitchens, modern counterparts, are adopting a Office design KPMG’s logo sat conference rooms and a large different approach to their backers, reports Henry Foy Employers are proudly on the rooftopterrace. careers. They value teamwork enticing staff with top of Warsaw In Poland today, 1.5m sq m andcreativityandarenotused U Trade Tower, one of modern office space is being to strict hierarchical manage- Property developers in the central informal work of the highest buildings in built. Half is situated in War- ment. A small but growing andeasternEuroperegionareusedto Polishcapital. saw, which is the rising star of trend of office developers are looking west for capital — €16.4bn spaces, writes A central location, prestig- the office market in central attempting to capture the rolled in from investors in western Zosia Wasik ious decor and open-plan lay- andeasternEurope. spiritoftheseattitudes. Europe and North America in the outs had met the local needs of To be successful in the fight This less formal approach to fouryearsto2015. theglobalcompanyforyears. for tenants, the new offices workplace design, now com- Now, money is flowing into the Today, the logo has gone. In must offer something more mon among high-tech compa- region from points south and east on 2015, KPMG moved its offices than just a good location and nies in North America and theglobalmap. 4km north to the brand new design.Moreandmoreleading western Europe, is a new phe- The €1.2bn paid by South African GdanskiBusinessCentre. companies, competing for the nomenon in central and east- investor Redefine to take control of “There has certainly been involvement of wealthy local inves- overall market. That gives investors funds.This,inturn,increasesgeneral KPMG’s website stated that best employees, want to ern Europe, says Monika Rajs- Poland’s Echo Prime Properties increased Asian and other interest in torsthere. an alternative route for disposals, marketliquidity. the move was “not only a attract and retain their staff ka-Wolińska, managing part- announced in March was the CEE’s the region and it will continue,” says Market analysts estimate that, in namely selling to locals instead of Having more local investors is a change of address but also a with work environments a cut nerofColliers. largest property transaction involv- Stuart Jordan, head of CEE capital Poland at least, the local asset man- other parties from overseas. It also growing trend, says Mr Jordan. “It is a step forward in thinking about abovetraditionaloffices. Companies are mimicking ingafullycompleteddevelopment. markets at JLL, the global property agement industry accounts for means that typically smaller local goodthingbecauseitisasignthatthe company as a workplace”. Many Polish millennials — Google and Facebook. Their Marc Wainer, Redefine’s executive advisory group. “At the moment it is between5and10percentofproperty investors can snap up more modestly CEE market is becoming more Indeed, its Warsaw employees those born in the 1980s and offices include areas designed chairman, says of the deal: “This sig- characterised by ‘non-typical’ flows transactions by total value and is priced projects of up to €100m that sophisticated,”he adds. “It gives a lit- brag about having new 1990s — like their western for different types of work, nificantly advances our international likeSouthAfricanmoney.” growing at a rate that is outpacing the are often ignored by large foreign tlebitmorestabilitytothemarket.” such as creative spaces with strategy.” Redefine’s deal came months after walls for writing notes; The transaction is the largest off- South Africa’s Hyprop Investments “silence boxes”, where people shore purchase by a South African backedtwoSerbianshoppingmallsin Shop ’til you can concentrate in peace, as property company, and there could a €200m investment, following drop: Galeria well as relaxation rooms with bemoretocome,adds MrWainer. anothersimilardealbySouthAfrican Echo in Kielce, games consoles and spacious Foreigncapitalhasflowedintocen- investorAtterbury. Poland kitchenswithfullfridges. tral and eastern Europe’s property New Europe Property Investment, “The office has to support Above: anger management, Polish style, in a Colliers office markets since they emerged in the a South African investment fund, has the creativity, conversations, Below: Warsaw Spire joins the city skyline early 1990s from decades of commu- stakes worth about €1.5bn in Roma- teamwork . . . companies nist rule. This has especially been the nia, while Cape Town-based Tower have noticed that their work- [of employees and manage- Large property groups case since 10 states including Poland, Property made its first investment in ers are much more efficient if ment], we will only have a themselves are changing their the Czech Republic, Slovakia and CroatiainFebruary. no one imposes . . . where beautiful building and a nice own workspaces to match the HungaryjoinedtheEUin2004. South Africa’s currency troubles they have to work,” says office, which will not serve its shared-officephilosophy. The region’s capitals have trans- areapushfactorforinvestorslooking Ewelina Kałużna, a director at function.” Office-sharing businesses formed from sleepy centres domi- outside their own economy. But the SkanskaPropertyPoland. Facilitiesarealsoimportant. such as Regus that are com- nated by drab 1970s concrete into trend is encouraging optimism in the Companies try to outdo one “[Tenants] expect that the mon in western markets and modern glass and steel business dis- region about its assets being increas- another with creative ideas in building will not only offer particularly popular among trictsdottedwithskyscrapers. ingly regarded as core European office design to attract the them a place to put desks,” start-ups,arealsoaffectingthe German and other western Euro- investment options. A group of South mosttalentedemployees.Doc- explains Katarzyna Zawodna, trend. In 2015 there were 145 pean property funds led the way, fol- African investors is expected to tour Planner, a Warsaw start-up business unit president of of such offices in Poland, lowed by interest from US funds and Polishcitieslater thismonth. that runs an Internet platform SkanskaCDE. according to a survey by private equity investors. All were Investors from South Korea, China that connects doctors and Standard facilities in mod- Best2Invest. eager for the higher yields offered by and Malaysia are making moves, patients, has a meeting room ern office blocks include res- Five years ago this phenom- the developing markets’ economic regarding central and eastern Europe made from the inside of an taurants, hotel-like lounges in enon was almost nonexistent growth rates. These were typically as a place to learn about EU business ambulance, complete with the reception, cycle racks and in Poland. Now it is still small higheroverthepasttwodecadesthan practices — at lower cost and with siren that sounds when its showers. The new Warsaw compared with Berlin, but it is in the rest of the EU. Annual growth higherreturnsthanfurtherwest. website is down. Warsaw staff growing fast. Such offices usu- in Poland , for example, averaged 3.9 Hana Asset Management, based in at advertising agency Dentsu ally offer flexible leasing per cent in the decade to 2014 com- Seoul,isintheprocessofacquiringan enjoy sliding down a slide next arrangements. Entrepreneurs pared with an EU average of 0.9 per $85m Amazon logistics centre out- to stairs, and an ecological fea- can rent whole rooms or single cent. side Poznan, in western Poland. Chi- turewallmadeofmoss. The staff of Dentsu desks for a month or by the Theprocesswasfuelledbythehuge nese investors have shown interest in But Ms Rajska-Wolinska advertising agency hour. quantitative easing programmes projects from Prague to Belgrade. At saystheseareonlyaccessories. Ms Rajska-Wolinska says launched by central banks in the US, thelowerendofthemarket,thelong- “It is very often confused that enjoy a twisted slide co-working office environ- UK and the eurozone since 2008. heralded arrival of domestic capital workplace innovation is only next to stairs and an ments might one day become These interventions created cheap and local funds is beginning to have about hot desks and nice popular even among estab- capitalinsearchofreturns. animpact. design . . . The office has to ecological wall made lishedbusinesses. Overpastyears,however,investors “The growth of the domestic mar- reflect the culture of organisa- of moss “It is about not competing from China, Southeast Asia, South ket is one of the most striking trends tion — it has to be very well but co-operating with each Africaandotheremergingeconomies over the past year,” says Charles analysed,”shesays. other, about building the com- have begun buying assets across the Taylor, head of Cushman & Wake- “It is not about changing the Spire, the second tallest build- munity, exchanging of experi- region with increasing frequency. field’s Poland business. “Overall it is office but about changing ing in the Polish capital, offers ences,”shesays.“Thisisachal- Some have invested to diversify away veryhealthyacrossCEE.” human behaviours,” adds Syl- renters not only 100,000 sq m lenge — in terms of both costs from domestic assets or to secure In the past 20 years, domestic capi- wiaPredzinska,partneratCol- of office space but also a green andlegislation . . . Butthefirst exposure to the European market. tal has been negligible in driving the liers. “If we do not change the area with ponds, an amphithe- developer to do it will defi- Some view the region as a spring- region’s property market aside from mentality and the approach atre,artgalleriesandcafés. nitelysucceed.” boardintoinvestmentsfurtherwest. in the Czech Republic, thanks to the 10 | FTReports FINANCIAL TIMES Tuesday 12 April 2016 FINANCIAL TIMES Tuesday 12 April 2016 FTReports | 11 Central & Eastern Europe Property Central & Eastern Europe Property Baltic capitals still offer scope for returns If you seek

FederationandUkrainehaveonlyhad But although the three Baltic states will increase by 25 per cent in Lithua- transaction volumes in this segment Outlook a moderate impact on foreign inves- are usually thought of as one region, niaandby15percentinEstonia. wererelativelysmallin2015.Thedrop A rebound in confidence tors’attitudetowardstheBalticprop- considerable differences exist within Demand for this increased stock of in trade with the Russian Federation erty market. Certainly, GDP growth andbetweenthesepropertymarkets. floorspacewilldependonthesuccess hashitthewarehousingsector,though his work, is well underpinned, says across Latvia, Lithuania and Estonia The majority of funds are invested ofBalticcountriesinattractingforeign rentsforwarehousesremainedstable Tadas Povilauskas of SEB slowed in 2015 due to the knock-on in capital cities of Tallinn in Estonia, investors with comparatively cheap acrossallBalticstateslastyear. effects of Russia’s economic slump. Vilnius in Lithuania and Riga in butskilledworkforces. Residential property prices contin- But growth in the Baltic economies is Latvia.Forgoodreason:whilethepop- Theretailsectorwasthebiggestcat- uedtoimprove.Acrosstheregion,the Concerns over Russia’s ambitions to expectedtoreboundnextyearto3per ulations of these cities are generally egory by value of commercial prop- average price for an apartment just look wield influence over Estonia, Latvia cent or more in Latvia and Lithuania, stable,thenumbersofpeoplelivingin erty transactions across the Baltics in increasedthemostinTallinnandVil- and Lithuania as well as wider afield andto above2percentinEstonia some provincial areas are declining 2015,drivenbyseverallargedeals. nius.ConditionsintheLatviancapital continue to cast a shadow over the accordingtolatestEUforecasts. sharply. However,this year the office sector ofRigaweremoresubdued. formersovietstates. Though yields in the Baltic market Theofficemarketisheatinguppar- will most likely take the leading In Vilnius, the number of apart- But all three countries are continu- have contracted in recent years, they ticularly in Estonia and Lithuania, investment position. Good growth in ments sold last year was the largest around ingontheirpathoffullintegrationinto stillremainattractivecomparedwith where the vacancy rates for prime retail spending and a lack of floor since 2007, revealing solid demand the EU and economic catch-up with thereturnsonoffersintheNordicand office space are close to zero. Strong space in high-quality shopping cen- especially in the prime residential the west. Volumes of investment into westernEuropeanmarkets. demand from international compa- treshasdrivendownthevacancyrate sector. However an increase in the the commercial Baltic property Average yields for prime retail and nies establishing IT and back-office inthemostsuccessfulshoppingdesti- construction of local housing stock in Poland’s Jan Kulczyk left his market have returned to the level of office space in Baltic capitals now serviceshasgivenaboosttothedevel- nations to close to zero. International recent years has helped put a curb on Profile theboomyearsof2007-2008. stand at around 7 per cent. These are opmentofnewmodernofficeprojects. brands are still coming to the Baltics, risingprices. mark on the skyline. By Zosia Wasik This should not be viewed as a pre- higher than the returns on offer in In the next two years, office space pushing out weaker retailers to less TheBalticpropertymarketsshould cursortotheburstingofanotherprop- much of central Europe and well attractivelocations.InTallinn,devel- remainofinteresttoforeigninvestors he Ufficio Primo relations with politicians who emphasis at the time on office Renaissance: inside the imagined and, sadly, for all his empire to his son, Sebastian. erty bubble. When compared with aheadofthe5percentyieldstypically opment of shopping centres over the because of relatively high property is a renaissance- allegedly helped him to buy blocks, given that he thought Ufficio Primo enterprise, Mr Kulczyk did His admirers have little doubt, febrile conditions ahead of the 2008 onofferinwesternEurope. next three years will increase overall yields. Prudent policies imposed style palace built stateassetscheaply. the CEE region lacked “world- never see his ambition of however, that his legacy financial crash, today’s property Local and western European prop- The drift of population retailspacebyaquarter. by the central banks on property in central Warsaw In1991hesetupwhatwould class buildings and architec- building Europe’s biggest will remain an eye-catching market appears to be supported by erty funds have joined Nordic buyers from provincial areas to Thereisalsoreasonabledemandin borrowing should act as a safeguard T during a period become Kulczyk Investments, ture that would meet the towerrealised. and lasting one against economicandpoliticalstability. who have previously been the most theindustrialpropertyarenaasman- againstanyrisksofanotherboomand when the style known as with a portfolio of interests expectations of more and When he died last year aged Warsaw’s rapidly changing Tensions between the Russian activeplayersinthemarket. capital cities continues ufacturers seeking new sites, though bust. socialist realism was favoured. across a range of activities moredemandingcustomers”. 65, he left management of his skyline. The building, designed in including infrastructure, tele- Kulczyk Silverstein Proper- the 1950s by Marek Leykam, coms,energyandbrewing. ties has since developed, one of Poland’smost visionary From2000hewasrankedas owned and managed more architects of the epoch, is not the wealthiest Pole, according than 3.25m sq m of commer- everyone’s idea of a straight- to Wprost magazine. His for- cial, residential and retail forwardpropertyinvestment. tune was estimated at 16bn spaceintheUSandcentraland Intended to serve as the pre- zloty($4.3bn)in2015. easternEurope. sidium of the communist gov- For much of his career, his In 2013, the value of Mr Kul- ernment, the building — its propertyportfoliodidnotcon- czyk’s property business was façade and interior borrowed stitute a significant part of his estimated at 1bn zloty from the Palazzo Strozzi in fortune. But when he took up ($270m). The company put Florence — lost its prestige investing in property, his some of its investments in the over time, and became home actionswerefar-sighted. renovation of prestigious resi- to second-rate offices, a cin- In 2010, Kulczyk Real Estate dences, managing to combine emaandanightclub. Holding, one of the companies traditionwithmoderndesign. Another visionary saved it in the Kulczyk Investments Aside from the Ufficio from falling into ruin. In 2012 group, formed a joint venture Primo, the company manages the premises underwent reno- with Silverstein Properties, a other prominent Warsaw vation by Kulczyk Real Estate US company famous for, properties, including the land- Holding, owned by Jan Kulc- among other projects, recon- mark Malachowskiego Square zyk, who died last year as struction of the World Trade block designed by Jan Heurich Poland’srichestman. CenterinNewYork. and built in 1910, and Krucza Mr Kulczyk was born in For the US company, the House,oneofcentralWarsaw’s 1950, after the introduction of venture was a part of its strat- more stylish office buildings the country’s planned econ- egy to expand outside New constructedinthe1950s. omy. The Soviet era and envi- York. For the Polish entrepre- The company has invested ronment he grew up in was far neuritwasawaytoexpandhis in original as well as historic from entrepreneurial. Despite investments in property. In buildings. The highlight of Mr this, he followed the example business, he had done “every- Kulczyk’s ambitions was of his father who had worked thing but one thing”,Larry Sil- intended to be a skyscraper in Germany as a highly suc- verstein, head of the US com- that would have been the tall- cessful representative of a US pany, told Bloomberg at the est in Europe. In 2007 he company. time of the venture, referring unveiled plans for a 282m “Igotmyfirstmilliondollars tower in Warsaw, some 50m from my father,” Mr Kulczyk higher than the Palace of Cul- used to tell journalists when Kulczyk had ture and Science, one of the plans for asked about his start in busi- Europe’s chief edifices of the Polish cap- ness. “That is why I would tallest ital’sSovietera. rather talk about my first bil- skyscraper Because of the site’sproxim- lion.” ity to the city’s airport, Kulc- Taking advantage of the fall to Mr Kulczyk’slack of experi- zyk Silverstein had to adapt its of communism in Poland in enceinpropertydevelopment. plan by shrinking the height, 1989, he acted as a buyer and “It took a little while to under- first to 130m and then to just seller of businesses during stand his goals and to make 80m. The latest project, 1990s privatisations. Not eve- suretheycoincidedwithours,” thoughsettobeimportantand ryone admired him. He was MrSilversteinadded. eye-catching feature in the often accused of having close Mr Kulczyk placed city, is not what its originator