WBJ Observer October 2016

WARSAW

Tomek Chwinda

OCTOBER 2016

PLN 24.50 (VAT 8% included) ISSN 2353-3714 INDEX-RUCH-332-127

Number 10 (32)

FOR DAILY NEWS VISIT US AT

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STILL RISING PUBLIC DEBT SURPASSES 50% THRESHOLD. WHAT’S NEXT? >>22

EXPO REAL

Two down, two to go

Poland’s real estate sector is set to repeat last year’s PLN 4 billion success

OCTOBER 2016

ALSO IN THIS ISSUE:

• C o m m e n t a r y • W S E • Te c h • N ew s • L i fe st y le • C h e m i c a l s

IN THIS ISSUE

33-39 53-83

22-25

PUBLIC DEBT 6

NEWS In Review Latest news Dateline Economy

COMMENTARY Law Agricultural land Real Estate Demand for land

WARSAW STOCK LOKALE IMMOBILIA EXCHANGE

INTERVIEW Leszek Skiba

FEATURE Chemicals Industry landscape

Events Book of Lists Gala Events Economic Forum in Krynica Events

LIFESTYLE Gadgets Lifestyle Lifestyle Żelazowa Wola

Tech Insights

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EVENTS / XXXXXXXXXXXX COMMENTARY / LEGAL

Visit our site - wbj.pl Morten Lindholm Publisher mlindholm@valkea.com

For latest news, features and commentaries.

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APRIL 2015 • WBJ OBSERVER

• FEBRUARY 2016

COMMENTARY / ON INFORMATION TECHNOLOGY

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HEALTHY & DELICIOUS BREAKFAST SETS FROM PLN 19.00

FRESH & TASTY LUNCH SETS FROM PLN 19.00

DELIGHTFUL FLAVOURS FROM ACROSS THE GLOBE

PARTY THE NIGHT AWAY WITH OUR DJ’S & LIVE BANDS

DEAR READERS JACEK CIESNOWSKI, EDITOR-IN-CHIEF, WARSAW BUSINESS JOURNAL GROUP

Public debt has always been a focal point of political discussion in Poland. Those that are in opposition always criticize the ruling party for increasing the debt. Once the tables are turned and the opposition comes into power, nothing changes and the public debt continues to grow. Still, the level of public debt in Poland is relatively small compared to other EU countries. In Poland it has just surpassed 50 percent, while many others are reaching close to 100 percent. Why then is this such an important topic? Read our story to find out. We also take an in-depth look at the Warsaw Stock Exchange, which is celebrating its 25th anniversary this year. It is not the

greatest time for the Warsaw bourse as indices are the lowest they have been in years. We asked the WSE CEO about her plans on how to change it. Elsewhere, we have a profile on the Polish chemical sector and in our tech insights supplement we analyze how big data can predict the outcome of elections on the cusp of the 2016 presidential vote in the US. In the Lokale Immobilia supplement we write about how investor interest in Poland has gone up, and assess how many more new office high-rises Warsaw really needs.

SO MANY OPTIONS, SO LITTLE TIME, ENJOY THE MOMENT! STIXX Bar & Grill Plac Europejski 4A 00-844 Warsaw

EBR

201

• WBJ OBSERVER

Tel. (22) 340 40 40

Mon - Thu Fri Sat Sun

7.30 - 24.00 hrs 7.30 - 2. 00 hrs 9.00 - 2.00 hrs 9.00 - 23.00 hrs

www.stixx.pl

REVEW

NEWS

News highlights of the past month

PM Szydło dismisses Treasury Minister. W O S

J J S S

J S S S

O 2010 S 6

B E

R 1

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Images: Ministry of Treasury, European Commission

J J

WBJ OBSERVER •

2016

NEWS

European Parliament on Poland T

J 160

O V

2020

12 22

PLN 42 bln by 2020 1

200

10 6 201 2016 2020 11 2

1 R

V B

E E -

OBER 2016 â&#x20AC;¢ WBJ OBSERVER

Images: Shutterstock

PwC:

NEWS

Foreign Minister in London:

NBP: expected amount T

W W

B B

0 000

B B

S -

2011

PGNiG

B 2

S 2022

20 2

201 R 2022

200

LOT CEO: R

W 2022 202

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Images: Shutterstock, Wikimedia

00-810 Warszawa ul. Srebrna 16

WBJ OBSERVER •

2016

NEWS

9th-10th of November 2016, Radisson Blu Hotel, Warsaw

Warsaw City Hall officials W

MARIUSZ GOLEC, PRESIDENT OF THE BOARD, WIELTON S.A. W

„Participation in this event gives the opportunity to meet with a bunch of key industry people and to talk about the future of Polish manufacturing companies or about modern technologies. Forums like this let us understand the essence of all innovation and their important role in the development of the companies and at the same time of Polish economy.”

2 -

GOV'T CONSIDERS GROWING MEDICAL MARIJUANA

PAWEŁ KACZALSKI, MEMBER OF THE BOARD, SOLARIS BUS & COACH

“Innovative Manufacturing Forum is a big success. It leaves me nothing more than to congratulate both the quality of speaking in terms of content and wide eyes of panelists on the issues discussed . I am very pleased that this conference is taking place, and I wish that there were more.”

Poland will not extend gas deal with R

2022

R -

STRATEGIC PARTNERS 2022

E 10 000

PARTNERS

20 000

E -

PRIVATE TAILORING PARTNER

e-mail: kontakt@mmcpolska.pl 12

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Images: Shutterstock, Institute for Eastern Studies, BZ WBK

W 200 2016 20 000 2 000

W O

Images: Shutterstock, Wikimedia

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TECHNOLOGY PARTNER

phone: +48 22 379 29 21

www.en.forumprodukcji.pl WBJ OBSERVER •

2016

Calendar October

I TE W / SB O/ DSY N LA EPAS SHI ONTG N

October 5-6 October 4-6

EXPO REAL Event: EXPO REAL is the largest B2B trade fair for real estate and investments in Europe. Over 1,700 exhibitors from more than 30 countries and 38,000 decision makers from 74 countries will be present at the fair. Location: Messe München, Germany (Messegelände) Web: exporeal.net

XII Warsaw International Banking Summit and VIII Insurance Forum Event: The Banking Summit is the twelfth edition of the cyclical and prestigious Banking Forum. The event gathers key personalities (representatives of central government, regulators) as well as solution providers and companies cooperating with banks. As many as 770 people, 100 speakers and 30 partners will participate in the Banking Summit & Insurance Forum. Location: Sheraton Hotel, Warsaw Web: bankowosciubezpieczenia.pl

October 6-7

100% Retail & Fashion Event: This is the 3rd edition of the conference dedicated to the clothing, footwear and lingerie industry. The program includes discussions on image, strategy, e-commerce, social media and branding. Location: Sofitel Grand Sopot Web: retailandfashion.pl

October 11

Warsaw Global Business Forum Event: This is an event addressed to entrepreneurs thinking about developing international business. The forum aims to present the achievements of companies in terms of international expansion of Polish products and services. Location: Centrum Nauki Kopernik, Warsaw Web: wgbforum.com

Enigmatic statue This monument, unveiled in 2007 in Poznań, honors three Polish mathematicians: Marian Rejewski, Jerzy Różycki and Henryk Zygalski, whose work contributed greatly to deciphering the German Enigma cryptographic machine in World War II. The enigma machines had for years been considered “unbreakable” and the process of deciphering it has been the focal point of many movies, which very often overlook the Polish contribution. The statue was designed by Grażyna Bielska-Kozakiewicz and Mariusz Kozakiewicz.

EBR

2016 • WBJ OBSERVER

IX Warsaw International Media Summit Event: It is the ninth time when the representatives of the media and telecommunication sector will have the opportunity to discuss key issues during The W Summit. The event is addressed to senior managers who can keep up with market development trends in Poland and worldwide. Location: The Westin Warsaw Hotel Web: telekomunikacjaimedia.pl

October 13

Image: Shutterstock/ppart

October 12-13

IX Broadbank Network Conference Event: The Broadbank Network conference focuses on the telecommunications, energy, construction, roads & railways sectors. Representatives of public administration (both central and local), solutions and equipment providers, law firms and consulting companies are the key participants in the conference. Location: The Westin Warsaw Hotel Web: polskainfrastruktura.pl

October 14

Responsible Business Forum & Awards Gala Event: The Executive Club’s 11th anniversary celebration, during which prizes will be awarded to companies, non–profit organizations and philanthropists who have distinguished themselves by their outstanding achievements in the field of social activity and charity. Location: Sofitel Victoria Hotel, Warsaw Web: executive-club.com.pl

October 27

6th annual CEE Investment & Green Building Awards Event: The CEE Investment Awards is the only awards ceremony to recognize and honor excellence in the CEE region’s investment sector. At the Awards Gala, city, airport, stadium, railway and bus terminal investment directors and officials, real estate companies, projects and individuals will be recognized. Location: InterContinental Hotel, Warsaw Web: ceeinvestmentawards.com WBJ OBSERVER • O

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NEWS / ECONOMY

FACTS AND FIGURES Data overview for August

Warsaw Stock Exchange as of August 2016 Number of listed companies:

-0.8%

482

was Poland’s CPI inflation

TRADE VOLUMES

8.5%

0.9%

y/y industrial output growth

registered unemployment rate

PLN 126.54 billion

XXIV Energy Conference EuroPOWER

BONDS

PLN 835 million

33.4 pts

ZEW Indicator of Economic Sentiment

FUTURES

9th-10th November 2016

4.72 billion Imports, exports up

In January-July 2016, Polish exports inched up by 5.6 percent year-onyear, whereas imports were 3 percent higher than in the corresponding period of last year. Polish exports were worth PLN 455,339.5 million, versus imports, which totaled PLN 436,501.5 million.

3.16%

PLN 936 billion

public debt after Q2

SOCIETY • ENERGY • ECONOMY STRATEGIC PARTNERS

Data source: Central Statistical Office (GUS), Warsaw Stock Exchange, Eurostat, Labor Ministry

Radisson Blu Centrum Hotel, Warsaw

Deflation holds

Year-on-year CPI inflation in Poland, August 2015 – August 2016 -0.5

Keeps falling

Poland’s registered unemployment rate, August 2015 – August 2016 10.5 10

-1

PARTNERS

9.5

said NBP board member Jacek Bartkiewicz

-1.5

8.5

Jul. ’16

Aug. ‘16

May ’16

Jun. ‘16

Apr. ‘16

Mar. ‘16

Jan. ’16

Feb. '16

Dec. ‘15

Oct. ‘15

Nov. ’15

Sep. ‘15

Jul. ’16

Aug. ‘16

May ’16

Jun. ‘16

Apr. ‘16

Mar. ‘16

Jan. ’16

Feb. '16

Dec. ‘15

Oct. ‘15

Nov. ’15

Sep. ‘15

Aug. ‘15

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Aug. ‘15

-2

“We expect that eventually there will be five-six universal banks in the Polish banking system, while other banks will have a niche character,”

e-mail: kontakt@mmcpolska.pl

phone: +48 22 379 29 11

WBJ OBSERVER • O OBER www.en.konferencjaeuropower.pl

COMMENTARY / LAW

COMMENTARY

JAN WSZOŁEK, VO E E BER O RO ER EVE O E W B W ER S WE

SS E OR E RE

R O S R E

EVE O The demand for plots for residential development on Warsaw’s real estate market is still strong. There are several reasons for this: first of all the very popular MdM program is still in operation, banks offer attractive low borrowing rates for mortgages and also investing in apartments has become a very popular way of investing capital. Demand for apartments is so strong that developers are acquiring investment plots in almost every district in Warsaw. Some of those projects are being developed on remotely attractive plots, far away from the city center, with poor access to public transportation links. Despite those unfavorable nuances, developers do not experience substantial problems with the sale of such projects. Currently, the biggest supply of apartments is concentrated in two districts of Warsaw: Wola and Mokotów. These districts also offer the largest number of plots for development. Attractiveness of plots in the Wola district increased in line with the development of the second metro line, and it is still rising. Apartments purchased as an investment are concentrated in the city center of Warsaw and Wola, where small to medium apartments are being designed, with one or two rooms, located in high density developments. The real estate market (land sector) is highly competitive, with a large number of entities analyzing plots for future residential developments. This has affected land prices, which have surged by 30-50 percent over the last two years. At the same time,

of local authorities in various parts of Poland is not coherent – especially if no local spatial development plan is adopted for the given area. The statutory definitions of “acquisition” and “agricultural property” – both very broad and general – make the new regulation widely applicable. This results in the new law having a significant impact on the entire real estate market. The new regulation is, in many points, not clear, which in practice makes it difficult to confirm whether a real property is “agricultural” and whether or not it should be subject to restrictions. Nevertheless, it is of high importance to establish the fact, since a transaction concluded in breach of the new regulation is null and void. As the new law is relatively fresh, no court judgments helping to understand its provisions have been issued so far, which in turn often makes notaries and lawyers stick to safer interpretations so as to mitigate the risk of the transaction being recognized as void. The regulation also has a substantial impact on corporate and M&A transactions. Under the new law, mergers and divisions of companies are deemed to be “acquisitions.” The ANR (representing the State Treasury) also holds the statutory pre-emption right in relation to shares in a company holding legal title to agricultural real properties. Consequently, agreements for the sale of shares in such companies are to be concluded provided that the ANR does not exercise its pre-emption right. This requirement may influence many M&A transactions. u

prices of apartments have remained at the same level as a few years ago, which results in reduced profitability of such investments. It is very difficult to determine the future direction of the real estate market. The gradual depletion of MdM program funds, the planned implementation of the governmental model of social housing, and also possible increases in borrowing rates for mortgages may substantially affect demand for residential developments. The depletion of available land assets, and problems caused by the re-privatization of property pose additional threats, which combined may result in an increase in prices. Meanwhile, the demand for office space in Warsaw is still strong. Tenants’ preferences regarding the location of their offices has tended to shift towards the city center as well as the Wola district. Wola is especially popular due to the substantial development of its transport infrastructure, this district is currently the most dynamic place for office developments. This year was marked by the opening of two significant office projects – Warsaw Spire and Q22 totaling approximately 160,000 sqm of new office space. Taking that into account and the amount of new office space delivered to the market in the first six months of 2016 was 26 percent bigger compared to that for the whole of 2015. High supply of office projects has affected the vacancy rate, which has risen to the level of 15.4 percent. Despite high levels of supply, the market remains balanced due to growing demand for office space, especially in the central districts of Warsaw. u

Images: Shutterstock

On April 30, 2016, new regulations imposing restrictions on acquiring agricultural land came into force. For 12 years, since Poland’s accession to the EU (May 1, 2004), acquisitions of agricultural land and forestland by EU-foreigners were subject to state control – an EU-foreigner willing to acquire such land had to obtain a permit from the Ministry of the Interior. After the lapse of the transition period, the government introduced a new regulation (an amendment to the Act on the Agricultural System) in order to maintain control over acquisitions of agricultural land by foreigners. Now, several months after the implementation of the new regulation, it appears that it has resulted not only in the anticipated fall of agricultural land prices, but also, due to ambiguous and complicated provisions, a larger demand for the services of real estate lawyers. According to the general idea underlying the new regulation, agricultural land should be used for agricultural purposes and owned by farmers. With some minor exceptions, the acquisition of agricultural properties with an area larger than 0.3 ha by other persons requires prior consent of the President of the Agricultural Property Agency (ANR). An alternative for the potential buyer (or an owner willing to sell a property) is to reclassify the land as non-agricultural, which renders the regulation inapplicable. Nevertheless, the procedure for changing the designation is time consuming and the practice

BARTŁOMIEJ HOFMAN, RES E O E BO R OBE O

E RE ES E R E S B E R

E R ER ES E

OCTOBER 2016 • WBJ OBSERVER

WBJ OBSERVER • O

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INTERVIEW / LESZEK SKIBA

THE LANDSCAPE FOR CREATING BUDGETS I N T E R V I E W B Y E WA B O N I E C K A

WBJ Observer: As Undersecretary of State in the Ministry of Finance you were recently appointed by Prime Minister Beata Szydło to the position of Chief Spokesman for Public Finance. Does that mean there will be tighter controls on our spending? Leszek Skiba: The function of Chief Spokesman for Public Finance was already present in our financial system so my appointment is a continuation of that responsibility. The operation of this office entails additional verification of how the budget is spent by the state and local institutions, and that it is done independently of the normal activity of the Supreme Chamber of Control (NIK), so our budget spending is under sufficient verification and control. The government has announced a project that will involve a change in the way budgets are prepared from 2018 onwards. What is the aim of the project? We want to conduct budget planning with a long-term perspective, to make that pro-

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cess more transparent and to involve other ministers in cooperation with the Ministry of Finance. The Council of Ministers is responsible for deciding the priorities for state spending. The role of the Ministry of Finance will be focused on supervising the negotiation of the budget with all ministers, controlling expenses, and the realization of the government’s priorities. The proposed changes in shaping budgets does not mean that the Ministry of Finance will lose its responsibility for the state budget. The aim is to change the formula in the preparation of budgets in order to make that process more transparent and to create broader instruments to aid the government in shaping spending plans. The current formula was created in Poland during the 1990s in a different internal and external economic reality. Our proposals are going in directions that are practiced in highly economically developed EU member countries, where the shaping of budgets is an elaborate process determined by the country’s long-term interests and in which the plan is adequate to achieve the political aims of the govern-

ment. Poland is lagging behind in this process so it is time to change it. The obvious point is that every country’s budget is aimed at increasing spending in areas that are considered the most important and reducing it in other, less important, fields. Some spending is constant, but in shaping each budget there is the need to review even permanent expenses in order to avoid automatic reactions. The Netherlands is a good example of the use of a mechanism for changing the structure of budgetary expenses when it is considered necessary. So at the root of the shape of each budget are political decisions, which have to be followed by the Ministry of Finance. So politicians’ influence on shaping our country’s budgets will be even bigger? Naturally, politicians have various channels of communication and they presently have an influence on shaping spending, but it should not be a chaotic process. The essence of a country’s political, financial and economic strategy has to be realized and delivered to our society and abroad in a clear and settled way by the leaders of the country. Such is the target in building Poland’s coherent budget policy in the present troubled global situation. The budgets for this year and for 2017 are based on the government’s assumption of a rise in GDP, this year by 3.4 percent and

Images: Jan Malinowski/WBJ

LESZEK SKIBA, UNDERSECRETARY OF STATE IN THE MINISTRY OF FINANCE AND CHIEF SPOKESMAN FOR PUBLIC FINANCE, SAT DOWN WITH WBJ OBSERVER TO TALK ABOUT THE CONDITION OF THE FINANCIAL SECTOR, THE CURRENT BUDGET, AND THE GOVERNMENT’S PROPOSAL FOR CHANGING THE PROCESS OF SHAPING THEIR BUDGETS, PLUS THE ROLE OF THE STATE IN THE ECONOMY AND THE NEED FOR REFORM IN OUR ECONOMIC ZONES

in 2017 by 3.6 percent, yet the deficit in public finances is very high – very close to the limit of 3 percent proclaimed by the EU as the maximum. At the same time there is the very expensive implementation of the 500+ program, which this year will cost PLN 17 billion and next year could be as much as PLN 23 billion. There are opinions from many economists that in both budgets a large deficit is dangerous for financial stability and that it cannot be filled by the government’s calculation that the tightening of tax collection and taxing big retailers will bring in the money to cover the costs. Is the Ministry of Finance looking at the budgets through rose-tinted glasses? Many members of the European Union can envy Poland with its GDP growth rate. Our economic development is now based on the approach of generating a rise in quality, introducing innovation and not relying – as it was in previous years – on cheap labor. We declare that the deficit will not exceed 3 percent, and we calculate that the improvement in tax collection, linked to the reform of the whole tax system, will increase revenues. It is true that we will not lower VAT from 23 to 22 percent. The basic task is to fulfill the government’s 500+ program, which is an important mechanism for helping families with children, and we are aware of the need to deliver on other such promises. I am not looking at the present and future budgets through rose-tinted glasses and I would say that we, in the Ministry of Finance, are rather miserly because such are the tasks of the department. We are aware how difficult the financial, economic and political situation is in the EU. But, I think that Poland’s economic strategy and the Morawiecki plan correspond with the Juncker plan of creating European Funds for Developing Strategic Investments in EU members, and there is understanding for increasing the role of the state in encouraging economic growth. What I want to stress is that we created the budget for 2017 in connection with remodeling the methods for our economic growth and increasing Poles’ standard of living. Our budgets are not designed for people living on an isolated island, but in Poland’s political and economic reality. The Polish currency – the złoty – is weakening on international markets. We will pay more for foreign loans? Investments – public and private and also foreign –

are dropping. How do you view such warning signals for the budgets? I am aware of the issues, but we have to look at the whole budget policy in the context of our economic growth both this year, and in the next one, whilst also keeping the budget deficit under control and taking the necessary steps to encourage investors. We will soon see a slight appreciation of the złoty and I believe that in the long-term the Polish currency will strengthen. The policy of creating budgets is linked with the reforms of our tax collection system, improving the functioning of administration, and effective steps for helping small and mediumsized firms to invest. We stress that we need foreign investors and I would not accuse all those investors of not paying taxes into our budget. The problem is whether our state has the proper structure to control and check it. Those structures have to be changed and it will cut the transfer of taxes by foreign investors outside Poland. When all the numbers of present and future incomes and expenses in our budgets are analyzed objectively, it is clear that all expenses are accounted for and their fulfillment is secure. The budgets for 2016, and even more so for 2017, are ambitious and, I admit, to some extent risky, but they have been strictly evaluated and I can say that all expenses will be based on income being collected properly and flowing into the budgets. So all those cries from some economists saying that the deficit is too high are ignoring the fact that such deficits were also in our budgets in the past, while the spending was chaotic and the social needs and the character of business activity were ignored. And what is your view of the activity in our economic zones? We have to change the economic zones and the way they function. While keeping all existing privileges for investors located there, we have to mobilize the influx of funds meant for high technology investments and innovative projects. The economic zones cost the budget PLN 1.5 billion in lost CIT taxes, so to be able to keep them we have to receive much more sophisticated products generated by the firms located in them. We must create such conditions in economic zones that the PLN 1.5 billion loss from the reduction of taxes results in profits and is not simply a privilege for businesses. We are now encouraging our colleagues from the Ministry of Development to present an outline for such changes. The role of the

state in encouraging investment for innovation does not mean a return to any kind of “state control,” but a link of public and private capital for investment. When we look at the whole economic situation in Poland, we see a drop in unemployment rates and the rise of internal consumption in part associated with the implementation of the 500+ program. Private firms are looking for specialists and other people for work, so in that context there is confirmation that our budget policy is set in a positive economic atmosphere. We are talking about budgets but there is constant link to policy. Is politics dominating the economy? In a way it is. Not only in Poland, but also in other countries. There is now the criticism about the strict liberal attitude towards economic activity, the e-market economy has now been remodeled in many countries and the overwhelming role of the financial markets is criticized. There is also another view among some economists about the influence of GDP statistics in relation to social inequality and dividing public money. So it is time to challenge some previous stereotypes in looking at economic development and financial stability. We are now seated in the Ministry of Finance, and here the subject of the distribution of public money is top of the list, it is not so? Yes, it is a place where practical discussions about the distribution of budget money are ongoing, but they are not taking place in a theoretical or political vacuum. u

WBJ OBSERVER • OCTOBER 2016

COVER STORY / PUBLIC DEBT

Living beyond one’s means

WOJ

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Second Greece? To tell how big the debt really is, we have to know the size of the economy. For example, if a small island state in the Pacific Ocean builds up a debt of a trillion dollars it is highly likely it would have to declare bankruptcy, whereas the same figure poses no threat for a large, advanced economy like the US. The same applies to the Balcerowicz counter – although PLN 1 trillion is an impressive figure and looks scary, only the debt-toGDP ratio can tell us how risky further debt growth is. Poland’s 51.3 percent at the end of 2015 (according to Eurostat) looks modest compared to Germany’s 71.2 percent (it was more than 80 percent in 2010), the UK’s 89.2 percent or France’s 95.8 percent. In fact, Poland is among the bottom 10 in the EU in terms of the public debt-to-GDP ratio. It means that the level of debt is safe, and making comparisons to Greece, whose ratio was nearly 127 percent on the eve of the 2009 crisis (it grew to 176.9 percent in 2015), is just scaremongering. It is worth adding that not only the high debt led to the Greek tragedy, but also Greece’s structural economic problems. Ignacy Morawski, head of Research Public Policy and Governance at think-tank WiseEuropa, stressed that “be-

OW S

THE GOVERNMENT HAS LAUNCHED AN EXPENSIVE SOCIAL PROGRAM THAT IS PUSHING THE DEFICIT UP. ULTIMATELY, THE RULING PARTY PLANS TO INCREASE THE EFFECTIVENESS OF TAX COLLECTION TO COVER FOR THE INCREASED EXPENSE, BUT THERE ARE ALREADY VOICES SAYING THAT POLAND IS FOLLOWING IN THE FOOTSTEPS OF GREECE 22

benefit will be paid throughout the whole year. With elevated public spending and rapidly growing debt, the opposition and numerous pundits and experts have been quick to jump on the opportunity to claim that Poland is on the same path that Greece had followed before the crisis, from which it still hasn’t recovered, seven years on. They argue that Poland is consuming money it doesn’t have and such developments will lead to insolvency in the future. The most vocal adversary of increasing public debt is perhaps former Finance Minister and the architect of Polish transition from communism to capitalism, Leszek Balcerowicz. His foundation, FOR (Civil Development Forum Foundation), installed a public debt counter in the city center of Warsaw a few years ago and is running a web page dedicated to the problem. As of September 17, the “Balcerowicz counter” displayed PLN 982.85 billion. The professor himself wrote a Facebook post in which he slammed the government for increasing the indebtedness of each Pole up to PLN 25,500. “PiS’ political and economic belligerence is pushing Poland towards the Greek path,” Balcerowicz concluded. Are the alarming claims justified?

Images: Shutterstock

he public debt in Poland is growing at one of the fastest rates in its history and is getting closer to a psychological barrier of PLN 1 trillion. In the second quarter of 2016, it rose by the largest ever amount in quarterly terms since 2008 when investment bank Lehman Brothers went bust, which marked the beginning of the global financial crisis. With a new budget bill draft for 2017, the government has set a record, putting the deficit at PLN 60 billion, an unprecedented figure in the history of Poland. Even though the economy is growing at a relatively high rate, the budget bill is on the verge of breaking the 3 percent GDP deficit limit imposed by the EU. This is mainly the result of pursuing social policies by the conservative Law and Justice (PiS) party, whose flagship 500+ program will cost more than PLN 22 billion in 2017. Under the program, the government is handing out PLN 500 a month for every second child in the family, regardless of per capita disposal income. Thanks to a one-off windfall from the LTE frequencies auction, the government hasn’t had to go to great lengths to finance it this year. And since the program was launched in April, it hasn’t been as costly as it will be in 2017, when the

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COVER STORY / PUBLIC DEBT

fore the crisis, Greece had a so-called “twin deficit” – not only did it have a high deficit of public finances, but the country also had a deficit on its current account, meaning that the whole economy was indebted abroad. Unlike Greece, Poland's current account balance stands at around zero.

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into banks and pension funds (OFE) and the institutions act as intermediaries in buying government bonds. Once the government starts paying them back, the money goes back to the citizens. So at least part of the debt will return to the Polish economy (in June 2016, domestic debt accounted for 65.9 percent of the total debt). Moreover, there is no point in time when the debt has to be repaid. In fact, countries never pay off their debts entirely. Unlike humans, a state’s life span is practically infinite, therefore it can refinance its debt with new debt, a move called rolling over debt. This may sound like putting the burden onto our kids and grandkids, who would have to pay for our excessive consumption. One has to bear in mind, however, that the economy keeps growing, and maintaining a stable and reasonable level of debt

doesn’t necessarily involve tax increases or spending cuts. If the real interest rate is lower than GDP growth, then simple refinancing would actually lead to the lowering of the debt-to-GDP ratio. In addition, only 10 percent of treasury papers mature in more than 10 years, and nearly 60 percent of them are redeemed in less than five years. This means that it is not future generations that will pay off the debt, but the same generation that generated it. Chronically pro-cyclical fiscal policy By now the reader might start to wonder: if Poland has a safe level of debt, much below that of many advanced economies and if the debt is cheap and can finance infrastructure and other investments that propels GDP growth, why not borrow even more? The first, and the most straightforward objection against such a move is the legal restrictions. The Polish constitution sets a debt threshold at 60 percent of GDP and there are also fiscal rules imposed by the EU that forbid a running deficit higher than 3 percent of GDP. Should this happen, the European Commission may launch the Excessive Deficit Procedure, which may involve sanctions. Apart from the “political” restrictions (as thresholds are set arbitrarily without strong economic justification), there are also other caveats. Many economists (with a Keynesian leaning) claim that countries

Images: Shutterstock

Is debt always bad? Although Poland will not share the fate of Greece in the foreseeable future, there is still a question about what the rationale is for running deficits or living beyond one’s means. Intuitively we may feel that it is wrong, but it’s not always like that. The government may use debt to finance investments that lead to increased GDP growth in the future. It is reasonable to borrow in order to finance infrastructural projects, R&D undertakings, or education. Public investments with a high rate of return will lead to higher productivity, higher economic growth and increased tax revenues, which can later be used to repay the debt. In a way, it’s comparable to taking a loan to finance university tuition fees. Although it may be extremely pricey, it will most likely result in a job with a salary that allows the loanee to pay off the student debt. Considering that borrowing is currently extremely cheap in most advanced economies, missing out on using it to finance specific investments would constitute a lost opportunity. It is also worth challenging a few popular opinions surrounding the matter. The most common assumption says that each citizen of the country will have to pay it back at some point, this is why we are often given information about how much per capita each citizen owes. But this is not precisely true. The public debt can be broken down into domestic and foreign debt. Domestic debt is the money the government owes its citizens and not the money citizens owe to some third party. People put their money

is growing fast and has a stable macroeconomic situation, it is not in the top league when it comes to credibility. Cutting the deficit would be a positive signal that could lead to strengthening investors’ trust. “High public debt contributes to increased currency volatility and affects credibility, which is needed to borrow in the bad times,” Morawski said. Finally, the current level of public debt may not be dangerous, but Poland cannot increase it infinitely as there is a point after which it becomes unsustainable. The country will be facing a difficult decade after 2020. EU funds will not be as bountiful as before and society will have aged. Considering that Poland has been running its pro-cyclical fiscal policy for the last few years, we may be certain that it won’t change in the future when difficulties arise. That is why now is the best time to cut some of the deficit and decrease public debt to make space for fiscal loosening in the hard times. u should run an anti-cyclical fiscal policy, that is to cut the deficit in the “good times” and increase public spending in the “bad times.” Currently, the Polish economy is growing at a rate of around 3.3 percent so undoubtedly it is time to tighten belts. The rationale for this is as follows: in a fast developing economy the deficit should be limited in order to relax spending policies during slowdown or recession to give the ailing economy incentives and cover for increased social spending (unemployment benefits, etc.). Considering that Poland will soon face challenges stemming from demographics, it’s the right time to cut the deficit. The aging of society will result in a decreasing number of Poles of working age and increased spending on healthcare. The problem will only be aggravated if the ruling PiS gives the go-ahead to its project of lowering the retirement age to 60 and 65 for women and men respectively (and it will likely do so). Not only will this lower tax revenues, but it will also put a strain on the social security system, which is partially financed from the budget. Morawski points to the fact that procyclical policies have been followed by almost every government in recent years. In Poland, the debt grows in good and bad times. Likewise, Poland has had a bigger deficit than was initially assumed in official predictions every year since at least 2004. And this is a much more serious problem than the high deficit projected

for next year as it shows that there is no political will to cut deficits, even when the economic situation is good. “If we hit the 60 percent ceiling, we would have to change the constitution, which would be a major blow to our reputation, or cut spending,” Morawski said. In his opinion, when economic growth exceeds 3 percent, the deficit should be below 2 percent of GDP to reduce the GDP-to-debt ratio. Conversely, the projected PLN 60 billion deficit accounts for 2.9 percent of GDP. And once again it seems it will be higher, as the government’s calculations regarding economic growth for next year are very optimistic. High debt harms credibility Even though Leszek Balcerowicz might be wrong when he says that Poland is following in the footsteps of Greece, he makes a good point when he draws attention to the cost of debt. The interest rate on 10year bonds amounts to 2.8 percent and is much higher than in many EU countries. Some of the most advanced economies even have negative interest rates (Germany, Luxembourg), while others (the UK or Sweden) borrow at a rate slightly above zero. It is understandable that rich, Western countries pay less for their debt, but this is also true for the countries of the CEE region. Czechia’s long-term interest rate totals 0.29 percent, while Slovakia’s is 0.30 percent. Despite the fact that Poland

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WBJ Observer presents

THE FUTURE BELONGS TO SOFTWARE

BSA experts point out that 48 percent of software in Poland is used without a license, compared to the EU average of 29 percent. This is due to the fact that entrepreneurs in Germany, France or the UK have developed certain mechanisms and have become accustomed to systematic processes in the scope of licensing. In Poland, however, software licensing inventories are taken every two years – or never. The aim of LOG Systems is to change this situation by offering SAM (Software Asset Management) software in the service model. The innovative SAM systems have evolved from simple tools for executing a limited number of tasks into a comprehensive apparatus executing a host of advanced and highly useful functions. By offering our LOG Global Edition system, we have become pioneers of such changes. Our software meets the most important trends on the new-tech market, among which cloud computing plays a key role. Gartner’s analysts forecast that this year’s global revenues from the sales of public cloud services may amount to $208 billion. This translates into 17.2 percent growth year-on-year. SaaS services (software as service) will enjoy the greatest popularity, generating $38.9 billion this year. Gartner indicates that annual savings of 14 percent constitute the best stimulus encouraging entrepreneurs to move their resources to the public cloud. We aim to invigorate this segment of the SAM software market by changing the promotion method and the business model. We put emphasis not on the legal issues, but on the vast opportunities in business management. Our most recent product, LOG GE, allows for effective application, service and human resources management. Moreover, we offer the product solely in the service model. LOG Global Edition, a revolution in business management, is available e.g. on Microsoft Azure, one of the most popular cloud platforms. The software is already offered in Poland, and will soon be launched in France, Germany and the UK. Our expansion on the US market is planned for 2020. Finally, good news for our potential customers. Easy to use and offering innovative functionality, modern applications

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BROUGHT TO YOU BY LOG SYSTEMS

The technological revolution has destroyed the old world. The business models and technologies launched only a few years ago are now becoming obsolete right before our very eyes. The pace of change is unbelievable. Interestingly, most of them are generated by software providers. Not long ago, advanced applications were reserved only for corporations with huge budgets. But along with the growing popularity of the service model, innovative software has become affordable to small companies, and even to home users. However, the multitude of applications, business models, as well as some new trends, such as virtualization, the Internet of Things, or mobility, greatly hinder the management of resources.

GRZEGORZ FILAROWSKI, CEO, LOG SYSTEMS SP ZOO.

are also affordable. LOG Global Edition is no exception. The software is available as a monthly subscription, and the price per employee is €1.00. Very inexpensive, considering that the system not only helps control licenses, but also improves work effectiveness.

FEATURE / CLOTHING

FEATURE / CHEMICALS

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significantly, especially smaller ones. In 2015 the trend was reversed. The deficit is now at PLN 25.7 billion and more than 6 percent lower than in 2014. Both exports and imports grew last year,” Zieliński explained. While it could be assumed that the improvement of the foreign trade balance is connected to changes on currency markets, PIPC experts have verified that that is not the case – the trade balance has improved in terms of volume. Nevertheless, it is hard to say whether the positive trend will be continued in the coming years. In many segments of the chemical sector the trade policy is to react quickly and move to new markets with higher margins, and if margins are better on individual domestic markets, the goods stay in Poland. “Often, businesses prefer to buy cheaper goods abroad. This is one of the problems we have – for example the Russian market provides cheaper goods produced without high environmental standards,” Zieliński added.

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he chemical industry in Poland has been continuously growing for more than 20 years and 2015 has proven to be an exceptionally good year. “The value of sold chemical production has been growing continuously since 1995. In 2015 it increased by slightly more than 5 percent y/y to PLN 144 billion from 137 billion in 2014. This is significant growth – of PLN 7 billion y/y, while in previous years annual growth was at around PLN 3 billion,” said Tomasz Zieliński, president of the board of the Polish Chamber of Chemical Industry (PIPC).

This good condition is also visible as an increase in employment numbers, up by some 12,000 jobs to around 266,000 in 2015, a growth of 4.7 percent, according to PIPC. The highest growth in the number of employees can be observed in small and medium-sized enterprises, especially in the plastics segment.

Image: Shutterstock

The basic component industry

Another factor is the improvement of the foreign trade balance, even though it is still in deficit. “In 2014 the deficit deepened to some extent due to the situation on East European markets – Russia and Ukraine. That situation influenced the trade policies of many companies

Quest for materials Even though the situation is now improving, Poland is likely to continue recording a foreign trade deficit in chemicals for many years to come. One of the reasons is the absence of easily accessible, reasonably priced raw materials such as crude oil and natural gas. “There are many product groups that we cannot manufacture and have to import, largely due to the absence of some raw materials in the country and the dependence on their import. This includes crude oil, where we are practically fully dependent. A similar situation can be observed in terms of natural gas,” the expert added. One example of such a product is methanol, the basis for many other chemical products with a market of some 0.5 million metric tons used annually in Poland and no manufacturing in the country, because the main raw material required to produce methanol is expensive natural gas. Another leap ahead? Another signal of the sector’s good performance is the ongoing increase in investment. According to PIPC data, there was a rise in capital expenditures of almost 14 percent y/y to about PLN 7.5 billion in 2015.

Key sector data for 2015 Foreign trade balance: PLN -25.7 billion Sold production value: PLN 144 billion Employment: 266,000 Capital expenditures: PLN 7.5 billion Source: PIPC estimates

High capex is especially visible in Poland’s largest chemical companies. The market leader – Grupa Azoty – is in the midst of a PLN 7 billion investment program involving 68 projects, which is now subject to verification, but unlikely to be significantly cut. Privately-owned Synthos has not declared any long-term investment plans, but in 2016 the company plans to invest a total of PLN 500 million following a capex of PLN 577 million in the previous year. It has already spent €80 million on the acquisition of European expanded polystyrene producer INEOS Styrenics. It expects the takeover to increase its styrene processing capacity to more than 600 tons annually. In Zieliński’s opinion, the industry has solid ground for further growth. “We are still a developing sector with a lot of potential. The consumption of chemicals per capita calculated in euros is still almost twice as low as in the most developed markets (€550 per capita in Poland, €1,400 in Germany). In plastics the situation is similar, however consumption is growing and Poland has climbed to sixth place in Europe in this category. When we look at the level of development and the size of the plastics segment, we can say it could still be better,” he said. The path to growth may include a number of obstacles though. The chemical sector is very sensitive to many regulation issues, especially in terms of environmental protection. This includes a large package of environmental issues – from climate issues such as CO2 emissions to domestic regulations on matters such as water access. The sector’s high level of complexity means that it is prone to additional costs stemming from such regulations. “We make attempts to protect ourselves from negative financial consequences of regulation policies, both in the EU and domestically. Addressing these challenges is now our biggest problem,” Zieliński explained.

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FEATURE / CHEMICALS

WBJ Observer presents

THE REINDUSTRIALIZATION OF EUROPE

Another major issue is access to raw materials. “First of all, it’s important to have diversification in opportunities. This is more realistic in the case of natural gas – the gas market could be liberalized, which could lead to a decline in prices,” he added.

MARIUSZ BOBER, RES E O E R a azO

What chemical companies are looking forward to is the planned expansion of Poland’s natural gas pipeline network and the development of what may be called a regional gas trading hub. Plans include the expansion of the newly opened LNG terminal or the construction of a floating storage regasification unit, either of which could help the country diversify its imports of the fuel. program, financed from within the current EU-fund scheme, and aimed at supporting chemical innovation. The first competition as part of the program was carried out this year and a second competition is now being prepared to start probably at the end of this year.

In cooperation with the National Centre for Research and Development (NCBR) the PIPC has launched the INNOCHEM

While all major players include research and development as part of their strategies, Synthos stands out by having launched its own public quest for innovation – the Synthos Chemical Award competition for scientists working in the field of chemistry. The company is offering a PLN 1 million prize to the winner, due to be announced for the first time in February 2017. “We see that the sector needs many supporting mechanisms in this area, first of all on the part of public administration, both through rational policies, regulation and legislation, and through defending and strengthening the competitive position of companies. Finally, through mechanisms that support innovation, such as sector programs,” Zieliński commented. In terms of innovation, chemical companies may be divided into two groups: those that improve products and those that improve or introduce new processes. “In this aspect, the sector differs from the rest of the economy, especially the base chemicals segment, where almost 15 percent of businesses have introduced a new product since 2012. In the case of plastics producers the share is 10 percent. The situation is much better in the case of production process or technology innova-

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tion – the shares are 22 percent and 15 percent respectively,” said Zieliński. Innovation in chemical companies is usually directed at the development of production processes, technologies – this was also visible in entries to the INNOCHEM competition. “Developing new products requires higher risk and higher expenditures. New technologies are also important in view of stricter regulations – sometimes we cannot look for cheaper materials or energy so we look to cut costs on the processing side, in energy efficiency and so on. When older production assets are replaced, the replacements are fitted with modern, innovative technologies,” the PIPC president said. The situation could still be better, he added. “The main driver in the sector comes from large tonnage companies and most important from the point of view of innovation is the need to develop specialty products, which may be produced in lower quantities but with higher margins. Analysis has shown that Poland – and Europe in general – should follow this direction,” he stressed. Zieliński also believes that chemical businesses should enhance cooperation with scientific institutions. “In our opinion, innovation should be a regular mechanism, run on an everyday basis. But because we are lagging behind, we should carry out innovative processes quickly and continue to develop products and processes we already have. At this stage, it would be much more difficult if not for the support from the government,” he said. u

In the contemporary world, the chemical sector has become a key driver of industrial development. Its products are an essential prerequisite for progress in numerous branches of the economy. It is also believed to be the most innovative industry, and not without reason − advancements in the chemical sector have made it possible to develop modern plastics – materials that surround us in our everyday lives. To give some examples: it is the wide application of plastics in the automotive industry that has made cars lighter, reducing fuel consumption and environmental pollution. Also, as much as 80 percent of the materials used to make modern planes, like the Dreamliner and Airbus, are engineering plastics, such as those delivered by Grupa Azoty. Along the same lines, it would not be possible to produce enough food for the rapidly growing human population but for safe modern fertilizers. Grupa Azoty is a good example of what Polish industry looked like in the past and what it may be in the future if its transformation is supported by sound management, cooperation with the owner (in this case the Polish state), and innovation-driven investment strategy. The investment projects we embark on are changing and will continue to change the face of Poland’s economy, industry and chemical sector. Grupa Azoty not only generates returns for its shareholders, but importantly also works with the Polish government to reinforce the position of Poland’s economy. Our strategy assumes annual spending of 1 percent of Grupa Azoty’s revenue on research and development. With the recent decision to create two R&D centers, as well as our four innovative research projects that won the Innochem competition, we are closer to meeting this target. But first of all, over the next few years we intend to build competitive advantages based on expertise, which will improve the innovative potential of our products and technologies.

Our new Chemical Technology Research and Development Center in Tarnów will have the resources and capabilities necessary to carry out research projects and quasi-industrial implementations of new products. It will specialize in innovative fertilizers (including intelligent fertilizers which release mineral components in a slow and controlled manner thanks to the use of coating techniques), pharmaceutical products, industrial applications of graphene, and l l tional Centre for Research and Development. The center in Tarnów is to employ 80 highly qualified specialists and its operational launch is planned for early 2019. A similar project, albeit with a more specialized profile, is being developed in Kędzierzyn. Its research focus will be on new applications and properties of non-phthalate plasticizers, which have been distinguished as an innovative product in numerous competitions. The planned l l Development. These are just the most tangible examples of our activities in R&D. Hopefully we will soon be able to share more information about the development of our products based on polyamide conversion into highly advanced compounds. B l program designed to ensure continuity of production, enhance our product portfolio and minimize costs, and by investing in the research and development centers that are expected to help identify new growth directions for the Grupa Azoty in the upcoming decades, we show that in Poland the reindustrialization of Europe is actually happening. Industry is developing and faring well in Poland.

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BROUGHT TO YOU BY GRUPA AZOTY

Road to development One of the biggest challenges any sector has to face is innovation. “Looking at the chemical sector in Western Europe, we also have a technology gap to cover, especially in developing innovation,” Zieliński said.

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and many of them do not achieve this in the first few years of activity. Are there that many innovative projects in Poland that would be a good fit for the bourse? Of course most companies, especially in Poland, use their own capital in the first few years of operations. I would even say some of them are not so keen on having someone else’s capital invested in them, because of the conviction that they can lose control over their business if they invite someone to invest in it. However, with a longer term view, your own capital is very often insufficient if you want to grow. An example of an innovative company traded on the Warsaw Stock Exchange is Vigo System (a producer of infrared detectors) which was just nominated for the European Small and Mid-Cap Awards organized by the Federation of European Securities Exchanges. Its CEO told me they would not be where they are today if it was not for being listed on the stock exchange.

Małgorzata Zaleska: Over the course of the last 25 years, the WSE has gone through a number of phases. In previous years, the Warsaw bourse had two strong impulses which drove it forward – big privatizations and open pension funds (OFEs), which for different reasons have come to an end. Currently, the WSE needs to find new drivers to take their place. You also have to take into account external factors such as Brexit. The Warsaw bourse is not the only exchange in the world suffering from negative external trends.

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How do you plan to replace these two driving forces (OFEs and big privatizations)? With hard work and organic growth. We have many products in the pipeline which, we hope, will satisfy investors. However, we know we will not attract new and past investors overnight – it is a long process. We also want to take an active part in Deputy PM Mariusz Morawiecki’s economic plan aimed at boosting Poles’ savings. The plan envisions financing innovative projects which cannot be done outside the stock exchange. Also, we want to help Poles increase their savings by diversification. Hence, they will not keep their funds only in banks, but on the stock exchange as well.

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forget. Companies listed on the Warsaw bourse should have some sort of connection with the local economy – whether selling their products or locating their production facilities in Poland.

WBJ Observer: This year is the 25th anniversary of the establishment of the Warsaw Stock Exchange, but looking at the indices one might say it is not a happy one. The major indices have not been this low in years.

There are many examples of innovative projects which did not use the stock exchange to raise funds, at least in the initial growth phase. After being listed, some entities probably even regretted such decisions, as being on the stock exchange usually requires turning a profit

What about the second part of Morawiecki’s plan regarding Poles’ savings? In order to attract Poles to invest on the stock exchange, you would need some success stories. The days of big IPOs that gave each stockholder a double figure return within a few hours or days after the listing are, for this moment, long gone. There are still similar success stories. Recently, I saw a ranking of WSE-listed companies in which stocks shot up by as much as 500 percent in a short period of time. The difference – these are mostly small and mid-cap companies, not blue chips, which don’t get a lot of traction in the press.

Speaking of IPOs. There have not been that many so far this year. Not counting the ones that moved to the main market from NewConnect, there have only been six. Are there more in the pipeline, especially large ones? There are some 20 prospectuses currently being audited by the Financial Supervision Authority, including 13 not listed on NewConnect. Many companies are also planning to issue bonds this year, or have already done so. It is also an aspect of our operations which is often overlooked. Some two years ago, the WSE had a plan to attract Chinese companies to list on the WSE. Of the three companies that were listed, two have been suspended and the third one has the lowest valuation of all the traded companies. Yet the bourse still wants to attract Asian companies. How do you want to avoid the aforementioned situations? Asian markets and their enormous capital have great potential. If we are able to attract even a fraction of it to Warsaw, that will be a success. We have signed a contract with the Chinese Haitong Bank which I hope will help us attract new companies from that region to the Warsaw Stock Exchange. What do you plan on doing differently this time? It seems like the Chinese companies listed on the WSE forgot about the fact soon after and didn’t even bother publishing their financial statements. Yes, an IPO is not the end of the road for a company, but the beginning, which some, including CEOs themselves, sometimes

I have a feeling that after the previous management decided not to take over the CEESEG (owner of a number of stock exchanges in Vienna and Prague among others), the WSE lacked any idea of what to do instead. The Warsaw bourse should concentrate on organic growth. Of course, we cannot ignore what is happening in the region, but I do not see any reason for the WSE to acquire other exchanges. Instead, we should attract companies from other countries in the region to list on our exchange. Also, we should expand our horizons when it comes to post-trade processing. I do not believe, and my sentiments are shared by the OECD, that each financial center needs to have its own post-trade processes, they should be further integrated. In Warsaw, we have two institutions handling such processes (IRGiT – Commodity Clearing House and KDPW – Central Securities Depository) – we do not need two of them. What is more, we can expand these services to other countries in the region. We have already mentioned that this year is the Exchange’s 25th anniversary. I don’t think looking 25 years into the future is a smart idea, considering how much can change during that period. But how do you see the WSE in the next 10 years? Two factors will determine how capital markets look in the future. First are regulations and whether the trend to make them stricter will continue. I understand the need to be as secure and as transparent as possible, but we have to remember it generates costs. On one hand, we want to attract SMEs to the capital market and help them gain new funds, on the other, we demand these SMEs are treated the same way as large corporations with the same documentation, logistics, fees, etc. The second trend, which I’m sure will determine the market’s future, is technology. More and more transactions on the stock exchanges are being done by algorithms, where very often the determining factor is server speed or even its location. u

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panies were traded during that first session, 112 buy and sell orders were received and the total trading volume of PLN 1,990 was recorded. A borrowed computer was used to calculate the share prices. However, any technical obstacles were of no importance in the face of the emotions which accompanied the event. Taking into consideration the fact that the Warsaw Stock Exchange developed and matured amid a turbulent environment of a new democracy and economic turmoil, everyone had all the more reason to be proud of this accomplishment. It is worth mentioning that in the early 1990s, Poland was practically bankrupt. The development of the new exchange was fueled by the privatization of large enterprises and later the emergence of the open pension funds which invested a large portion of their pension contributions in shares. In the 25 years since its establishment, the WSE has evolved into a modern and well developed stock exchange – the largest in Central and Eastern Europe, trading shares of nearly 500 companies. The value of all the listed stock, technically called market capitalization, reached PLN 913 billion at the end of the first half of 2016, which reflects the current scale and strength of the WSE and its significance to the Polish economy. Moreover, in its first 25 years, the

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including those which strive to implement innovative projects. Currently, the most important detailed tasks which the WSE is facing and implementing include: supporting the development of the capital market, the acquisition of new investors (with emphasis on individual investors), encouraging Polish people to engage in long-term saving and carrying out educational activities which improve society’s knowledge of the economy. Furthermore, the tasks include forging a strong coalition for the development of the capital market, cooperation between all capital market institutions and public administration and restoring trust in the capital market compromised by the restrictions placed on the open pension fund operations. The Polish economy and Polish entrepreneurs should use the opportunity brought about by the technological revolution currently underway. The competences and tools possessed by the Exchange make it a natural leader in supporting economic development through innovation. Many companies have experienced this support; therefore, the listed companies are the best ambassadors of the capital market – their examples clearly show the benefits of being listed on the WSE. This is extremely important, as many companies with excellent development potential have not yet accepted the offer of the Exchange – even though they can count on high interest from investors. u

Inspiring Success Stories Alior Bank – an excellent example of acquiring financing for development from the capital

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The work on the structure of the Polish capital market lasted more than a year. Documents defining the functioning of the market, the trading rules and the setting of share prices were created at a rapid pace. On March 22, 1991, Parliament passed the Act on Public Trading in Securities and Trust Funds, which became the legal basis for the establishment of the main capital market institutions, including the stock exchange. The first day of trading took place on April 16, 1991. This event of historical importance for the Polish economy was held in the former headquarters of the Central Committee of the Polish United Workers’ Party in Warsaw. Ironically, the old command center of the communist party became the seat of an institution which epitomizes capitalism, economic freedom and private property. Shares of five com-

WSE developed from the organizer of exchange trading in securities into a leader of a dynamic capital group that also includes the commodity market (the Polish Power Exchange, which also operates trading in natural gas, is a member of the WSE Capital Group). Since its beginnings, the Warsaw Stock Exchange has assumed a difficult, yet important mission of accommodating two functions – business and mission. On one hand, the Warsaw bourse has built its image of a strong and competitive public company and on the other, the Exchange has supported the development of Polish enterprises, and thus, of the entire Polish economy. Thanks to the WSE, the Polish capital market and the tools tailored to the diverse needs of issuers and investors have been built from scratch. Today, the WSE’s competences, tools, know-how and many years of experience make it the best possible support for Polish entrepreneurs, including those which have just launched their businesses. The additional NewConnect market plays an important role in financing new and often highly innovative companies. It is worth mentioning that thanks to its support, around 10 percent of the companies listed on NewConnect were able, over time, to move their trading onto the main market. The short-term plans of the WSE mainly include the promotion of the capital market as a place where financing can be acquired by small and medium-sized enterprises,

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Since its establishment, the Stock Exchange has been one of the pillars of Polish entrepreneurship. The proof lies with the companies, which due to the financing obtained from the WSE, have implemented innovative projects, strengthened their competitiveness, won new markets and boosted their international expansion. The WSE is the right place to obtain financing for small and mediumsized companies, as well as for those in transition from start-ups to established businesses. The WSE helps companies start competing internationally in the scope of knowledge and use their important potential – young, well educated staff. Many companies that have launched state-of-the-art products and services are currently listed on the WSE, including new, innovative companies such as those listed on the NewConnect market. Examples of companies that thrive thanks to the WSE include video game developers, such as CD Projekt or companies offering ultra-modern solutions in the field of medicine such as Polski Bank Komórek Macierzystych (The Polish Stem Cell Bank). Many of these firms are well recognized, worldwide brands that enjoy international success, and their numerous products would never have been created without the financial instruments available on the WSE, as the risk involved in financing such ventures is too high for banks. Although the present market environment is not favorable, the Polish Exchange belongs to a group in which real capital is being acquired and new issues are taking place. The WSE accounts for

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about 10 percent of all IPOs in Europe. In this respect, the Warsaw Stock Exchange is a European leader. The Polish Financial Supervision Authority (KNF) is in the process of approving prospectuses of new issuers which will soon make their debuts on WSE’s main market. The WSE strives to attract new issuers, including those listed on NewConnect, and therefore puts a lot of effort into boosting the trust it currently enjoys. The best example is a new set of corporate governance rules – “The Code of Best Practice for WSE Listed Companies 2016.” The rules included in this document emphasize the observance of corporate governance, effective management and supervision, transparency and respecting the rights of shareholders. Crucial changes, also from the shareholder point of view, include a new segmentation of the NewConnect market – one of the most important premises of the “NewConnect 2.0” project. The project consists of dividing the NewConnect market into three segments – NC Focus, NC Base and

W E RO EW a al S R E S E WaRSaW S O E a E S O S a l S RV O EE aR E E E a O S l OSE O V al VES ORS S RO Ra E l ES a VaR E O O ERS RE E a OSE ERES E VES E R S aRE aS l lO ER SaV S

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Meeting investor expectations

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NC Alert – to which all companies listed in the Alternative Trading System (ASO) will be assigned. The aim of the new segmentation is to help investors identify NewConnect-listed companies in terms of their financial condition and the resulting investment risk. This will create a more transparent market and therefore, encourage the identification of new investment opportunities. The qualifying conditions in the NC Focus and NC Alert segments are based on detailed quality criteria – mainly the financial condition of a company and the manner in which it fulfills its duties resulting from being listed on the NewConnect market. The Warsaw Stock Exchange engages in collaboration with start-ups by offering support through training courses and workshops run by WSE experts. Thus, the Exchange aims to create an elite within the most promising companies and provide them with long-term professional support up to the time of their IPOs. The potential of many new and innovative Polish companies deserves to be boosted and appropriately guided. u

Images: WSE

In the past, investors usually began their investing adventures on the stock exchange. However, recent standard broker offers seem to be losing their battle with forex platforms – and quite unjustly. Through the WSE, individual investors can actively trade international shares, indices, foreign currencies and commodities through the use of structured products traded on a regulated market and supervised by the Polish Financial Supervision Authority (KNF). Therefore, the products offered by the WSE are relatively safe compared to other products on the market. Finally, there is no risk of arbitrary trade price changes and the security of settlement is provided by the clearing house. The WSE is actively acquiring new clients, who bring additional exchange trading and improve its liquidity. Such actions have proven to be quite effective – currently, new clients trading in the High Volume Provider program and as market-makers are respon-

sible for over 10 percent of the trade share. Transaction fees are another tool used by the WSE to activate investors. With reasonable trading fee modifications, the WSE can stimulate investor activity in the areas of the greatest potential for improving liquidity. For example, as of 2016 investors benefit from lower transaction fees on smaller equity orders. Fee reductions are also being introduced for liquidity providers which, although reduce profit margins of the Exchange, improve liquidity and trading volumes. The Warsaw Stock Exchange is striving to meet investor expectations and swiftly respond to their needs. One of the responses to a growing investor interest in single-stock futures is the decision to launch new products. On September 19, 2016, the WSE began trading new SSFs on shares of the following companies: Grupa Azoty, ING Bank Śląski, Ciech, mBank and Kruk. Having extended its offer with five new instruments, the WSE

will trade a total of 32 single-stock futures contracts. The WSE cares about investors’ comfort, consequently improving their access to its infrastructure by introducing new technological services, such as co-location and by acquiring new trading software providers. The Exchange has also been active in the fields of education and marketing, promoting its offer among individual and institutional investors. On September 15, 2016, the WSE Ambassador Program was launched. The aim of this undertaking is to promote the capital market among bank advisors, which in turn can share their knowledge about investing on the WSE with their individual clients. Within the framework of the program, the Ambassadors will have access to training courses and other tools facilitating the promotion of the capital market. The Ambassadors will regularly meet with representatives of the WSE, so the Exchange can constantly monitor the program’s development and respond to proposals. u

WBJ OBSERVER • O

OBER

IT / BODY LEASING

Tech Insights

9 listopada, 2016 Hotel Marriott, Warszawa Zainteresowany uczestnictwem? SKONTAKTUJ SIĘ Z NAMI tel: +48 22 629 23 81 mail: edukacja@prch.org.pl www.prch.org.pl

Organizator:

>> Wyzwania i zagrożenia bezpieczeństwa współczesnych obiektów handlowych >> Piramida zagrożeń >> Obowiązki zarządców nieruchomości w kontekście zmian ustawodawczych >> Rola firmy ochrony w systemie bezpieczeństwa obiektu handlowego

FEAR OF THE CLOUD POLISH START-UPS MAKE SOME OF THE BEST SAAS APPLICATIONS, YET FIRMS ARE RELUCTANT TO MOVE TO CLOUD > 49 CRYSTAL BALL GAZING TRADITIONAL POLLING METHODS ARE NOT ALWAYS RELIABLE, BUT REFINED BY DATA SCIENTISTS, THEY CAN BECOME EXTREMELY ACCURATE > 42 A PLACE TO START WARSAW TECH START-UP SCENE HAS IMPROVED GREATLY OVER THE PAST FIVE YEARS. IT CAN ALREADY BOAST REMARKABLE SUCCESS STORIES AND MORE ARE BREWING > 46

Patroni merytoryczni:

section partner 40

EBR

2016 • WBJ OBSERVER

TECH / DATA SCIENCE

By Dominika Tkaczyk

DO STATISTICIANS KNOW THE FUTURE?

Recently, the news of Hilary Clinton’s collapse during the 9/11 memorial due to pneumonia made waves in markets across the globe. Analysts claim Clinton’s ailment may decrease her chances of winning in the November presidential election. Both the Polish złoty and the Warsaw Stock Exchange felt the tremors.

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On the Monday after the memorial, the main market index WIG20 fell by 1.3 percent, albeit amongst other unfavorable market signals. With so much attention being paid to what’s happening across the ocean, who wouldn’t want to have a crystal ball that could tell the outcome of the upcoming November vote?

Predictive analytics has been used for decades in areas such as marketing, insurance, financial services and politics, in particular for guiding the decision-making process. How can we know the outcome of a future event, such as a political election, in advance? If the election results are calculated

Images: Shutterstock

GIVEN THE HISTORY OF ERRORS IN PREDICTING VOTING OUTCOMES WE HAVE WITNESSED OVER THE DECADES, YOU MIGHT THINK THERE IS NO WAY OF REALLY KNOWING WHAT THE FUTURE HOLDS. HOW DOES THE ERA OF EASILY AVAILABLE DATA AFFECT THE METHODS AND RESULTS OF PREDICTING FUTURE OUTCOMES?

directly from people’s votes, a simple idea might be to ask everyone who they will vote for. This approach, however, has major flaws: we cannot be entirely sure the respondent won’t change his or her mind before the election date, not to mention some people will invariably lie in a poll. The most obvious drawback of this approach is that interviewing every potential voter is far too expensive to be useful in practice.

burg Pennsylvanian newspaper. In Poland polling dates back to 1958, when the Public Opinion Research Center (Ośrodek Badania Opinii Publicznej) was created, aimed at conducting sociological research related to people’s views on public matters. The first election polls in Poland were organized much later though – after 1989, once polling voters started to make sense. The first partly free elections in Poland were held in 1989.

Good old polls Since a direct approach is impractical, scientists have long resorted to statistical forecasting techniques, which are traditionally based on the analysis of representative polls. The idea is that instead of asking everyone about their vote, it’s enough to interview a much smaller random sample of potential voters and project their answers onto the entire population of voters. It works like tasting soup while cooking: we do not have to eat all of the soup to make sure it is salty enough, instead we examine a spoonful and assume the rest tastes the same. A poll will provide not only a single estimate of the percentage of people voting for specific candidates, but also a range of probable percentage values called a “confidence interval.” Confidence intervals capture the uncertainty, which is an inherent aspect of drawing conclusions about larger population from a sample. For example, a poll might conclude that 53 percent (+/-4) of the voters will vote for candidate X at a confidence level of 95 percent. Sounds very specific to a lay person, doesn’t it? What this means in fact is that we are 95 percent sure that the true percentage of all candidate X voters is between 49 percent and 57 percent. Not that impressive anymore, but at least a ballpark figure. Polling techniques have a long and rich history dating back to the 19th century. The first known political poll was a local US presidential election poll conducted in 1824 by the Harris-

Wrong methodology = wrong results Traditional political forecasting techniques, as based on strong theoreti-

WE DO NOT HAVE TO EAT ALL OF THE SOUP TO MAKE SURE IT IS SALTY ENOUGH, INSTEAD WE EXAMINE A SPOONFUL AND ASSUME THE REST TASTES THE SAME. cal foundations, proved to be accurate in many cases. However, the design of the poll, as well as reporting and interpreting the results, should be performed with absolute scientific rigor to make sure crucial statistical assumptions are not violated and the results can be trusted. One of the key parameters of a poll is the size of the sample, as it determines how wide the confidence interval is. The larger the sample, the closer we get to the actual result. The smaller the sample, the less certain the estimate gets. For example, let’s suppose we wish to estimate the fraction of women in the entire human population based on a random sample (we should expect an estimate close to 50 percent). If we use a random sample of only two people, there is a 25 percent chance that our estimated fraction of women will be zero. If, however, our sample includes 100 random people, there is only a 1.8 percent chance we will get an estimate less than 40 percent. Similarly, polls based on smaller samples are

in general less trustworthy. By far the most serious concern in polling is whether the sample is representative, that is, whether it quantitatively reflects various characteristics of the people in the population. If the sample is not representative, or “biased,” we cannot reliably generalize our findings to the entire population. There are a few potential sources of bias that might cause lack of sample representativeness. For example, bias might be built in the method of choosing people for the poll. If we interviewed only people we met at the gym, our conclusions could be generalized to people interested in staying active, rather than to the entire society. Another well-known source of bias is lack of response, which happens when some people from the sample refuse to answer the questions, and the characteristics of those who agree to be interviewed are significantly different from those who decline (they might have stronger, more radical views since they are more willing to share them). Poll results may also be affected by response bias when the answers given by respondents don’t reflect their true beliefs, for example because they consider their opinion unpopular. A famous example of a badly designed poll was a presidential election poll conducted in 1936 by The Literary Digest, an American general interest weekly magazine that was highly influential at the time. Even though the sample size was huge (10 million individuals were polled and about 2.4 million responded), the results were terribly inaccurate: according to the poll, the Republican candidate Alfred Landon was set for a landslide victory. In November, however, Landon carried only Vermont and Maine and the presidency was won by Franklin D. Roosevelt. It turned out that the sampling techniques (the magazine surveyed the following groups: its own readers, registered automobile owners and telephone users; all groups wealthier than the average at

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TECH / DATA SCIENCE

stock market (S&P 500 index). The final prediction scores come from thousands of Monte-Carlo simulations of the actual election, which accounts for the uncertainty in the forecast and also correlated errors between the states (“If Trump beats his polls significantly in Ohio, he’ll probably do so in Pennsylvania too”).

the time) as well as the non-response bias resulted in an extremely nonrepresentative sample. The infamous poll eventually led to major refinements of polling techniques, and also to the demise of the magazine, which never managed to repair the damage to its reputation. Problems with polling-based election forecasting could also be observed in the context of Polish elections. During the 2005 presidential election campaign, most polls predicted a big win for Donald Tusk over Lech Kaczyński (for example OBOP’s poll eight days before the second voting round showed Tusk leading by 14 percentage points), but the final race was won by Kaczyński with 54 percent of the votes. Similarly, in 2015 most polls forecast Bronisław Komorowski’s win in the presidential election, with the difference to Andrzej Duda oscillating between 8 and 13 percentage points. As it turned out, Duda became the president after receiving over 51 percent of the votes.

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A WELL-KNOWN SOURCE OF BIAS IS LACK OF RESPONSE, WHICH HAPPENS WHEN SOME PEOPLE FROM THE SAMPLE REFUSE TO ANSWER THE QUESTIONS, AND THE CHARACTERISTICS OF THOSE WHO AGREE TO BE INTERVIEWED ARE SIGNIFICANTLY DIFFERENT FROM THOSE WHO DECLINE.

69.7% IS THE PERCENTAGE OF VOTES HILARY CLINTON IS EXPECTED TO GET IN THE UPCOMING PRESIDENTIAL ELECTION, ACCORDING TO DATA-BASED FORECASTING MODEL DESIGNED BY NATE SILVER. vidual forecasts. Indeed, even if some predictions are wrong, we can expect others to be right (or wrong in the opposite direction), which results in smaller average errors. Science or crystal ball? The ensemble approach is the basic idea behind the work of Nate Silver, an American statistician famous for

his extremely accurate US presidential election forecast. His method uses a stream of election poll results combined with demographic and economic information to estimate the allocation of the 538 electoral votes, and as a result the odds of every candidate winning the election. Current estimates, as well as detailed information about the approach can be found at Silver’s blog – fivethirtyeight.com. Silver’s method uses both state-level and national polls. Poll results are weighted based on pollster ratings, historical poll accuracy, methodology used, sample size and time of the poll. As a consequence, a poll published by a company with a poor track record, or conducted using a small sample, will contribute less to the

Images: Shutterstock

Data-driven approaches The era of data brought new, datadriven approaches to political forecasting. They combine historical data, as well as demographic and economic variables in order to create statistical models providing more reliable estimations of future outcomes. We are also witnessing a growing interest in exploiting social media content (such as Facebook or Twitter posts) for modeling and predicting current and future opinions and actions. Nevertheless, it would be far too radical to discard classical polling techniques entirely. After all, they provide valuable information about people’s opinions collected in the most direct way possible. One very promising direction is ensemble techniques that use all available poll-related data. The idea is simple: instead of trusting one particular poll, which might have been biased by methodological errors, we combine the results of many different polls coming from different sources. This approach turns out to be much more reliable than indi-

Triumph of data science Silver’s approach has proved to be extremely accurate in forecasting election outcomes. In 2008, the method predicted Barrack Obama’s

lowing (as of September 12): Hillary Clinton 69.7 percent (307.6 electoral votes), Donald Trump 31.3 percent (229.8), Gary Johnson less than 0.1 percent (0.5). The method predicts Clinton’s victories in 28 states, with the tightest races in Florida, Ohio, North Carolina, and Iowa. The national polls on average give a 42.0 percent chance to Clinton and 38.9 percent to Trump. Will we witness data science’s triumph over traditional polling methods once again? We will find out in November. u

overall prediction. Older polls also have less impact, to correct for opinion drift. Poll results are additionally adjusted to account for: the differences between “registered” and “likely” voters, large fluctuations in polls typically occurring after party conventions, omitting third-party candidates in some polls and also pollsters’ own bias (the “house effect”). Predictions of what will happen in the Electoral College are calculated by statistical models using weighted and adjusted poll results combined with demographic and economic data, related mostly to race, religion, jobs (nonfarm payrolls), manufacturing (industrial production), income (real personal income), spending (personal consumption expenditures), inflation (the consumer price index) and the

win over John McCain with 349 to 189 electoral votes (the real results were 365 to 173), while the results of the national polls were much more balanced. Moreover, Silver was able to correctly predict the outcome in all states but one (he incorrectly anticipated a slight McCain win in Indiana). In 2012 once again the overall election result was predicted correctly (Obama’s win over Mitt Romney with 313 to 225 electoral votes; the real results were 332 to 206), while once again most media forecast smaller difference between the candidates. This time round, all of his state-level predictions were correct, which gave Nate Silver worldwide recognition. So what will happen this fall? According to Silver’s method, the odds of winning the presidency are the fol-

WBJ OBSERVER • OCTOBER 2016

TECH / START-UPS

know-how assistance from leading business experts.” Łukasz Pochylski, the founder of Intellimotion, a company that aims to develop and sell electronic modules for sewing into textiles, was WS B Pochylski said that without the funding and factual assistance, his idea would have been unlikely to succeed – “Grants and support obtained from the organizers made it real.” Also, Maciek Laskus, a founder of the internationally recognized Startup Safary, a Berlin-based organization that creates days of open doors for start-up ecosystems, admitted that his WS B learning experience. “I was able to take it with me, and launched Safary.” This October, Laskus hosts another Safary event in Berlin attracting thousands of attendees from all over Europe. “It is extremely rewarding to see the businesses growing and ideas evolvW City Hall contributed to the success,” Czajkowski recounted enthusiastically.

W RS W A HUB THAT SCALES

Catalyzing innovation Today, innovation remains at the core of the City’s entrepreneurial policy. Some W Municipality itself. For example, a new V W V W innovative functions.It is designed to help travelers stay more organized, and save time on city transport. The idea submitted to the Bloomberg Mayors Challenge Competition was chosen from 500 projects from across the US and Europe, beating other startB V W 12 in funding.

By Małgorzata Krakowska A BUG FARM, HELMETS THAT WARN MINERS AGAINST HEALTH RISKS, OR A WIDGET THAT OFFERS WEBSITE VISITORS LIVE CALLS? THE LOCAL START-UP SCENE IS BRIMMING WITH YOUNG ENTREPRENEURS DRAWING INSPIRATION AND SUPPORT FROM WIDESPREAD GOVERNMENT INITIATIVES. S SS E WBJ OBSERVER ES VE O SO E O E S E E W RS W B

The idea to start HiProMine sprang up from Urbanski’s participation in a W -

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nicipality in 2009. His original project “Insect Farm” was one of the winners W B W S B WS B project launched in cooperation with Akademia Leona Koźmińskiego, one of Poland’s leading business schools. “It was one of our first attempts at W landscape,” Andrzej Czajkowski from WS B

project, we chose 72 projects from 3,000 applications. All of them had to be innovative and original,” he recalled. Czajkowski, who at that time supervised the project, said that until today he remains astonished by how successful some of the participants turned out to be. “More than 50 percent of the business projects evolved into bigger ventures. Successful projects could count on public funding ranging from PLN 40,000 to PLN 100,000, and

W Images: Shutterstock, Warsaw City Hall

akub Urbanski has always been fascinated by insects. So much so that one day he decided to turn his passion into an entrepreneurial idea – by making money from breeding worms. He is one of the co-founders of HiProMine, a venture pioneering the industrial production and processing of insects.

W remains the Polish mecca of start-ups. According to a report published by the S W classified as the most popular place for start-ups in Poland – nearly 28 600 land’s capital. “Poland’s start-up scene W

center of its gravity,” confirmed Borys Musielak, the co-founder of Reaktor W W Not really. The younger generation of W J Średnicka, founder of Pracownia Gier Szkoleniowych is a good example. As she writes about herself on the website, she turned down an internship at a public policy institute in San Fransoftware that helps assess your skills at a job interview. The “Competence Games” helps businesses assess potential employees’ aptitudes in soft skills, in areas such as teamwork, strategy, or goal-orientation. “It is like the left and right sides of the brain working together,” she said in an interview with blog Strefa Inwestycji. The city’s vibrant start-up ecosystem has its own unofficial headquarters located in the Centre of Entrepreneurship Smolna (Centrum S S creates a narrative of a collaborative local scene that both bursts with knowledge exchange and offers business networking to entrepreneurial talent. Hands-on training is offered by Polish public institutions such as the Patent Office, the Social Insur-

ance System Office and the Polish E At Smolna, entrepreneurs can rent a co-working space, host meet-ups and win information on how to receive EU grants for both setting up and running a business. Smolna is also an incubator for entrepreneurs in start-up phase. At Smolna, founders reinvigorate dog-eared, tattered, beaten-up ideas. One such successful project was Livecall.io, a website widget that offers real-time phone calls to customers browsing the website. “Our idea came to life during one brainstorming sessions in Smolna,” one of the co-founders Today, Livecall.io is used by both Polish and international companies. But Smolna is only one of many ingredients in the recipe that makes W O municipality projects include Centrum Kreatywności Targowa 56. Located in W was overlooked due to its bad reputation, Targowa 56 is one of the local efforts to bring good old Praga from the brink by boosting entrepreneurship and becoming an incubator for individual creativity, skill and talent. Thanks to its unique culture, history, and architecture Praga is emerging

WBJ OBSERVER • OCTOBER 2016

TECH / START-UPS

TECH

W the entrepreneurial and business landscape and the latest technological solutions among national and international visitors. W Poland has the ambition to emerge as the major European start-up hub. Similar initiatives are being implemented in other Polish cities. The ambitious plans of Poland’s government, which were announced in March this year, promised nearly PLN 500 million to support the development of start-ups and foster innovation. Organizations such as Startup Hub Poland want Poland to become a massive base for founders from Central and Eastern Europe. Start Hub Poland has already begun promotional campaigns in countries such as Ukraine, Belarus, and even Georgia.

The power play of Polish entrepreneurial spirit This year, EU-Startup.com, the leading European start-up blog, pubW in 14th place in the list of Europe’s biggest start-up hubs. The publishW friendly environment, municipality support, and diversity. EU-Startups. W was not even classified in the 2011 and 2012 editions of the ranking. But its rise to prominence was forecast by Forbes J 201 W gaining ground as a start-up hub by fostering disruption and innovation. Consequently, it did not come as a W as the location for its next Campus in September 2015. The city authorities are also deterW but the whole of the metropolitan area

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W W politan area by boosting the visibility of local businesses, and bringing the existence of the Polish start-up scene to international attention,” Czajkowski said. Good infrastructure, great location and relatively cheap (compared to W E make up a very attractive package to a gaggle of investors from all over the world. WS B Czajkowski is today in charge of the W O W direct and indirect support to the owners of small and medium-sized businesses. Beyond funding, the activities include participation in international conferences, economic missions, B2B networking sessions, and promoting a market-driven approach. And from 2018, all entrepreneurs can obtain all necessary information in the Center of Economic Information W W importance of Zodiak as the new center for economic information about the W of Zodiak is to raise awareness about

opment Mateusz Morawiecki declared that one of the goals of the Group was to create an even wider platform for cooperation between entrepreneurs W establish the largest public fund for start-ups in Central Europe, which has PLN 3.5 billion [from public funds] and PLN 3.5 billion from venture capital funds,” said Morawiecki in an interview with the Polish Press Agency. “I think this is a good platform for attracting attention to start-ups from all over Central Europe,” he added. Unlike other states in the post-communist bloc, Poland never banned ownership of small local stores and manufacturing shops. Thanks to that, hard-working Poles never gave up their entrepreneurial skills in favor W always embraced entrepreneurial culture. It definitely helps create a more friendly start-up ecosystem not only W W W is on track to producing the next tech J u

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WHILE POLISH FIRMS PRODUCE SOME OF THE BEST CLOUDBASED APPS, THE COUNTRY’S OWN SMES ARE RELUCTANT TO ADOPT CLOUD SOLUTIONS. CUSTOMIZATION COSTS, LEGACY SO W RE RE O S ARE SOME OF THE FACTORS RE REVE O SO O S RO S RE O

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By Beata Socha

Images: Shutterstock

as a hotbed of the city’s business and entrepreneurial ambition. Boosting creativity is also on the City Hall’s radar. Initiatives such as Creative Mikser, organized in cooperation with the British Council, aim to integrate the community of creative entrepreneurs and W

Poland took first spot in the SaaS Summer Games 2016, in the Most Popular Apps category. The contest, organized by software evaluation firm GetApp, looks at applications working in the cloud, in seven individual categories as well as at countries where the vendors of the applications originate. Apart from the team gold medal, there was another prizewinner among Polish contenders. SalesManago Marketing Automation placed second in the Marketing Automation category, after US-built Autopilot. “The Polish-built software has been praised for its range of capabilities which extends beyond marketing automation to include CRM, email marketing, and more,” said the contest organizers. W ing high-quality cloud applications, one would think they are equally eager to use the cloud in their own businesses. The truth is, however, that Polish firms are still very reluctant to adopt cloud technologies. In fact, most of the cloudbased software made by Polish start-ups is exported. “A recent poll of 2,400 Polish start-ups shows that 39 percent are dedicated to creating SaaS software, which is a huge portion of the start-up scene, many of them exporting their products to the UK and the US,” said Suzie Blaszkiewicz, a researcher for the software evaluation firm GetApp. The cloud market in Poland is worth PLN 611 million, according to this year’s edition of Computerworld TOP200 report.

That is less than 1 percent of the entire IT market, which is valued at PLN 105.3 billion, and less than 5 percent of the IT service providers market in Poland, worth PLN 12.8 billion. According to research vices market is around 4 percent. No wonder the market is so small if only 34 percent of large corporations in Poland use some form of cloud, according to the latest report by research firm IPSOS conducted for Intel. As far as the public cloud is concerned, only 19 percent of large Polish enterprises use it. Still, “over a half of them use some form of

private cloud, which means their own infrastructure, which they make available to their employees via secure connecV J EE pears that managers do see the need for the cloud and making resources available to their employees, but they would rather not release their data to a third party. “The level of acceptance for public cloud W use private cloud solutions, which means we want to have full control over our data. W J Legacy systems and bottlenecks W

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LOKALE IMMOBILIA / ON INFORMATION TECHNOLOGY

October 2016

BACK IN BUSINESS INVESTOR INTEREST IN POLAND AND OTHER CEE COUNTRIES IS GROWING DESPITE (OR MAYBE BECAUSE OF) BREXIT > 64

30 pages of real estate content

THE BIGGER THE BETTER NEITHER WARSAW’S RECORDHIGH OFFICE SUPPLY NOR GROWING VACANCIES HAVE DEVELOPERS WORRIED. AN ONSLAUGHT OF HIGH-RISES IS COMING > 57 STICKY PRICES POLAND’S WAREHOUSE MARKET IS MOVING FROM STRENGTH TO STRENGTH. HOWEVER, RENTS REMAIN THE LOWEST IN EUROPE > 70

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LOKALE IMMOBILIA / NEWS

>LOKALE IMMOBILIA

NEWS

OFFICE

INVESTMENTS

Hillwood sells 450,000 sqm portfolio Real estate development company Hillwood has confirmed in an e-mail sent to Eurobuild CEE that it has agreed to sell a 450,000 sqm portfolio of warehouse and industrial properties to CBRE Global Investors across Germany and Poland. The transaction, which will provide CBRE GI with properties in Bielsko-Biała, Gdańsk, Warsaw and Wrocław as well as in Germany, has yet to be approved by UOKiK, Poland’s anti-monopoly authority. Hillwood will still keep a large part of its current portfolio of properties across Poland and Germany in line with its European long-term investment strategy. The company also intends to use the proceeds from this transaction to invest in new warehouse properties in Poland, Germany and other European countries. u C O M PA N I E S

Echo Polska Properties debuts in Luxembourg and Johannesburg Echo Polska Properties (EPP), a company jointly owned by Echo Investment and South Africa’s Redefine Properties, has announced that it debuted on the Luxembourg Stock Exchange (LuxSE) on August 31, 2016. On September 13, the company debuted on the Johannesburg Stock Exchange. “EPP’s listing on the LuxSE and the JSE is anticipated to provide it with significantly improved access to expansionary capital and provide existing and future shareholders with an opportunity to invest in a dynamic and highly-attractive economy,” said Hadley Dean, CEO of EPP. As of June 30, 2016, the value of EPP’s initial portfolio was €1.2 billion, with retail properties comprising 78 percent of the initial portfolio by market value. Currently, EPP owns six office and 10 retail properties with gross leasable area (GLA) totaling 446,400 sqm.u

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outlet centers – 1.5 percent of market share (13 schemes, 218,000 sqm). New retail space supply stood at 121,000 sqm in H1 2016. There is currently 690,000 sqm of retail space under construction scheduled to be completed by year-end 2017. More than half of the current development pipeline (363,000 sqm) is scheduled to be delivered onto the market by the end of 2016, bringing this year’s total retail supply to around 490,000 sqm, which is 25 percent less than in the previous year. u

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Slovakian real estate developer HB Reavis has sold three of its Warsaw office schemes for a total sum of some €300 million, according to market sources. Two buildings within the Gdański Business Center complex were purchased by Savills Investment Management on behalf of a global pension fund for €186 million, making the sale one of the biggest transactions in Central Europe this year. The deal involved buildings A and B, altogether comprising 48,000 sqm of office space, which is fully leased. Earlier in September, the developer announced the sale of its Konstuktorska Business Center to Golden Star Estate. The scheme is located in Mokotow and offers 49,500 sqm of A-class office space. The seven-storey office scheme boasts the largest floorplate in Central and Eastern Europe. u

HAMPTON BY HILTON LUBLIN

Images: HB Reavis, Shutterstock, AGK

(€1 billion), followed by the office market accounting for 40 percent (€800 million) and the industrial sector with a 12 percent share (€250 million), a report found. The most active investors were from South Africa (44 percent of all property investments), the US (21 percent) and Germany (16 percent). u

The Bank of China has granted Capital Park a loan of €124.5 million to refinance the Eurocentrum office scheme on Al. Jerozolimskie. Eurocentrum is a flagship project for Capital Park, it has nearly 85,000 sqm of total space and is 82 percent leased. It is comprised of four buildings: Alpha, Beta, Gamma and Delta, each interconnected through a retail arcade on the ground floor. “The transaction will significantly reduce financial costs and improve the dividend capacity of the project, and we will be able to allocate the means for further business expansion,” said Marcin Juszczyk, member of the Management Board at Capital Park Group. Capital Park is a real estate developer and an investor. It has been operating on the Polish market since 2003. u

Hampton by Hilton hotels to be built in Gdańsk and Lublin

Over €2 bln invested in Polish property market in H1 – CBRE ore than €2 billion (PLN 8.62 billion) was invested in Poland’s commercial property market in H1 2016, which is 2.5 times more in comparison to the same period last year, according to a recent report by CBRE field researcher. The retail market gained a 48 percent share of overall investments

HB Reavis sells three office schemes

H O S P I TA L I T Y

INVESTMENTS

Capital Park gets €124 mln loan for Warsaw office scheme

GDAŃSKI BUSINESS CENTER

Over 13.5 mln sqm of modern retail stock in Poland in H1 – C&W

oland’s modern retail stock totaled 13.53 million sqm by the end of H1 2016, according to data from “Property Times: Increased market competition calls for a quick response” report by global real estate services firm Cushman & Wakefield. Shopping centers accounted for 73 percent of Poland’s total stock (409 schemes providing 9.83 million sqm), while retail warehouses had an 18 percent market share (255 schemes, 2.43 million sqm), retail parks – 7.5 percent (63 schemes, 1 million sqm) and

INVESTMENTS

Hilton Worldwide has announced the expansion of its Hampton by Hilton hotels portfolio in Poland, with two new properties to be launched in Gdańsk and Lublin. Hampton by Hilton Lublin will feature 121 rooms and will become Hilton’s first in the city when it opens in late 2017. “The new hotel will allow ease of access to both the historic old town and the city center and is situated on the main road which connects the city to both Lublin Airport and the Polish capital of Warsaw,” a press release read. Hampton by Hilton Gdańsk Oliwa will offer 100 guest rooms and will be housed within a broader mixed-use development that will incorporate office and retail space. “Located on Aleja Grunwaldzka, Oliwa’s main street, the hotel will be particularly well positioned for guests visiting the city on business, as it is situated close to a rapidly expanding commercial district,” the press release said. The new franchise hotels will join 23 Hilton properties operating or under development in Poland. u

R E TA I L

10.9 mln sqm of GLA in shopping centers at the end of June At the end of June 2016, Poland’s total stock of modern shopping centers, including retail parks and outlet centers, reached 10.9 million sqm of GLA across 467 retail schemes, according to the Polish Retail Research Forum (PRRF). The Warsaw agglomeration (nearly 1.5 million sqm of GLA) and the Katowice conurbation (more than 1.1 million sqm of GLA) remain the largest retail markets in Poland. Of the eight major agglomerations, Szczecin has the smallest modern retail stock with 273,000 sqm of GLA. Among the eight largest retail markets in Poland, the highest retail saturation levels are invariably in the Wrocław agglomeration (817 sqm per 1,000 inhabitants) and the Poznań agglomeration (764 sqm per 1,000 inhabitants), whilst the lowest is in Szczecin (489 sqm per 1,000 inhabitants). In H1 2016, only 83,000 sqm of leasable space was added to the total modern stock of shopping centers in Poland. Three new shopping centers were opened providing a total of 39,000 sqm of leasable space: Galeria Glogovia (21,500 sqm) in Głogów, Karuzela in Września (12,000 sqm) and Galeria Awangarda in Bartoszyce (6,000 sqm), all in cities with fewer than 100,000 inhabitants. H1 2016 also saw the first ever closing down of a shopping center: Centrum Sosnowiec in Sosnowiec (17,000 sqm). At the end of H1 2016, there was approximately 620,000 sqm of modern shopping center space under construction, around 48 percent of which is scheduled to be delivered by year-end 2016. u

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R E TA I L

IKEA store to be opened in Lublin in H2 2017 – CEO “In the next few years we are planning to open more stores, including one soon to open in Lublin, in H2 2017,” announced Anna Pawlak-Kuliga, recently appointed Chief Executive Officer at IKEA Retail Poland. Additionally, IKEA Poland will develop towards multi-channel sales and will introduce online furniture sales in the next few months. The company will continue to focus on sustainable development across all of its activities. “A good example of this is the fact that we produce as much energy from renewable sources in Poland as we use in all our factories, shops and offices. We have managed to achieve this thanks to our investment in six wind farms as well as biomass combustion installation in our factories,” emphasized Pawlak-Kuliga, who took over at the helm of IKEA Retail Poland on September 1. u

LOKALE IMMOBILIA / OFFICE

Warsaw’s office extravaganza

OFFICE

C&W: Poland’s office stock at 8.7 mln sqm end-H1 A t the end of H1 2016, Poland’s office stock totaled 8.7 million sqm. Warsaw remains the largest office market with Kraków, Wrocław and the Tri-City becoming major regional office hubs, according to Cushman & Wakefield’s report “Property Times: Office Market In A Growth Phase.” The largest office markets are: Warsaw (4.99 million sqm), Kraków (833,000 sqm), Wrocław (757,000 sqm) and the Tri-City (629,000 sqm). In H1 2016, the Polish market posted a new high in terms of office supply which totaled 572,000 sqm, of which 350,000 sqm (58 percent) was delivered in Warsaw and the remaining 222,000 sqm (42 percent) in regional markets. The largest completions were in Warsaw, including Ghelamco’s Warsaw Spire Tower (59,100 sqm), HB Reavis’ Gdański Business Center II (buildings C and D totaling 49,000 sqm) and Echo Investment’s Q22 (46,400 sqm).

Warsaw’s city center has been a major construction site for years now, but never before has it seen so much prime office space delivered in such a short period of time. What is keeping the market from spinning out of control?

In H1 2016, office take-up remained healthy in Poland at 620,000 sqm, up by just over 2 percent or 12,000 sqm on the corresponding period in 2015. The lowest vacancy rate was in Kraków (6 percent), whilst the highest was in Szczecin (17.7 percent). Compared to the end of H1 2015, the strongest rise in vacancies was in Katowice (up by nearly 6.5 percentage points), whilst Poznań saw the largest decrease in the volume of vacant office space. u

B Y K A R O L I N A PA P R O S A record-breaking 350,000 sqm of new office space was added to the Warsaw market in H1 2016 within 16 schemes according to CBRE, which was the biggest increase in supply in the city’s history. That is 26 percent more than was delivered in the entirety of 2015, Knight Frank analysts point out. Altogether, 2016 will see a total of 454,500 sqm of office space hit the market, within 30 new buildings. “Such a high level of new supply is unprecedented and it practically doubles the annual average recorded over the past 10 years,” said Łukasz Kałędkiewicz, senior director, Office Agency, CBRE. In fact, the market is catching up with other major European cities and is about to hit the 5-million-sqm mark. Spatial surge

The biggest projects that have already been commissioned this year are: Ghelamco’s Warsaw Spire tower building (adding

Images: Ghelamco

EXISTING OFFICE STOCK 2014 2015 H1 2016

Existing stock (sqm)

Completions (sqm)

4.392 million 4.660 million 4.988 million

276,900 277,650 350,100

Warsaw Spire A Developer: Ghelamco Total office space: 59,100 sqm Completion: May 2016 Location: Rondo Daszyńskiego (City Center Fringe) Architect: Jaspers & Eyers Partners

Source: JLL

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Prudence or extravagance – investing in a new office scheme

Office migration – Wola vs. Służewiec Q22 Developer: Echo Investment Total office space: 46,400 sqm Completion: June 2016 Location: Al. Jana Pawła II (CBD) Architect: Kuryłowicz & Associates

2015, with Warsaw gross take-up soaring to 813,000 sqm, the market is doing its best to keep up in 2016. In H1, a total of 356,000 sqm was leased in the capital. Interestingly, while last year was mostly about extensions and consolidating offices, this year has seen a large number of new leases. They represented as much as 60 percent of the total demand, with pre-leases accounting for 17 percent of this total, according to Knight Frank. Out of the nine office zones in Warsaw, three are clearly in the lead in tenant demand: City Center (Fringe and Core), Upper South (Służewiec) and South West (along Al. Jerozolimskie). According to Cushman & Wakefield, 75 percent of the space leased during the first six months of the year was located in these three areas.

Strong demand

However, “despite the glut of supply, the occupier market fundamentals are positive,” said Elżbieta Czerpak, head of Reaserch at Knight Frank. After a record-breaking

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s the stock of new development projects increases, we can see a lot of demand for services in arranging space, both for entirely new space as well as in older buildings, which are subject to a natural tenant rotation. The choice of location of a new office is one of the dilemmas that corporations have to face. An office in a new building means prestige and comfort, but also a higher fit-out cost and higher rent, compared to an office scheme delivered ten or more years ago. On the plus side, new office buildings offer standard and technical solutions that will lower the operating cost for several years. In turn, older locations are significantly cheaper but it may turn out that keeping them in line with e.g. fire regulations, could result in unexpected additional expenses. How can we make the right decision? By asking the right questions early on and by demanding clear answers. Constructive analysis and expert advice should be considered essential. We need to quiz the building owner directly, as well as the potential contractor that will complete the fit-out of the space. Sometimes a complete overhaul and reconstruction of all the installations and fire escape routes is necessary to meet fire regulations. It could turn out to be too expensive. It’s great if the building owner commits to do all the basic work. Nevertheless we need to make sure, that the technical specifications of the building allow for the design we have envisioned to be completed within the allotted budget and timeframe. The easiest way to do this is to consult Design & Build companies. They have architects, engineers, cost analysis specialist, lawyers and contractors on staff. They can specify at an early stage of the investment – after analyzing the space and tenant expectations – what can be achieved. An experienced team of experts can make a comprehensive analysis of cost viability of the investment, advise on solutions and set the timeline of the work. They can present risks that could occur – e.g. in the event of a collision between installations or in case of regulatory changes. Doing the fit-out and moving offices is always stressful, and trusting experts in the field can help avoid many Paweł Brodzik, managing director problems while adapting new space. Tétris Poland

Skyline getting higher

his is the first year in the history of the Warsaw market when two major office skyscrapers are to be commissioned for use – the 220-meter Warsaw Spire tower and the 155-meter Q22. But this may well be just the tip of the iceberg as far as what office developers have in stock for Warsaw. The next few years will see a number of high-rises erected in and around the city center, according to Walter Herz. Golub Gethouse and Mennica Polska are building the 130-meter Mennica Legacy Tower near Rondo Daszyńskiego, not far from Ghelamco’s new project – Sienna Towers, also to reach some 130 meters, and Grupa Karimpol’s 195-meter Skyliner, which will feature a two-floor Skybar at 165 meters. In the same neighborhood, Skanska will deliver another 130-meter tower dubbed Spark, as part of a three-piece scheme. One subway station closer to the city center, Rondo ONZ, will also see a glut of high-rises soon. Impexmetal is planning on erecting two 102-meter towers in a mixed-use scheme, while the 190-meter Warsaw One will mirror the height of the iconic Rondo 1 across the street. Moving even closer to the heart of the city, Polish Railway’s subsidiary XCity Investments will redevelop the land close to the Central Railway Station raising a 200-meter mixed-use tower, while BBI Development is gearing up to launch a 170-meter office scheme called Roma Tower on the corner of ul. Emilii Plater and ul. Nowogrodzka. But all these towers will likely pale in comparison to what HB Reavis has in store – the developer is planning a 300-meter plus office skyscraper at the al. Jana Pawła II and ul. Chmielna intersection. The complex will add a total of 140,000 sqm to the market. The developer is planning on launching the scheme by the end of the year and delivering it in 2019.

Images: Echo Investment, HB Reavis, Hines

59,100 sqm to the total of 100,000 sqm for the entire complex), Echo Investment’s Q22 (46,400 sqm), the latest addition to HB Reavis’ Gdański Business Center complex – building D (29,000 sqm), and Hines’ Proximo (28,700 sqm). The bulk of the new supply is located in the city center and city center fringe. “All eyes are on Warsaw’s city center, where we are seeing the biggest surge of new schemes, and the market will grow by 17 percent in 2016 alone,” said Kałędkiewicz. The availability of the second metro line has sped up the development around the Rondo Daszyńskiego roundabout (in the Wola district), which currently offers over 500,000 sqm, and, according to Walter Herz, may double in the near future. Although still far from overtaking the Służewiec district in terms of size (Służewiec features 1.03 million sqm of office space – JLL data), it is certainly developing the fastest. Some 25 percent of ongoing projects are located there.

Still, Służewiec has lost a lot of tenants over the past two years, including some highly publicized exits such as Aviva, Philip Morris (both moved to Gdański Business Center), Unilever (Eurocentrum Office Complex, Al. Jerozolimskie) and Stanley Black & Decker (Proximo). Cushman & Wakefield reported that “there has been a massive outflow of tenants from the Upper South zone,” with net absorption of -47,800 sqm in Q1 2016 alone. Mateusz Polkowski from JLL explained that, “the ‘original sin’ was the lack of a master plan for the district in the beginning of its development. As a result, a large proportion of the buildings were erected based on an individual planning permit rather than in line with a coherent urban development plan.” Many tenants have moved to the “new CBD,” which is how Wola, and particularly Rondo Daszyńskiego, is often referred to. And no wonder, since the area is much more easily accessible thanks to the second subway line than the traffic jam-ridden Służewiec, often jokingly referred to as “Mordor” (its transport routes will get a major overhaul in the next two years,

Gdański Business Center D Developer: HB Reavis Total office space: 29,300 sqm Completion: August 2016 Location: Dworzec Gdański (North) Architect: Hermanowicz Rewski Architekci

aimed at alleviating some of the congestion). Wola is also being developed more in line with the modern “smart city” policy. Rather than an office monolith, the area has been earmarked for a healthy mix of office, retail and residential development, as well as green areas. In fact, the area around Rondo Daszyńskiego is one of very few locations that have seen a slight increase in rents, despite the impressive supply delivered and that which is still in the pipeline. It is a clear signal that the location is becoming even more attractive. Who? Where? How much?

The key lease transactions from H1 2016 belong to a confidential tenant’s deal of 8,283 sqm in Warsaw Financial Center, Al-

legro with a 7,600 sqm pre-lease in Q22, and a confidential IT company which signed a new lease for 7,500 sqm in Atrium 2. Although sizable, none of them come even close to last years’ headliners: Samsung’s prelease of over 20,000 sqm in Warsaw Spire and PZU’s new lease for 17,500 sqm at Konstruktorska Business Center. Last year, the majority of tenants represented: services (24 percent), IT & Telecoms (19 percent) and Banking and Investment (13 percent), according to JLL. This year, however, the most active tenants come from the fields of energy and manufacturing (22 percent), professional services (21 percent) and IT (18 percent). Even though there is a continuous interest in office space, some of the buildings are still waiting for tenants. “Record-breaking supply in H1 2016 has led to an uptick in vacancy rates to 15.4 percent,” said Czerpak. As vacancies are expected to increase even more due to the number of projects still in the pipeline, they will translate into even stiffer competition between landlords. “Vacancy levels will increase … and place downward pressure on rents, as landlords are expected to undertake aggressive pricing to reel in occupiers,” Czerpak added. Currently, prime rents – those that could be expected for a unit of a standard size (500-1,000 sqm) in a classA scheme in the best location – are around €23-24 per sqm per month. They rarely go over this amount as potential tenants may find units for between €10.5-18 in non-core locations with a comparable or a slightly lower standard. Developers don’t seem to be concerned with the market figures, though, as they continue on their quest to make Warsaw’s skyline worthy of a European capital. u

Proximo Developer: Hines Total office space: 28,700 sqm Completion: June 2016 Location: Rondo Daszyńskiego (West) Architect: Rolfe Judd Polska

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Office market prospects I N T E R V I E W B Y B E ATA S O C H A

WBJ Observer: There is a lot of talk about Warsaw’s office landscape, as it is by far the biggest office market in Poland. But what is happening in regional cities? What do they have to offer? Mateusz Polkowski: Poland’s office map is very varied. We have seven major markets and a number of smaller ones offering over 8.6 million sqm in total. But what’s impressive is not the total amount of space, as it is less than some individual cities in Germany have to offer, but rather the number of cities investors can choose from. And now they are looking not only at first-tier cities, but second-tier, third-tier and smaller cites as well. Kraków and Wrocław are the fastest developing regional cities. We have 300,000 sqm under construction in Kraków alone, while in Warsaw – where office stock is six or seven times bigger – we have 545,000 sqm in the construction pipeline. Kraków is Poland’s second largest city, after Warsaw, and is set to cross the 1-million-sqm threshold next year. Right now it has 830,000 sqm of office stock.

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Where is the office space in Kraków located? Does Kraków have a central business district (CBD)? Office space can be found across the entire city with a lot of space being built in Kraków’s southern and western districts, but a CBD is forming around the Rondo Mogilskie roundabout. In the coming years, this location’s position will strengthen. Rents will be higher in the center, but the differences will not be as big as in Warsaw, where rents in the CBD are €10 higher than rents outside the area. Will the city’s office supply continue to grow this quickly? Over the past 10 years several international developers have entered the Kraków market. The city’s vacancy rate currently stands at 6 percent and tenants do experience problems finding a suitable available office. That’s why 40 percent of the 300,000 sqm under construction is already secured with pre-let agreements. Some companies present in the city are growing very rapidly. For example, Euro-

clear recently increased its space from 5,000 sqm to 10,000 sqm. Shell recently expanded their office space by approximately 5,800 sqm to almost 28,000 sqm in Kraków’s Dot Office. I know they were looking for people with competencies in oil trading and they were recruiting all over Poland.

What are the Tri-City’s biggest strengths? The Tri-City has a lot of advantages. For instance, 60 percent of Poles who speak Scandinavian languages live in the Tri-City, which is why the city is so popular with Scandinavian firms. The area’s quality of life is another important factor. There are several business hubs forming in the Tri-City: Al. Grunwaldzka (Oliwa and Wrzeszcz) in Gdańsk, where Skanska recently secured a plot and will compete with two local developers – Torus and Olivia Business Center – in attracting occupiers. Other factors that attract investors include the close proximity of a major University, availability of land, a fast railway system (SKM), which is called “the Tri-City’s subway.” Together with the metropolitan railway station, the north-south-west transit has become very efficient. The second largest office hub in the Tri-City is ul. Łużycka in Gdynia.

Poles don’t seem to be very mobile when it comes to moving from one major city to another for work, do they? No, employee mobility is much higher in other countries, such as the US. But this will change, especially given the fact that companies continue to move increasingly advanced processes to Poland. Highly specialized and well-paid employees will be under increasing pressure to move to where their competencies are needed the most and where the most competitive salary is. Competition for the most talented employees is increasingly fierce, which naturally leads to an increase in salaries. Although there is quite a substantial disparity between Warsaw and regional markets in terms of salaries, there are sectors – like IT – where salaries in some regional cities are on a par with the capital. Given that Warsaw can offer comparable rents in several districts, and the size of the market, its position on the IT and SSC map will rise.

However, after a few years of intense development, the city’s vacancy rate has increased substantially. Reports say it is currently close to 14 percent. What is the prognosis for the Tri-City? It is true that there is a lot of development happening in and around Gdańsk. Initially, the market was dominated by local developers, mainly Torus, Hossa and Olivia Business Center. They practically delivered the city’s entire current modern office stock. But now international developers have come into the market: Hines, Echo, Skanska and Vastint. The competition in the market is clearly growing. In cities with office stock of under 1 million sqm the traditional vacancy rate is not truly representative. In order to give a clearer picture of the situation in the office market, we’ve come up with several “variations” of this indicator.

What about Wrocław, the fourth largest city in terms of population, after Warsaw, Kraków and Łódź? It boasts one of the lowest unemployment rates in the country, registering around 4 percent. What is Wrocław’s position on the office map? The Wrocław market is somewhat smaller, at 760,000 sqm. However, developer activity is also booming with over 180,000 sqm under active construction. The demand side looks promising as well with 52,000 sqm leased in H1 2016 and 127,000 sqm in 2015. Demand in Wrocław is driven by an expanding SSC sector that is rapidly strengthening its position in the city. It is worth mentioning that Wrocław already has a large base of active occupiers and it registers constant inflow of new firms. After Kraków and Wrocław, the Tri-City is the next rising star in the office market, isn’t it?

Image: JLL

Interview with Mateusz Polkowski, associate director, Research and Consulting, JLL

The top three regional cities are comparable in terms of size and infrastructure. They all have airports, and access to highways. You could say that their relative “distance” from one another has greatly diminished over the past few years.

What are they? We prepare reports showing the number of potential lease options of e.g. 2,000 sqm: how many options would a tenant have to choose from in a given city. We also prepare adjusted vacancies where we only calculate space that exceeds 500 sqm. In addition, when you consider excluding the top five

vacancy-generators, or space that has been unleased for over two years, the resulting number is more representative of where the market is. What about the remaining three regional markets: Poznań, Katowice and Łódź. How are they faring? In Łódź, developer activity is very high. The city used to have quite a high vacancy level but it has dropped over the past few years. One of the biggest office deals that Łódź has recently seen is mBank’s new lease of 24,000 sqm. Katowice and Poznań are also developing rapidly with 66,000 sqm and 43,000 sqm under construction respectively. This proves that developers see potential in these locations as well. BPO is currently the biggest demand driver for office space, accounting for over 50 percent of office space leased in regional cities. How long can the sector continue to develop this quickly? There are plenty of new companies entering the Polish market. Forecasts by ABSL say that 300,000 people will be employed in the country’s modern business services sector by 2020 (including firms with Polish capital). I believe that this upward trend will be maintained for the foreseeable future. Although one limitation may be the labor market, this will be offset by the number of graduates entering the market each year as well as an expected increase in the number of foreign workers and specialists, e.g. from Ukraine. According to research done by Skanska and JLL, 21 percent of SSC/BPO firms operating in Poland plan to set up business in other Polish cities and 73 percent expect to enlarge occupied space in the next two years. There is more and more talk of growing automation in the BPO sector. Won’t that undercut the demand for office space? Machines don’t need desks after all. It’s true that the level of automation is increasing. But for now, it mainly involves the most repetitive jobs, like scanning invoices. That is largely done by machines. But Poland has been the destination for increasingly advanced business processes and experts believe this trend will continue. People will always need offices. There has been a lot of talk about teleworking over the past two decades. So far, it is mostly marginal – e.g. once a week, or a few days a

month. People need to interact and collaborate and the only way for this to really work is to share the same physical space. Now, let’s focus on Warsaw. The market is close to crossing the 5-million sqm threshold and developers have been very active over the past two years. Where do you see the market heading in the next two years? There is a lot of new supply in Warsaw. Altogether, over 400,000 sqm will have been added to the market over the course of 2016. The majority of this total has already been delivered causing the vacancy rate to rise to 15.4 percent at the end of Q2. That is far less than earlier projections had envisaged. Yes it is, mainly due to the record-high office absorption last year. But even with such high net absorption, there is always some surplus office stock left unleased. Over the next two years we will continue to see increased developer activity. Between 2016 and 2018, some 1 million sqm could be delivered. This will likely push the vacancy rate a little higher. Vacancy levels also vary significantly from district to district. Mokotów (the Służewiec office hub) has the highest – 17.5 percent. What are currently the hottest locations in the city, apart from the CBD? Initially there was the city center, Mokotów and Al. Jerozolimskie. Now the northern part of Śródmieście, near the Gdański railway station is seeing a lot of developer activity, with HB Reavis’ Gdański Business Center, as well as a major Ghelamco project that is about to be launched. The area near Arkadia Shopping Mall will also see new investments. Rondo Daszyńskiego should also be considered a rising star in terms of occupier activity. These locations are seen as an alternative to Służewiec and Al. Jerozolimskie as well as the strict CBD. What are the market forecasts for the next few years? We continue to see large disparities between headline and effective rents. Landlords offer both long rent-free periods and generous fit-out contributions. But vacancy rates will remain relatively stable with some marginal increases. Last year’s high absorption was the result of companies relocating and leasing more space. This year new entries will have a big impact on the market’s absorption, like e.g. Goldman Sachs in Warsaw Spire or Credit Suisse in Atrium II. u

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WBJ Observer presents

WARSAW (IN)SPIRE

Warsaw Spire and European Square have proven that business can work in conjunction with urban functions. We stand out from other developers. What we want to do is to make our investment part of the surroundings, to create a brand new, original and complex urban space. European Square is the first project in Warsaw that has truly transformed a public area of the city. In announcing European Square, Ghelamco made a promise to the city that had to be kept. We decided to engage professionals such as Wirtz International Landscape Architects – a renowned Belgian company, whose portfolio includes the gardens of the Élysée Palace, Jardin du Carrousel in the Tuileries Garden in Paris and Jubilee Park in London. In an area of over 15,000 sqm we have created a public square – a car-free zone filled with street furniture and greenery. Ghelamco has also planted 14,000 plants in total, including 140 trees. Several water installations – a cascade stream and many types of fountains create an enclave in the city center. We have also created a unique space for art called “The Art Walk.” They all contribute to the unique atmosphere of the place. From September, Ghelamco changed location and moved its office to Warsaw Spire as well. It is located on the 41st floor so every day we can observe the city’s inhabitants as they walk alongside the fountains, visit exhibitions presented at the Art Walk, or dine in restaurants located around the square. We can undoubtedly say that the unique features of European Square make it a perfect meeting spot for Warsaw’s inhabitants and businesspeople.

Looking at the 220-meter tall Warsaw Spire we can say that dreams can come true. How does it feel to be the creator of the largest office investment in Poland? Jeroen van der Toolen: Every time I look at Warsaw Spire I think: “Yes, we did it.” It has given me a lot of satisfaction, especially because a few years ago, when Ghelamco first started the development of Warsaw Spire, many didn’t believe that an investment on such a scale could be a success. The development of Warsaw Spire was a huge challenge, but as a leader in the real estate sector, we had everything that is necessary to succeed: experience, know-how and most importantly – a group of great specialists. We thought the project through and planned it from the very beginning. We put our hearts into it and it was worth it. Warsaw Spire received recordbreaking financing of nearly PLN 904 million for the project. We completed the development on time. In May this year we proudly launched our flagship

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How is the process of leasing space in such a huge investment progressing? Warsaw Spire delivers something that no other commercial project has provided so far. That’s why it attracted the attention of tenants from the outset. Even a few months before commissioning we achieved an excellent commercialization result of 85 percent. Now Warsaw Spire has leased almost all of its available space. The large number of renowned tenants is proof of Warsaw Spire’s unrivalled quality. Among our tenants you will find several prestigious companies such as Adecco Poland, Benefit Systems, Bilfinger HSG Facility Management, BNP Paribas Securities Services, Centrum Unijnych Projektów Transportowych, Daftcode, Frontex, JLL, and Samsung.

ments brought to the market. What makes Warsaw Spire stand out from other office sites? It wouldn’t be an exaggeration if I called our investment unique and exceptional. First of all, Warsaw Spire is the largest and the tallest office building in Poland. It really makes an impression. Secondly, it has an enormous power of attraction. The key to its success is not only its location and innovative solutions, but also its added value – Plac Europejski (European Square). No other commercial development has such a place to offer. And the space is really amazing and singular. We offer a commercial building with a public square surrounded by trees, fountains, restaurants as well as an area for culture and art. It’s a totally new level of quality in Warsaw that can be used by both tenants of Warsaw Spire and the inhabitants of the city.

At the same time as the development of Warsaw Spire there have been many other attractive office invest-

So how would you describe European Square? Would you specify it as a space for business, or for the city?

investment exactly on the 25th anniversary of our operations in Poland.

BROUGHT TO YOU BY GHELAMCO

JEROEN VAN DER TOOLEN, GHELAMCO MANAGING DIRECTOR CEE

If you had to describe Warsaw Spire in one word, what would it be? We can safely say that Warsaw Spire is a symbol of the modern and economically powerful capital of Poland. Our project is the largest office investment in Poland and a key investment on the business map of Warsaw. It has radically changed the shape of this area and triggered the development of business investments in this part of the city. The area where Warsaw Spire is situated has become the most desired

address among tenants. When planning Warsaw Spire, we stood up for the Wola district and we weren’t wrong at all. Here, a new business center for the capital city is rising. What was the starting point for creating Warsaw Spire? Warsaw Spire illustrates the philosophy of our company which states: “We create the future today.” Our project perfectly combines office and public functions creating a vast city square. Warsaw Spire is also a flagship example of sustainability. It offers top standards, eco-friendly solutions, maximum user comfort and a large number of pioneering technological innovations that have never been adopted in any office investment in Poland before. The project has been awarded a prestigious BREEAM certificate and rated “Excellent.” Warsaw Spire also obtained a certificate of renewable energy granted by STX Services. And coming back to your previous question, I believe that Warsaw Spire will continue to be iconic for the Polish capital and also a benchmark for other investments in this area. What made Ghelamco fall in love with Warsaw? Warsaw is one of the most attractive cities for investors – it has enormous potential. Ghelamco has a perfect feel for the spirit of the city since we have been carrying out investments here for many years. All of them change the shape of whole districts. We contributed to the fact that Służew became an important spot on the business map of Warsaw. At the moment, Ghelamco is the main creator of the new city of Warsaw in Wola. But we are not resting on our laurels. If you need proof, I can assure you that even now we are planning new investments in Warsaw that will create other valuable places for the city and its inhabitants. As our testimony to the city, on the tower building of Warsaw Spire we have created an extraordinary installation: “Kocham Warszawę” (I love Warsaw). In this way we have not only won the appreciation of our tenants, but also the hearts of Warsaw’s inhabitants. And that makes us even more proud.

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Big deals, bigger volumes

early September, developer HB Reavis made headlines with the sale of its three Warsaw office projects for a total of approximately €300 million, according to market sources. Konstruktorska Business Center, featuring 49,500 sqm of space that is fully leased, was acquired by Golden Star Estate. It was the first completed project in the Polish market that HB Reavis has sold. Only a week later the developer announced the sale of two more office schemes, comprising 48,000 sqm within the Gdański Business Center in Warsaw, for €186 million. They were purchased by Savills Investment Management on behalf of a global pension fund. According to Eurobuild CEE, the investor is Malaysian Pension Fund EPF, a new player on the market. The Slovakian developer’s deals have contributed to what is expected to be a very robust year on Poland’s real estate investment market. Between January and June, Poland’s investment volume totaled a little over €2 billion, 2.5 times more than in the corresponding period of last year, according to CBRE. Analysts expect the value for the entire year to exceed or at least be on a par with last year’s €4.1 billion. Retail transactions accounted for nearly half of the total volume with €1.02 billion in retail assets changing hands between January and June, according to JLL. Office deals amounted to €786 million and the warehouse segment saw €261 million worth of assets sold. “The full range of investors – from core to opportunistic – is active in the Polish market,” said Agata Sekuła, head of CEE Retail Investment at JLL. She also noted that deals ranging from small individual assets to complex platform transactions were concluded in H1.

KONSTRUKTORSKA BUSINESS CENTER WAS PURCHASED BY GOLDEN STAR ESTATE

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Images: Echo Investment, HB Reavis

With €2 billion worth of deals in H1, the biggest transaction in the market’s history, and new sources of capital coming into the country, 2016 is looking to be a very good year for Polish real estate. Even Brexit cannot spoil the pretty picture

Big expectations Even if 2016 falls short of the €4 billion mark, it will still be the year of the biggest real estate transaction in Poland’s history, with South African fund Redefine Properties’ acquisition of a 75 percent stake in Echo Investment’s commercial platform for nearly

CEE on the rise Other CEE markets also recorded strong results for the first six months of the year. The real estate investment volume amounted to €5.1 billion for the region. “This represents a 69 percent increase over the same period last year and is the best H1 performance in CEE real estate investment volume since 2007,” said Stuart John, head of CEE Capital Markets at JLL. He added that investor interest in CEE projects remains strong and that JLL analysts expect the total transaction sum to arrive at €10 billion for the entire year. Czechia saw its total deal volume drop from last year’s €1.2 billion. “It should be noted however, that the considerable difference is due to the Palladium shopping center transaction in H1 2015. When excluded, H1 2016 was 34 percent up on H1 2015,” JLL analysts wrote. All the other top CEE markets recorded a substantial increase in deal volume. In Hungary, the H1 transaction volume reached €910 million, already more than during the full year of 2015. In Romania the property investment volume totaled €340 million, 80 percent more than registered in the same period of 2015, albeit

€900 million, including retail schemes (77 percent of the portfolio), and office projects. In fact, Echo Investment has been the biggest headliner in the Polish investment market for the past two years. Last year, Luxembourgbased Griffin Real Estate and US investment fund Pimco acquired a 41.55 percent stake in Echo Investment. Echo’s big plans The Kielce-based developer has more transactions brewing. Its subsidiary, Echo Polska Properties, which it co-owns with Redefine, is planning on buying eight assets by the end of the year from its parent company, including three stages of the O3 Business Campus in Kraków, two phases of the Symetris office complex in Łódź, the third stage of A4 Business Park in Katowice and the Tryton Business Park in Gdańsk. The value of these assets at the end of Q2 2016 stood at nearly €150 million. Once completed and leased, EPP has estimated the portfolio to be worth €254 million. EPP is also going to buy a 70 percent stake in Griffin’s major mixed-use project in Warsaw’s Wola district, planned to be completed by 2020.

mainly due to a number of portfolio deals and owners strengthening their positions in projects. Interestingly, the largest transaction registered in H1 2016 in Romania was not in the city’s capital. It was the acquisition of Sibiu Shopping City by NEPI from ARGO for a total of €100 million. It was the first significant transaction and already the largest single asset deal outside of Bucharest since the economic crisis. The investment climate in Slovakia was also very positive in the first six months of 2016, with €310 million worth of assets changing hands. “The number of deals and investment volumes are expected to outperform last year’s levels as we feel very positive about the investment climate in the rest of 2016,” JLL experts said. The region’s investment volume is fueled by three main sources of capital: the US (in Q2, 27 percent of the total deal volume, according to Cushman & Wakefield), Germany (19 percent) and South Africa (18 percent). South African investors purchased over €1 billion worth of real estate in Central Europe between April and June alone, and their interest is not waning.

O3 BUSINESS CAMPUS KRAKÓW

TRYTON BUSINESS PARK GDAŃSK

A4 BUSINESS PARK KATOWICE

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Key Deals in H1 2016 Property name

City

Sterlinga Business Center & Neptun Office Center

Various

Wiśniowy Business Park (C, D, E, F)

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Approximate sale price

Vendor

Purchaser

Confidential

Hines

GTC

Warsaw

Confidential

Peakside Polonia Management

Valad

Prime Corporate Center

Warsaw

Confidential

Golub GetHouse

Warburg-HIH Invest Real Estate

NBGI Industrial Portfolio

Various

Confidential

NBGI Private Equity

Hines

Zaułek Piękna

Warsaw

Confidential

Invesco

GLL

Echo Commercial Platform (75%), 10 retail assets / 6 office assets

Various

est. €891 million (for 75% share)

Echo Investment S.A. / Echo Prime Properties B.V.

Redefine

CH Jantar

Słupsk

€92 million

Tristan Capital Partners

Ferio Konin

Konin

Confidential

Rockspring

CBRE Global Investors Union Investment GLL

Amazon Fulfillment Center

Poznań

Confidential

Amazon

Alchemia Phase 2

Gdańsk

€61 million

Torus

Allcon@park

Gdańsk

€60 million

Allcon Investment

CH Krokus

Kraków

Confidential

Valad

HB REAVIS SOLD GDAŃSKI BUSINESS CENTER FOR €186 MILLION

failed to raise the PLN 140 million it needed to purchase the targeted assets (Alchemia in Gdańsk and Malta House in Poznań), it cancelled the offering, citing the lack of necessary legislation for REITs in Poland. “Unfortunately, the uncertainty on the stock market as well as the lack of legal framework prevailed,” Radosław Świątkowski, president of REINO Dywidenda Plus explained. He added, however, that the company “is planning to return with its offer as soon as the necessary regulations are introduced to the Polish legal system.”

Polski Holding Nieruchomości (PHN) Intel Technology Poland Mayland

Uncertain times Undoubtedly, the biggest news for the European investment market this year was Brexit. Investors across the globe, including in Poland, waited with bated breath in the aftermath of the vote. Immediately after Brexit was announced, Polish investment fund REINO Dywidenda Plus suspended its plans of entering the Warsaw Stock Exchange, citing the “uncertain situation.” The company resumed its IPO preparations in Septamber, but having

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SYMETRIS ŁÓDŹ

Images: HB Reavis, Echo Investment

Source: JLL

After Brexit When asked about Brexit now, Polish real estate market players and analysts seem to be generally unfazed by probably the most important news in Europe’s recent history. “At the moment there is only speculation and it is in the future when we will be able to say what – if any – impact Brexit has had on the Polish economy. We do hope however that other than some short-term slow-down resulting from investors being cautious, long

term activity will not be lowered because of Brexit,” said Tomasz Trzósło, managing director of consultancy JLL Poland. Naturally, it is the developers who are the most exposed if investors take their cash and go elsewhere. “The commercial real estate industry is considered one of the most vulnerable to the negative effects of Brexit and the related depreciation of the pound as well as the economic and political uncertainty,” admitted Stanislav Frnka, CEO of developer HB Reavis Poland. However, he added that the effects of Brexit might not be negative for CEE markets, as had been the initial sentiment, but in fact positive. “While analyzing the impact of Brexit on Central and Eastern Europe markets, I do not foresee that we will observe any special turbulence anytime soon. The UK referendum vote may lead to increased demand for prime assets elsewhere in Europe. It may even benefit the commercial real estate market in Poland,” he added. According to Frnka, neither

the UK vote, nor the lowering of Standard&Poor’s and Moody’s ratings for Poland this year will have any major long-term effects. “Without a doubt, the CEE region, specifically Warsaw, remains one of the safest and consequently most favored investment locations. What is more, we are seeing increased interest from new market players, including South African and Asian fund managers.” The developer’s recent sale of three of its projects in Warsaw seem to be in line with that view. Even the UK real estate market itself could benefit from the country’s exit from the EU. According to some experts Brexit and the associated depreciation of the pound, may translate into increased interest in British real estate. The Slovakian developer recently sold its first London project, 33 Central, to Wells Fargo. “Wells Fargo’s decision to purchase, rather than lease 33 Central, as it had been previously planned, demonstrates that significant companies are still willing to invest in the UK market and Brexit does not affect it,” Frnka explained. u

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Holding its own

and the new platform established by Griffin and ReDefine is a marvelous example of that. Has Brexit had any impact on Poland’s RE market, considering the fact that UK-based money managers are one of the biggest sources of capital in Poland? So far we haven’t seen any deals collapse, nor have we observed investors withdrawing their investment activities in Poland. As I said, the investment activity across EMEA has been slow following Brexit, but we already now see some changes to that. Most of Cushman & Wakefield’s clients have confirmed their continued focus and investment activity on the European continent, including CE and Poland. One should also remember that although many

Between political changes, the lowering of Moody’s and Standard & Poor’s ratings for Poland, plus Brexit ricocheting across European markets, the Polish real estate investment business has had a challenging year. Still, investment volumes seem to be holding steady. WBJ Observer talked to Soren Rodian Olsen, partner and head of Office & Industrial Investments at Cushman & Wakefield, about where the market is, what properties investors are targeting and where the capital is coming from

money managers are based in London, the majority of capital we see from them (in Poland) is actually nonBritish. This year saw a lot of money coming to Poland from previously non-obvious directions, like South Africa. Will we see any other new sources of capital this year? South African investment activity will continue to be strong in CE and we expect more retail transactions to take place, subject to availability of product. We do expect other sources of overseas capital, in particular from APAC, to become more active in Poland, potentially even within 2016. The Polish government seems to have finally realized the potential of real estate

and is planning on introducing some changes, like setting up a legal framework for REITs to encourage Poles to invest in the market. How do you think that will play out? Are the legal changes enough to make Poles invest in commercial RE? Thus far, Poles have almost exclusively invested in residential RE and the share of Polish capital in the commercial segment has always been below 10 percent. The introduction of Polish REITs would be very welcome but we do expect it to take time before we see fully active Polish REITs. During the past 3-4 years we have seen Polish investors and money managers more active than ever but they still represent a small group compared to German and North American capital sources. Polish REITs would definitely be an interesting addition to the real estate market in Poland. u

I N T E R V I E W B Y B E ATA S O C H A

In H1 this year Redefine Properties acquired 75 percent of Echo’s shares. That’s over 40 percent of the entire RE investment volume in Poland for that period. Isn’t it true that if we take this deal out of the equation, the remainder is less impressive than reports seem to indicate? I disagree – the fact that Poland can attract such global capital into such a large transaction is an amazing achievement! In previous years we have also seen platform transactions that helped drive up the overall investment volume and therefore we will definitely not

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draw a conclusion that 2016 looks less impressive than the previous years, quite the contrary. Will we hit the €4 billion mark like last year? With a number of large transactions just about to close, or in due diligence, we are confident that investment volumes in 2016 will hit the same level as last year, if not exceed it. Has this year seen any change in the type of assets that are on investors’ radars? Regional cities have been doing extremely well over the previous two years. Is this year going to be different? This year is likely to be different than previous periods. Last year we hardly saw any core office transactions in Warsaw and more than 60 percent of office transactions took place in regional cities. 2016 will see a reversion of this with a number of rather large office transactions expected to close in Q4, including HB Reavis’ recently announced sale of Gdański Business Center [for €186 million – ed.]. Unlike in previous years, there will be fewer logistics portfolios trading in 2016, although we still believe 2016 will be another good year for this asset class. Retail continues to enjoy strong interest from institutional investors

Image: Cushman & Wakefield

WBJ Observer: How is the real estate investment market faring this year? Is Poland still attractive for investors and considered safe, despite political changes in Poland, as well as Moody’s and S&P’s rating cuts? Soren Rodian Olsen: This year has been an interesting one, following political changes in Poland towards the end of 2015, Brexit in June and other political changes within Europe in 2016. Across EMEA we have experienced a slow-down in investment volumes, starting shortly before Brexit and continuing throughout Q3. The economic outlook for Poland remains robust and we expect investment activity to pick up from Q4, not just in Poland, but across EMEA.

“THE ECONOMIC OUTLOOK FOR POLAND REMAINS ROBUST AND WE EXPECT INVESTMENT ACTIVITY TO PICK UP FROM Q4, NOT JUST IN POLAND, BUT ACROSS EMEA. WBJ OBSERVER • O

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In top gear

prices in comparison to CEE and Western European markets. “In the long run, once developers’ land plots have been developed, the limited availability will cause rents to increase, particularly in areas that are easily accessible for potential employees. This aspect has long been key in choosing the location,” explained Barbasiewicz. In the short and mid-term perspective, however, developers have all they could wish for: clients to build for, cheap materials, plenty of land and … cheap money. Poland is seen as a stable and safe bet when it comes to the warehouse sector. The economy has remained buoyant for years, and the country’s geographical location makes it a perfect destination both for local and pan-European logistics. Logistics operators alone took up 38.3 percent of all warehouse space contracted in H1 2016, according to JLL. It’s the perception of the market as a stable economy with solid growth prospects that makes financiers eager to cough up money for more warehouse devel-

B Y B E ATA S O C H A

The warehouse market in Poland has broken several records this year. Despite the historically high demand and all-time low vacancies, however, rents don’t seem to be budging and remain among the lowest in Europe

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Perception is key go up, yet such trends cannot be observed. Due to the huge potential of the market, developers are confident of creating more warehouse space, thus the competition is growing rapidly,” explained Magdalena Szulc, Segro’s director for Central Europe. In fact, most of the major developers are present in Poland, and several new ones are looking to enter the market, according to Jan Barbasiewicz, director, Industrial and Logistics Agency, Colliers International. Over the first six months of the year Panattoni was the clear leader in churning out new warehouse and industrial space. The developer had nearly 335,000 sqm in the pipeline in H1 of the year, of which 170,000 sqm was preleased. Checking all boxes

The continually low construction costs are also fueling the supply side of the mar-

ket, “as well as – contrary to a popular belief – administrative procedures, which are quicker and simpler than in other countries,” said Barbasiewicz. A sufficient land bank is also necessary to meet the growing demand. Fortunately, developers have been stockpiling development plots over the past few years in anticipation of the regulatory changes that were enforced this year, which make land trading substantially more difficult. Both arable land and plots at least partially covered by forests now have to go through long and tedious procedures before they can be sold, with government agencies having the final say on whether the sale takes place as well as the preemptive rights to purchase the land. Luckily, developers have been wise enough to secure sufficient land to last them for years. That’s why they can offer their clients more options, and at better

Images: Panattoni, Colliers

he amount of warehouse space leased over the first six months of 2016 reached a record-break ing half-yearly level of 1,312,000 sqm, according to JLL. Considering that the entire modern warehouse stock in Poland is a little over 10 million sqm, the result is quite impressive. Unsurprisingly, given the record demand, developers remain bullish. “At the end of H1 2016 some 742,000 sqm of warehouse space was under construction, 51 percent of which was being built speculatively, i.e. without existing pre-leases,” said Tomasz Olszewski, head of Warehouse and Industrial Department at JLL. “Considering the high developer activity, the market may exceed 11 million sqm of supply by the end of 2016,” he added. According to Olszewski, what is driving up the demand for warehouse space is not only steady GDP growth. It is the low rents that are attracting companies to Poland. “Poland has one of the lowest warehouse rents in Europe.” Effective rents in most core locations are between €2 and €3 per sqm per month. The extremely low rents present something of a puzzle. Given the ever increasing demand, as well as historically low vacancies – 6.1 percent as of the end of June, with several local markets having no vacant space whatsoever (including three developing markets: Szczecin, Bydgoszcz/Toruń and Opole), shouldn’t there be at least some upward pressure on rent rates? Market players and analysts agree that first and foremost the reason for the low rents is the fierce competition between developers. “With growing demand and low vacancy rates, one might expect rents to

We have been witnessing upward pressure on rents for several quarters, especially when the tenant has particular requirements about the location or a tight schedule for moving into the space, which naturally limits the number of available warehouse parks. We should note that the vacancy rate has been decreasing for a long time now, which means that warehouse space available for lease immediate is harder to find than it was two or three years ago. If, however, the leasing process is handled by a professional and with sufficient time, tenants can still get record low rates in most local warehouse markets. It is related to the strong competition (most of the major developers are present in Poland, and several new ones are looking to enter the market), construction costs that have remained stable for years, very large land banks (purchased or secured by developers a few years ago), as well as – contrary to a popular belief – administrative procedures which are quicker

JAN BARBASIEWICZ, DIRECTOR, INDUSTRIAL AND LOGISTICS AGENCY, COLLIERS INTERNATIONAL

and simpler than in other countries. Poland is also seen by global investors as the biggest warehouse and industrial property market in CEE, which is also a key factor here. This means that financing for large warehouse investments by a developer is relatively cheap. What is more, once a property is leased, there is a line of investors, real estate and pension funds ready to purchase it. Next to the strong tenant demand for warehouses in Poland (both national and international, e.g. from the e-commerce sector) it is Poland’s perception as a stable and prospective market that are the most important factors in the sector’s development. In the long run, once developers’ land plots have been developed, the limited availability will cause rents to increase, particularly in areas that are easily accessible for potential employees. This aspect has long been key in choosing the location.

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Lining up

But developing and leasing is only a part of the equation. Panattoni, as well as several other warehouse developers, operates under the “build-lease-sell” model. They probably wouldn’t be so eager to add more space if they didn’t have a sure-fire exit option. The final ingredient to the boom the market is experiencing is the “very high demand levels by institutional investors seeking to acquire quality income producing assets in the industrial sector in Poland, which in turn is driving yield compression,” said Tom Listowski, partner, head of Industrial and Logistics Agency Poland and CEE Corporate Relations, Cushman & Wakefield. While these factors are aligned, rents will remain stable at the current low levels. However, we are seeing rents going up in some locations with limited space and land availability,” he added. Barbasiewicz concurred: “Once a property is leased, there is a line of investors, real estate and pension funds ready to purchase it.” Currently, yields for prime warehouse assets stand at 6.75 per-

cent, with further compression forecast, according to JLL. The best, long leased properties are even trading well below 6 percent. The investment volume in the warehouse segment may not have been very high over the past months, with only €261 million worth of warehouse properties changing hands within seven deals (including three portfolio transactions), but that is mainly due to the limited availability of product for sale. The largest transac-

tions over the first six months of the year were: NBGI Portfolio purchased by Hines REIT, Annopol Business Park sold by ECI to Hines REIT and GLL’s acquisition of the Amazon Fulfillment Center (in a sale and leaseback deal) in Poznań. All in all, it seems that as long as the economic fundamentals remain strong and low interest rates keep driving capital to the real estate market, the self-perpetuating cycle of high demand, high supply and low rents will continue. u

Images: Double Tree by Hilton

opment. That, and the continually low interest rates, both in Poland and across Europe. According to JLL’s Olszewski, as long as developers have the appetite to build, rents will likely remain low. “And the appetite to build will continue as long as there is capital interested in buying real estate. Only after interest rates go up, will there be a possibility of rent growth,” he explained.

Images: Hines

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Regional spotlight

because the local authorities have allowed that situation to occur. That’s great for the tenants, but not so great for the assets. On the other side of the coin, you see places that are in dire need of new buildings – whether it’s offices or shopping centers, there are a lot of cities that just don’t meet the quality that’s required for today’s world of business. The difficulty, however, is getting finance. We really need a banking sector that finances development. In my opinion, the government should be doing more to help: a property market that functions well has a massive effect on the general wealth of a nation.

Named “Comprehensive Service Provider of the Year,” Niall O’Higgins, President of CREAM, discusses what’s gone right for the asset management firm INTERVIEW BY ALEX WEBBER

What differentiates you from the competition? We don’t specialize in the big markets, rather we focus on secondary cities. That’s not to say we don’t have any prime property, it’s just not what we’re famed for. In the past, when talking about these regional markets, you’d be dealing quite literally with someone who was an undertaker by day and a property agent by night. Not only do we offer professionalism on a more local level, we’ve helped develop it as well. Has your philosophy changed in any way? The last ten years were all about foreigners buying property in Poland, but now we’re starting to move towards Polish investors – that’s how we see our future. What needs to happen in the long term is for Polish property to be Polish-owned, but right now there aren’t many financial

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vehicles that allow that to happen. There aren’t many great pension products or low-risk investment instruments in this country: you don’t see too many reliable funds that a doctor or lawyer can invest in. Although we’re not unique in offering these kinds of individuals the chance to invest, we are very good at what we do. What needs to change on the investment market? There are so many opportunities to be found in Poland, but the market has to mature in a way that it’s not just for foreigners. There need to be better mechanisms that allow Poles the chance to make bets on good property. In a way, the market reminds me a little of when I was starting my career in Ireland. In those days, 90 percent of property was English-owned. That progressively changed, and Poland needs to see similar changes to keep money in the country. Poles really need a professional firm like us to reach out to them. Surely Warsaw is where the money is? When I first came to Poland in 2002 foreigners were only interested in investing

in Warsaw. We were the first to lead them to the regions. When you think about it, the Tri-City area has a population the size of Ireland! We didn’t see it as a secondary market, we saw it as a place where good deals could be made. Of course we’ve got properties in Warsaw, but the core of our business is outside the capital. Secondary cities always suffer more, so when the crisis came we were hit harder than most, but that provided a great learning curve for our staff. We demonstrated we could handle tough situations, and I think nowadays people realize we’re experts at dealing with ‘problem’ properties. Do you see any warning signs on the horizon? Everything would be fine were it not for two things – firstly, the actions of the current government have scared investors. Personally, I don’t worry, but then I’m used to Irish politics! Unfortunately, international investors do worry. They don’t want to see confrontations with other EU states. By my reckoning, the government needs to show more diplomacy. The second problem is liquidity. International

investors want that feeling that a property will sell easily. Currently, however, there’s a huge question mark over how liquid the Polish market actually is.

We have the organization and skillset to do that, meaning that while the properties are in secondary cities, they’re nonetheless quality assets.

What does that mean for investors? As a result, we’re not seeing huge volumes of investment from abroad, while Poles are playing on a different pitch – they don’t have clear ways to get finance or to structure a deal, which is why they always seem to be a point or two behind when it comes to yield. Right now it’s probably easier to sell something for €200 million than it is to sell something for €20 million. That gap needs to be serviced.

What’s it like doing business in the regions? Generally, people are very pro-business, but sometimes too much so – for example, you’ll see towns that are completely overstocked with shopping centers

So what’s gone right? Poles like to complain, but they need to take a step back and pat themselves on the back. So much has gone brilliantly for them. The quality of products and services has improved beyond measure. I think the Polish people need to be a little less defensive and much more confident about their place in the world.

Images: CREAM

WBJ Observer: Why do you think CREAM has been singled out for its work? Niall O’Higgins: We’ve moved away from our history and that’s really got us noticed. In the past we were heavily linked with foreign investment, but now we’ve made an effort to broaden that out. We were also strongly associated with one particular investor, and while we’re still involved with them, their role has decreased and that’s allowed us to show how much we can actually do ourselves. We can act as an agent or asset manager, we can deal with legal or accounting issues: we can do all those in-house ourselves. We’re the quintessential one-stop shop and that’s now being recognized.

Where is Poland in terms of commercial real estate? Everyone loves retail parks now, they’re far less complex animals than shopping centers. Office development has also become a big thing, to the point that supply has threatened to become over-supply. Regardless, that’s been counterbalanced by surprising take-up. Poland has really moved forward. Obviously, some parts have moved forward faster than others: Warsaw, as the capital, has naturally done well, while cities closer to the German border have clearly fared better than those facing Belarus. But even places like Łódź and Szczecin – towns that I’ve always thought should do better – are going forward, albeit at a slower rate. There’s nothing backwater about Poland anymore, and that’s something Poles should be shouting about. It’s become a powerhouse! u

What kind of projects do you look for? We’re mainly retail focused, usually looking for projects that need a bit of work – we’re geared up to do that. We don’t go for properties you can stick up on the internet and just sit back and watch investors come along. We make things happen.

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Moneymaker or mixed blessing?

theory, help reduce traffic, and the carbon footprint cities generate.

Offering more than one function in a building has become the norm. But combining all possible purposes within one property can be problematic. Are mixed-use schemes just a fad or are they going to become a mainstream form of development?

hey comprise residential units, office space, as well as access to stores, services and increasingly also to hotels, entertainment facilities, healthcare services and culture. Even though they are still considered a

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niche product, mixed-use projects have started to pop up in the largest Polish cities. Developers consider their multi-functionality not only added value, but also oftentimes the biggest selling point of the entire project.

The idea behind mixed-use projects is that in the fast-paced world where time is a commodity that money cannot buy (some would argue that you can, e.g. by hiring people to do your chores, but the supply of time is definitely limited), developers attempt to offer timesaving solutions by gathering all essential functions in one location. There is no doubt that mixed-use projects save time. They seem to be designed specifically to help cut down on the time people spend on commuting or running Alchemia, errands. They should also, atGdańsk least in

Images: Double Tree by Hilton, BBI Development

KONESER

Synergies abound Ideally, tenants and residents of a mixed-use building live in the same place as they work, shop in the supermarket located on the ground floor of the building, visit the dry-cleaner’s during a lunch break, pick up a business partner from the hotel lobby and take him to their office located upstairs. In order to create the best synergies, many mixed-use projects are located in the best and most prestigious parts of the city. After all, good location is a prerequisite if you want to attract the best hotel brands. Alex Kloszowski from Hotel Professionals emphasizes that combining a renowned hotel brand with retail and office space creates the so-called “halo effect” as high-end hotel guests generate revenue for luxury services providers on the premises, such as beauty parlors, spa centers or financial services providers. Whereas giving corporate employees direct access to a fitness center, public spaces or shops may function as a bargaining chip in the fight for talent. “Companies looking for office space value projects which … offer direct access to medical clinics, fitness clubs, restaurants, cafes, pubs, kindergartens and a hotel located on the premises, which is an important amenity for people traveling on business,” said Bartłomiej Zagrodnik, president of Walter Herz. Meanwhile, residents make for very loyal customers of the retail and service points. Simply put, mixed-use developments seem to be self-perpetuating moneymakers. Another important advantage of this type of asset is that targeting different tenant groups for available space in a mixed-use building reduces the developer’s commercial risk. If the project turns out to be unpopular among office tenants, the loss can be mitigated by retail success, and vice versa. As a result, such projects can be easier to finance. Are there any downsides? On the flip side of the coin, there are construction costs, which can

OVO WROCŁAW

be substantially higher in mixeduse developments in comparison to similarly sized, single-purpose buildings. If you want to fit many functions in one space, you need to meet the standards for each of these functions, which don’t always go hand in hand. Walter Herz experts point out that housing a hotel within a building requires a lot of preparation at the planning and design stage. “You need separate elevators and a separate entrance into the building. You need to think of separating utility costs by implementing individual installations as well as water and sewage systems. They are much more extensive in mixed-use schemes than in purely office buildings,” said Walter Herz analysts. Even the space you earmark for restaurant operators needs to be in tune with the number of stars your hotel operator will have. Fire separations, sound proofing or ventilation in the building can also be challenging for developers. Providing sufficient parking is an entirely separate problem, especially if the building is located in a premium area of the city. If a property offers office space, general retail space, restaurants, a fitness center and a cinema, unless there is a huge parking lot available nearby, everyone may be forced to use the same parking garage. Large numbers of parking spaces may be difficult to finance and distributing

the available parking spaces between retail and office tenants can be challenging too. Retail tenants will always expect ample parking for their clients, and office workers might complain if they have no access to a car park in their building. Shared car parks seem a reasonable solution, where an office parking lot doubles as a retail car park in the evening and at weekends. Parking validation for office tenants might also work, but then we arrive at a pricing policy dilemma. Any way you slice it, car park overcrowding looks inevitable. KONESER

LOKALE IMMOBILIA / MIXED-USE

WBJ Observer presents

MANUFAKTURA

SOLID FOUNDATIONS W

E EE B E

Everyone is now asking about Warsaw’s office market. How is the current supply of modern office buildings going to affect rental values and thus investment values? Erik Drukker: W a a

ERIK DRUKKER, a a RE OR a E B aR BaS REal ES a E

Val a O

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What is the situation with retail space? Are there any significant changes visibly taking place within the sector in light of the ever faster growing popularity of e-commerce? B E E

Is the current political and economic situation in Poland affecting the real estate sector?

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BROUGHT TO YOU BY BNP PARIBAS REAL ESTATE

Poland’s flagship mixed-use projects Despite these challenges, properties of mixed-use type have so far appeared in Warsaw, Wrocław, Łódź, Gdynia, Lublin, Katowice, Poznań, Rzeszów and Szczecin, and, according to Walter Herz’s research, they have the potential to become an important part of the commercial real estate segment. In Warsaw, one of the best examples of this type of property is Koneser Praga Center, a joint venture of Liebrecht & WooD and BBI Development, located on a five-hectare plot on ul. Ząbkowska, in the heart of the old Praga district, involving the revitalization of the former Warsaw Vodka Distillery. It is the first project in Warsaw to combine such a plethora of functions: 300 apartments built by BBI Development, over 25,000 sqm of A-class office space and over 20,000 sqm of retail space in addition to a conference center, a hotel, restaurants, and the world’s first Polish Vodka Museum. Another good example is the reconstruction of Hotel Europejski. Once

Hilton to guests, residents or tenants from OVO Wrocław. They will have room service and concierge services at their disposal. Such a combination of different functions makes OVO Wrocław a unique property not only on the Polish scale, but also in Europe.” The Manufaktura retail scheme and Andel’s hotel complex in Łódź have long been praised as the way city quarters should be designed to bring life to a city, rather than keep people in a shopping mall. The city of Łódź will soon see another mixed-use project: the Piotrkowska 155 office and hotel complex. Its launch is planned for the first quarter of 2018. It will provide more than 25,000 sqm of space, including premium-class office and retail space. A Hampton by Hilton hotel with 149 rooms will be connected to the higher office building with a common ground floor and first floor, where the area will include shops, cafes, restaurants, a fitness center and a medical clinic. At the seaside, the Gdynia Waterfront is being built by Vastint at Kościuszki square offering 90,000 sqm of space earmarked for residential, commercial, retail and cultural facilities, as well as office space and a hotel with a conference center. Further to the west, the Szczecin Odra Park – the largest mixed-use complex in Szczecin – will offer a total of over 42,000 sqm for high-class office space, a three-star hotel with 144 rooms and a retail and service area. The popularity of mixed-use investments is definitely on the rise. However, whether they meet the developers’ and their users’ expectations remains to be seen. One thing is certain: when a developer unveils its plans for a new development these days, be it an office scheme, or a residential complex, one of the first things to be emphasized is the range of other functions the project will offer. u

Images: KSP, Wikimedia

ETHOS

finished, it will become the most luxurious hotel in Poland as part of the Raffles chain with over 100 topof-the-shelf rooms and suites, retail and service areas, with among others, boutiques of global brands, as well as A-class office space. Its launch is planned for mid-2017. Kulczyk Silverstein Properties (KSP) has been working on refurbishing ETHOS – a mixed-use, retail and office project of over 17,000 sqm located at Warsaw’s Three Crosses Square in the heart of the city along the Royal Route. It will encompass a five-floor A-class office and retail area on the eastern side of the building. The Warsaw district of Mokotów will soon have its own mixed-use building as well. Eiffage Immobilier Polska and Avestus Real Estate companies are planning to build the CUBE office building, with over 20,000 sqm of space and a hotel adjacent to the office scheme. In Wrocław, the city of 100 bridges, Sky Tower is a good example of this type of asset. It offers over 25,000 sqm of retail space with a myriad of shops and services available for public use. Apart from that, it has over 20 floors of modern office space and the rest are luxury apartments for rent or sale. The building is crowned with a viewing point located on the roof which attracts clients and visitors. The southern city has recently received another multi-purpose complex: OVO Wrocław located on Wrocław’s Promenada Staromiejska. The operator of the five-star hotel, which features 189 high-end rooms and suites, is DoubleTree by Hilton. The building also offers seven conference rooms, a sports club, a fitness center with a swimming pool and spa, restaurants, a cafe and a casino. As Matthias Herd, the CEO of DoubleTree by Hilton Wrocław, emphasized: “Its greatest advantage is the full accessibility of services from DoubleTree by

LOKALE IMMOBILIA / INTERVIEW

A potent concoction

Mixing office, hotel, retail and residential functions within one scheme can be tricky, even more so when you add tourists visiting the Polish Vodka Museum and a plethora of tech start-ups from the Google Campus. WBJ Observer talked to Mariusz Kozłowski, president of the Management Board at Liebrecht & wooD Poland, about the Koneser project that the firm is developing as a joint venture with BBI Development, located on the right bank of the Vistula River

Image: Liebrecht & wooD Poland

I N T E R V I E W B Y B E ATA S O C H A

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WBJ Observer: Recently, you announced that Marriott’s new economy brand – Moxy, will join your Koneser project. Why did you choose Moxy? Mariusz Kozłowski: First of all, it is a new brand in the portfolio of the world’s largest hotel operator Marriott. It’s also a brand that Marriott has designed specifically for the type of clients that is also a target group for Koneser: creative, independent young people (or young at heart) that like to make their own choices. For instance, there is no predefined restaurant located in the hotel but rather a 24/7 self-service Grab & Go catering concept. This is another area where the synergy between the hotel brand and Koneser is important. Hotel guests will have many options to choose from the wide selection of restaurants, bars and cafes that will be operating in Koneser. I think that the world’s first Polish Vodka Museum will also be a big magnet for international guests. There are only a handful of similar museums in Europe, like the museum of gin in London and the Irish Whiskey Museum in Dublin. I also believe that the philosophy of the Moxy brand is similar to the philoso-

phy behind the Google Campus Warsaw, which is also located in Koneser. Our office tenants, many of whom operate on international markets, will also be able to use the hotel to accommodate their guests. Moxy is an economy brand. It’s a very individualistic brand, with a lot of emphasis on technology and online connection. It will offer high-speed Wi-Fi in every corner of the hotel. The brand will offer slightly smaller yet stylish rooms, because it is meant for people who like to spend their time together in a multi-zone public area. That’s why there will be a lot of space in the lobby for people to meet and talk. There has been increasing criticism towards fenced neighborhoods, and towards single-function urban areas. The trend now is to “open” buildings, and to mix different functions within one scheme, to create a working mix. Is Koneser going to be open to the outside neighborhood? In my previous position I was involved for 15 years in developing office buildings in Służewiec in Warsaw. For a long time it was an area where lights went out at 6 pm. Now some residential projects have been developed there, which has already brought some life to the neighborhood. But the largest office district in Poland still does not have, for instance, a good quality hotel, which I think is very much needed there. Koneser Centrum Praskie is designed as an open city quarter and offers all the benefits of a multi-use project where all the functions support each other. In addition to offices, retail, the Polish Vodka Museum and Moxy hotel, we have loft style residential buildings, a conference & event center, Google campus with 7,000 users and growing. There will be a variety of shopping facilities in Koneser, including buildings fully dedicated to retail, shopping street type of stores and a covered shopping arcade. The area will be partially covered with a roof, but it will remain open to the outside with large public spaces between the buildings. We will have an open farmer’s and antique market that will be an attraction both for tourists and local residents. We want ul. Ząbkowska to be the favorite destination for people looking to spend their leisure time in an interesting way. We have a lot of ideas for the area.

Mixing residential and entertainment functions is not always easy. In some areas, e.g. in the city center and in the Powiśle district, there have been a lot of complaints and conflict between residents and bar owners about restaurant opening times and people disturbing the peace and quiet at night. I myself live in Powiśle. There are indeed problems there, with people partying on the river bank at all hours during the summer. But Koneser will be a different destination. First of all, we are farther from the river. We will encourage people to spend time here and have fun, but not in a loud and uncontrolled way. We plan to organize lots of events but more in a style of “Otwarta Ząbkowska” rather than beer bars by the river. What office tenants will you have? The Google campus on the one hand sets the tone of the place and because of that we have a lot of tech firms. We have Rączkowski, Kwieciński (RK Legal) law office on our tenant list, which decided to move out of the city center looking for a boutique office with unique identification and comfortable parking for their clients. The place has been dubbed “tech city.” We weren’t initially convinced that it was the best idea to be branded as a destination only for tech firms. But the ecosystem around the Google campus evolved in a natural way and started living on its own. We are open to meet every firm, however we are trying to expand the tech-oriented environment. We have a medical center, a fitness center. We want to fine tune our retail mix to serve both the residents, office tenants, visitors to the Polish Vodka Museum, Moxy Hotel guests and first of all residents of Warsaw looking for a new shopping, dining and entertainment destination. When will the office part be completed? The office part will be delivered in stages, with the first part being completed by the end of 2017. How much of the office space has already been commercialized? We have already signed deals for more than 30 percent of the space. Together with leases that are at an advanced stage of negotiations, it’s 50 percent of the entire office area. u

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THE RETURN OF ART DECO

With Wola emerging as Warsaw’s new CBD, its luxury residential market has been jump started by the office boom. Of the benefactors, the Art Deco Wola Apartment block stands out as the most ambitious. Artur Tłustochowski, the CEO of the investor and developer, Terra Casa, takes up the story The projects in your portfolio all have a distinct personality. What was the thinking behind the Art Deco apartments? In the case of Art Deco, we combined two styles of architecture: the classic Art Deco look of 1920s Chicago, and the more streamlined version we saw appear in 1930s Warsaw. The link with Chicago is twofold – not only does it have the highest concentration of Poles outside of Warsaw, but it’s also Warsaw’s first ever sister city. How does Art Deco slot into the firm’s philosophy? At Terra Casa we look to create high quality projects that fit into the neighborhood: to do so we conduct an in-depth analysis to find an architectural solution that’s right for an area. We treat each individual development as if it were our flagship product, which means a lot of attention to detail as well as a big focus on new technology. That’s meant installing intelligent building systems and ultra-fast fiber internet fitted in each apartment, LED lighting and electric car chargers in the garage. We’ve had 19 years of experience on the market, with the last 12 focused on luxury developments. This isn’t a huge firm and neither are our projects, but that allows us greater flexibility to concentrate on perfecting the design and the final product. The location is being touted as the CBD of the future. We’ve always had great faith that this area would become Warsaw’s CBD, as planned by the City. A few people initially had doubts that the district would take off, but now we’re seeing its rapid growth: the second metro line has helped, office blocks have been finished and even more are underway. Companies that used to have several offices around Warsaw are now consolidating and moving to Wola while others are relocating from abroad. That’s all driving the area. When you have an office boom like that, an area needs proper supporting functions – places to eat, places for entertainment and, of course, places to live. It’s the best time to invest in Wola, as the district is predicted to increase in value in the next few years. So your target audience is the people working in these new offices. In the past, professionals aspired to live in the suburbs. Now, across the globe, people are moving back to city centers. People have less time than ever so they want to be closer to their workplace, closer to restaurants, shops and schools. We’ve had to examine the lifestyle of our potential buyers and meet their needs. Typically, we’re expecting take-up from people in the 3040 age bracket who’ve been relocated to Warsaw by their work. To suit their demands we’ve got a gym, a green roof terrace with

OBER 2016 • WBJ OBSERVER

BROUGHT TO YOU BY TERRA CASA

WBJ Observer presents

an incredible view accessible to every resident, as well as the latest eco-friendly technological advancements. Where does Poland’s luxury residential market stand in comparison to ‘Western’ Europe? It’s still very much in its early stages with the main markets found in Warsaw, Kraków and Sopot. A few projects have been really successful but others have been less so. However, there’s great scope for the future: the Polish population is growing richer year by year. Already, we’ve noticed that clients are becoming more and more demanding. They want more for their money. As a company, that pushes us to better ourselves with each new project.

ART DECO - WOLA APARTMENTS is a new residential project in Warsaw's central business district – designed in art déco style with a green-roof terrace. The project is located at 7 Siedmiogrodzka Street at the extension of Grzybowska Street. Nearby is Metro station Rondo Daszyńskiego and currently being implemented Metro station Wolska.

TC forum capital group

Sales ofﬁce Siedmiogrodzka 5/2 01-204 Warsaw

tel.: 22 540-7-540 www.artdecowola.pl

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EVENTS

BOO

BOOK OF LISTS GALA The Book of Lists Gala, was attended by over 200 guests.WBJ Group handed out three Spotlight Awards (Ghelamco, Mazars in Poland and Cream) and Rising Star Awards (Eva Park Life & SPA, Reesco and Russel Bedford). The Lifetime Achievement distinction went to Grupa Azoty, while S&T Services, Hays Poland and Unico Communications Group received special certificates

(LEFT) ANDRZEJ DMOWSKI, CEO, RUSSELL BEDFORD POLAND

(L-R) MONIKA ASMAN, KEY ACCOUNT MANAGER, VALKEA MEDIA; ANNA CHODUN, SALES DIRECTOR; GRZEGORZ FILAROWSKI, CEO, LOG SYSTEMS

BOBER, MARIUSZ BOBE PRESIDENT OF MANAGEMENT THE M BOARD, GRUPA BOAR AZOTY (L-R) BEATA TADLA, GALA HOST; JACEK CIESNOWSKI, EDITOR-IN-CHIEF, WBJ GROUP; AGNIESZKA KAWĘCKA, HEAD OF BUSINESS DEVELOPMENT, REESCO; TOMASZ OPIELA, CEO, VALKEA MEDIA

Images: Tomasz Mateusiak/WBJ,

MONIKA NOWECKA, PARTNER, MAZARS IN POLAND

OBER 2016 • WBJ OBSERVER

PIOTR NAWROT, HEAD OF BUSINESS DEVELOPMENT SECTION, KRUK

(L-R) JACEK KUDRZYCKI, MEMBER OF THE BOARD, PM GROUP POLSKA; RADOSŁAW GÓRSKI, MEMBER OF THE BOARD, BUDIMEX; ANITA PIETRYKOWSKA, MARKETING&COMMUNICATIONS DIRECTOR, PANATTONI EUROPE

EVENTS

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EVENTS

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(LEFT) MONIKA WOLNY, MANAGING DIRECTOR AT UZDROWISKA KONSTANCIN ZDRÓJ

(L-R) MARIUSZ DZIURDZIA, PARTNER, PWC; MARCIN JAMROŻY, PARTNER, RÖDL&PARTNER

(LEFT) WALDEMAR PATUREJ, GENERAL MANAGER, HRC GROUP

XXXXXXXXX (L-R) RAFAŁ ZIĘBA, MANAGING PARTNER; PIOTR KOCHAŃSKI, MANAGING PARTNER (BOTH KOCHAŃSKI, ZIĘBA AND PARTNERS LAW FIRM); BEATA NIEMCZUK, MARKETING AND BUSINESS DEVELOPMENT DIRECTOR, DENTONS

(L-R) MATEUSZ SOBOLEWSKI, LEGAL DEPARTMENT AND JUDICIAL DEBT COLLECTION MANAGER, ARVATO; BENITA SOCZEWKA PIWOWARCZYK, ASSOCIATE PARTNER, RÖDL&PARTNER

TOMASZ SPALIK, BUSINESS DEVELOPXXXXXXXXXMENT DIRECTOR, TÉTRIS POLAND

(L-R) MORTEN LINDHOLM, WBJ GROUP PUBLISHER; WOJCIECH GEPNER, PUBLIC RELATIONS MANAGER, ECHO INVESTMENT; ANNA PELCZARSKA, MARKETING&PR SPECIALIST, GHELAMCO POLAND

(L-R) MAŁGORZATA GROMEK, BRAND & COMMUNICATIONS MANAGER, SODEXO; MARTA DIOP, SALES DIRECTOR, SODEXO

Images: Tomasz Mateusiak/WBJ,

(L-R) MAREK WRÓBEL, HEAD OF OPERATIONS, HAYS POLAND; MAGDALENA KURNICKA, MARKETING MANAGER S&T; TOMASZ OPIELA, CEO, VALKEA MEDIA

(RIGHT) JONAS TARNGUIST, CEO, UNICALL COMMUNICATION GROUP

OBER 2016 • WBJ OBSERVER

WBJ OBSERVER • OCTOBER 2016

NEWS

WBJ Group would like to thank our partners Commercial partners

BOOK OF LISTS 2016/2017

Institutional partners

PLACE

BOOK OF LISTS 2016/2017

PLACE

BOOK OF LISTS 2016/2017

PLACE

Sodexo Polska

in the Book of Lists 2016/2017 ranking of Catering Companies

in the Book of Lists 2016/2017 ranking of Real Estate Management Companies

Publisher of Warsaw Business Journal Group

Editor-in-Chief Warsaw Business Journal Group

Publisher of Warsaw Business Journal Group

Editor-in-Chief Warsaw Business Journal Group

Morten Lindholm

Jacek Ciesnowski

Morten Lindholm

Jacek Ciesnowski

PM Group Polska in the Book of Lists 2016/2017 ranking of Construction Project Management Companies Publisher of Warsaw Business Journal Group

Editor-in-Chief Warsaw Business Journal Group

Morten Lindholm

Jacek Ciesnowski

EEVVEENNTTSS

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E EV VE ENNT TS S

TRUMPF OPENS NEW TECHNOLOGY CENTER IN WARSAW

Politics overload E been given to a politician and there have always B When last year, Law and Justice leader Jarosław Kaczyński was presented with the Man of the Year award, many raised an eyebrow, complaining that after the elections “the good change” (dobra zmiana) had arrived in Krynica as well. And they were right, but only partially. This year’s winner was Hungarian PM Victor Orbán, but if you look at past winners, you will find names like Tusk, Barroso or Komorowski, so at least the organizers are consistent and award politicians that are currently in power. So the Forum was politicized, but it was politicized in every possible way, not just to promote Law and Justice. On one hand, we had a panel on Poland and Christianity and on the other hand we had a presentation of Civic Platform’s political strategy. There was also a surprising number of former MPs (mostly from various left-wing political parties), so at least you can’t accuse the organizers of favoring one side. Still, one has to understand that in Poland, where some of the biggest companies are still state-run, inviting politicians from the whole political spectrum is necessary. And that is also the reason why Krynica is the most important economic event in Poland for many. However, the quality of discussion has suffered with such a big emphasis on politics rather than substance. This has been a complaint for a few editions now – too many big names that don’t bring anything new to the table, but just repeat the same talking points all over again, bringing nothing new to the topic being discussed.

S R

Images: Institute for Eastern Studies, Trumpf

R E VES

E OO SER RO ER SO E E S EW R ERS ER 20 O

he opening ceremony of Trumpf’s new technology center was led by the President and Chairwoman of Trumpf, Nicola LeibingerKammüller. She belongs to a group of the most influential German businesswomen supervising companies such as Siemens, Voith and Axel Springer. “We are very proud to open this impressive new building,” she said. “Trumpf Poland is now one of the ten largest Trumpf distributors worldwide and most of all one of the key markets in Eastern Europe. It has been one of the strongest growing countries in the last decade and still has the potential for further growth.” The event was graced with the presence of the Ambassador of Germany Rolf Nikel, Deputy Mayor of Warsaw Michał Olszewski, and representatives of local government. The new Trumpf site offers 2,500 sqm on two storeys, (3,200 sqm gross), an 800 sqm showroom, totaling a capacity of over 17,000 cubic meters. u

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R O B E2 R 0 1 26 0 •1 6W•B JW B O JB SOEBRSVEERRV E R

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GADGETS TECHNOLOGY TO MAKE YOUR LIFE EASIER

Segway miniPRO Hoverboard

The miniPRO is a hands-free, two-wheel electric scooter, supposedly the next step in personal transportation. With a max speed of 10 mph (16 km/h) and a battery lasting for as much as 14 miles (more than 22 kilometers), you can easily access nearly everything in town. The ergonomic design utilizes sensors to capture your body’s movements. The knee control bar allows you to steer more easily and precisely. You can control the board remotely via a dedicated app, and it comes equipped with steering lights that look utterly cool. The miniPRO is the first transporter to be rigorously tested and certified to meet the highest standards of safety requirements set by Underwriter Laboratories (UL), so the “looking fire” expression will remain a metaphor.

WE LIVE IN AN AGE OF GADGETS: PS- HX500 Turntable some are useful, but most are Sony Enjoy the subtle nuances of studio-quality sound with High Audio in the newest Sony turntable. Actually, it’s a just a waste of time and money. Resolution plug-and-play turntable with great digital recording capability, We sift through the latest avail- which means you can finally make your vinyl library portable. device comes pre-equipped with cables, and a free app able tech to pick those that we The is also needed to record the tracks at double DSD (5.8MHz) believe will help you live your quality, the highest ever available on a USB turntable. Next time someone boasts about their great USB phono preamp life more comfortably recording “CD quality” files straight from vinyl, remember to mention that’s the lowest resolution your Sony deck records. and confidently.

Price: $1, 299

segwayminipro.com

Price: $600

sony.com

Foldimate

Ever wished someone would fold up to 20 pieces of clothing in under 40 seconds each for you? Well here you have it, the Foldimate machine. Apparently we spend more than two years of our lives doing laundry, half of which is just folding it. To use the Foldimate, you just have to clip your shirts individually to an external part of the machine, and wait. The device then folds your old t-shirts, de-wrinkles them and perfumes them with the scent of your choice. What does the team say of their work? “We're committed to simplifying household chores with robotics and technology.” Fair enough.

Price: $700

Produced by Israeli start-up Sirin Labs, this ultra-secure device lets you switch between a regular Android phone and military-grade secured device. When you’re in safe mode, all but essential features are disabled, and both calls and text messages are protected by 256 bit-AES encryption backed up by two security firms, just so you can feel safer. When not held by James Bond, it’s just your regular phone with a nice 23.8-megapixel camera, 4GB of RAM and 120GB of internal storage. The world’s first ultra-secure phone for the 1 percent, given its price.

Price: €69.95

Price: $14,000

OBER 2016 • WBJ OBSERVER

sirinlabs.com

Images: Sony, Nomad, Segway, Foldimate, Sirin Labs, Biolite Energy

Ever fancied a crust-thin Margherita after returning to your base camp in Katmandu, or just in your Granny’s backyard? Well now, thanks to the PizzaDome, those dreams are closer than ever. It lets you “cook up pizzas, flatbreads, and other favorites,” but I guess everyone will stick to pizza in the end. It also charges your phone, so you can quickly Instagram that evenly-baked pie to your metropolitan friends.

bioliteenergy.com

Solarin phone

BioLite PizzaDome

foldimate.com

Nomad charging Wallet

The new Nomad product, called simply the Wallet, is a battery pack for your iPhone, while you can still stuff it with coffee stamp cards and photos of your ex. It is certified by Apple itself, so you get the highest possible standard of the Lightning cable, inside a classic black leather wallet with 2400mAh of power, enough for a full iPhone charge. By placing the battery in the Wallet’s spine, it remains slim and convenient, and the battery itself can be recharged in two hours by any microUSB charger. Does it get any better? Price: $60

hellonomad.com

WBJ OBSERVER • OCTOBER 2016

LIFESTYLE / INTERVIEW

made by a farmer and not by an accountant or a computer program.

By Alex Webber

WARSAW’S CIDER ARRIVAL

As Warsaw celebrates the opening of its first dedicated cider pub, we talk to Marcin Chmielarz of Jabeerwocky about the big apple

You’re better known for your love of stouts and porters – so where did it all go apple-shaped for you? MC: My personal relationship with cider began quite recently. The first turning point was when I tasted the ciders of award-winning home brewer Czesław Dziełak. They really were quite something. Then, a few weeks later, Warsaw held its first cider week

and we had Tom Oliver’s cider on the hand pump. It was a real eye-opener with all the tastes and aromas of a wild beer. I realized then that cider could be a really interesting drink. But good ciders don’t come cheap MC: Cider has a problem with price: a mass-produced cider is only PLN 3 or 4 in the shops while a craft cider is about three or four times that. However, a growing number of people are ready to pay that premium in return for quality. We’ve seen it happen with food, we’ve seen it happen with beer. Hopefully, we’re going to see people make the same jump with cider.

So we’re not going to see a billion new cideries in the next few months? MC: Cider is quite special in that it’s very difficult to learn the craftsmanship behind it. If you’re brewing a beer you get plenty of chances to perfect it. With cider, unless you use frozen crap then there’s only one chance per year. u Jabeerwocky Junior ul. Nowogrodzka 12

The growing appreciation of “artisan” processes must help? MC: The advantage that craft cider has is its background story. People love knowing that something comes from an old orchard or a small farm. There’s a sense of reassurance when you know something has been

NEWS, REVIEWS AND CULTURE... The Capital’s Original City Magazine Since 1996 www.warsawinsider.pl The above text is a reprint from the Warsaw Insider archives

OCTOBER 2016 • WBJ OBSERVER

Exquisite drinks at Bar and Books

Images: Ed Wight

It’s said that Poland is the EU’s biggest producer of apples – so why don’t we see more cider in this country? MC: Cider has usually been perceived as similar to cheap wine. Poles view it as a sweet, mass-produced drink. In fact, for a long time it was even taxed in the same bracket as wine. Tax laws changed a few years back and that’s encouraged new producers. At the same time, Poles have returned from places like England and brought back new tastes with them. This has helped push Polish cider production forward.

Do you see any comparisons to the “beer revolution?” MC: When that first started every new brewery would hold a launch party in one of the tap bars. For a while these were huge events. Nowadays, unless it’s something really special, there’s just not that same excitement. But I think cider will recreate that buzz we had with beer: if a new cider hits the market hard then it will get attention. In fact, I can see cider attaining the same kind of cult status that wheat beer enjoys – it’ll never hold more than a small percentage of the market, but that percentage will be very loud.

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THE HOME OF CHOPIN Set 46 km west of Warsaw, a visit to the birthplace of composer Fryderyk Chopin has become a spiritual mission for the composer’s fans

travelers find themselves floating off into a soothing, snoozy daydream. Back-to-earth, and the minibus comes to a halt outside the main gate, dispatching day-trippers in front of a stunning visitors center.

bathed in light), there is something curiously enchanting about this pristine-looking home. As admirers solemnly shuffle over the creaking floorboards, they do so without so much as a whisper. The silence is reverential.

It is, to many, the ultimate destination. For fans of Chopin, Żelazowa Wola is what the Vatican is to Catholics: a place of pilgrimage and contemplation – a near holy site where you can feel the spirit of Chopin lingering in the shadows. And now, getting there has never been easier. Operated by Chopin Pass, minibuses leave almost daily from outside the Palace of Culture, delivering sightseers to the composer’s doorstep.

Completed in 2010 to coincide with Chopin’s 200th birthday, explore the two ultra-modern pavilions made from stone, glass and wood. Having resisted (or not, as the case maybe) the chance to stock up on Chopin merchandise, devotees are whisked through a small exhibition that presents the curious story behind the monument to the musician found in Łazienki Park. This, though, is merely fluff leading up to the main event.

Returning outside, most take the chance to ponder over their experience on the benches set out on the building’s flank. Nocturnes and waltzes are piped from speakers while curtains billow in the wind. It’s a bucolic scene befitting the moment.

You could use the 90-minute journey to browse through the Chopin-related onboard literature, but the tendency is to sit back and lose yourself in the hypnotic tinkle of the pianist’s compositions. As roadside stops selling tires and tiles give way to quaint rural villages,

Exiting, enthusiasts follow a path up to the place of Chopin’s birth. Having been rescued from ruin in 1928, this dove-colored annex is billed as the star attraction. Though small in size, and modest in terms of exhibits (period furniture, paintings and a couple of pianos

www.warsawinsider.pl The above text is a reprint from the Warsaw Insider archives

OCTOBER 2016 • WBJ OBSERVER

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Though there is not much more to see, there’s plenty to soak up: the landscaped gardens are of considerable size, and an exploration takes visitors down curving pathways past cascading colors. Crossing a humpbacked timber bridge, sightseers are sucked into a magical world of surging streams and shaded alcoves – such is the sedentary pace and tranquil backdrop, it becomes almost tempting to miss the bus back. u

Asian street food feast at Fokim

Images: Ed Wight

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