Warsaw Business Journal Feb-Mar 2019 #50

WARSAW

BUSINESS JOURNAL S i n c e 1 9 9 4 Po l a n d ’ s l e a d i n g

business magazine in English

FEBRUARY/MARCH 2019 ~ No. 02/03 (50)

For daily news visit us at wbj.pl

70 M&A DEALS IN THE IT INDUSTRY IN EASTERN EUROPE 2015-2018

GREEN FASHION A MERE FANTASY? PROPERTY INVESTMENT RECORDS BROKEN CARS, CLOTHES AND HOUSES TOP LUXURY GOODS SEGMENTS

ROBERT DOBRZYCKI of Panattoni Europe announces the company’s expansion plans

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FEBRUARY/MARCH

IN REVIEW

News highlights from the previous month from wbj.pl

OPINION

2019 Outlook....................................................13 Winds of change...............................................14 Lessons from 2008.........................................16 Brexit fallout.....................................................18 Insolvencies on the rise..................................19 Gen Z at work...................................................20 Liquidity loss....................................................21 Interview: Małgorzata Kidawa-Błońska......22

24 34

CHAT N’ CHEW WITH WBJ

Philippe Coudiere of Pierre Fabre................24

In Focus – (Un)sustainable business Feature: Green Fashion 27 Feature: Cost-saving eco-initiatives 32

FEATURES

Luxury goods market......................................34 Interview: Wine market..................................38

TECH INSIGHTS

Tech News.........................................................41 Feature: M&A in IT on the rise.......................44 Interview: AIP...................................................48 Interview: Collectomate..................................50 Interview: infoShare........................................52

87 88

EVENTS

KPMG Tax & Accounting Congress...............87

LAST WORD

Algorithms and identity..................................88

FEBRUARY/MARCH 2019 W B J

Lokale Immobilia – Real Estate Real estate news 55 Investment records 62 Interview: Cushman & Wakefield 66 Logistics parks 68 Cover Interview: Panattoni Europe 72

Tri-City offices 76 Interview: Torus 80 Interview: APM Development 82 Interview: Atrium 84

FROM OUR EDITOR

Always look on the bright side

Morten Lindholm Editor-in-Chief/Publisher mlindholm@valkea.com

Beata Socha

Managing Editor

bsocha@wbj.pl

Adam Zdrodowski

Managing Editor, Lokale Immobillia

azdrodowski@wbj.pl

Krzysztof Maciejewski Editor

kmaciejewski@wbj.pl

HOW TO SURVIVE (compete/succeed) in the present environment? We are living in rather disruptive times and yesterday’s formulas are no longer working. We ask ourselves: how do I stand out and how do I get attention? We have a couple of issues on our radar these days, perhaps not of a revolutionary kind, but fundamental and increasingly urgent. Against all odds and trends, we need to remain who we are – human. Everything around seems to focus on technology: AI, bots, IoT, algorithms etc. But people are getting tired of that automation and disrespect (Facebook Cambridge Analytica scandal, the YouTube pedophile issue). Naturally, the winners will have to use artificial intelligence for monitoring and data mining, but they will learn to apply it in a more “human” way. The new mantra is 3xH – be happy, human and helpful – we believe in it, and so we believe long-term success depends on us staying true to our values. Another solid and believable trend is sustainability (more about this topic in section “17 Goals to Transform Our World” on the UN website). Whether it’s about stopping poverty or supporting gender equality, we all know how important it is to stay on course towards making the world better, all the while looking for innovations that will allow us to eliminate threats to future generations. Still, we have to stay humble and be ready to learn and listen. There is a lot of buzz about Millennials and Generation Z these days. Do they actually differ that much from baby boomers, Gen X and the rest of us? Obviously they have experienced more digital immersion, and can come across as unfocused and detached from the real world. Nevertheless, we should not underestimate their beliefs in goodness, purpose and trust, all of which are indispensable if we want to change the world. Personally, I am encouraged by a lot of our young employees, who show eagerness to learn and listen, as well as exhibiting huge dedication to improving themselves and the world. Recently, I met a couple of Polish entrepreneurs here in Warsaw and I must say I was inspired and uplifted to see the fire in their eyes. I like their attitude, rooted in their strong beliefs, in spite of all the challenges ahead and things apparently getting tougher. They are determined not to sit on their hands, nor to take anything for granted. It is extremely encouraging for an economy like Poland to have all these spirited individuals pushing forward. Deriving inspiration from their positivity, I believe we can make it through thick and thin. MORTEN LINDHOLM

Kevin Demaria Art Director

Michael Evans Copy Editor

Contributors

Ewa Boniecka Sergiusz Prokurat Anna Rzhevkina Sales

Magdalena Klimiuk mklimiuk@valkea.com Katarzyna Pomierna kpomierna@valkea.com PR & Marketing

Agata Wolny awolny@valkea.com Book of Lists

Monika Rozner mrozner@valkea.com Magdalena Czopur Subscriptions

mczopur@valkea.com Krzysztof Wiliński Print & Distribution

dystrybucja@valkea.com Magda Gajewska Event Director, Valkea Events

mgajewska@valkea.com Contact: phone: +48 22 257 75 00 fax: +48 22 257 75 99 e-mail: wbj@wbj.pl

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FEBRUARY/MARCH 2019 W B J

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NEWS HIGHLIGHTS OF THE PAST MONTH FROM WBJ.PL

Not only can we not accept such racist comments, but with all our strength we want to stress that we will fight for historical truth, for the honor of Poles” - Mateusz Morawiecki

SHUTTERSTOCK

V4 SUMMIT CANCELED AMIDST ISRAEL-POLAND HOLOCAUST CONTROVERSY The Visegrad Group Summit that was scheduled to take place in Israel in mid-February was canceled at the last minute after PM Mateusz Morawiecki announced Poland would not participate. The decision came after Israel’s Acting Foreign Minister Israel Katz said that “many Poles” had collaborated with the Nazis in World War II. He was commenting on Israeli PM Benjamin Netanyahu’s statement given during his visit to Warsaw the week before in which he suggested Polish complicity in the Holocaust. He also cited former PM Yitzhak Shamir, who once stated that Poles were “breastfed antisemitism.” Morawiecki called the remarks “racist and unacceptable” in diplomacy and first said that he would not be attending the summit, sending the deputy foreign minister instead. Later on, he said that no Polish official would attend. “Not only can we not accept such racist comments, but with

all our strength we want to stress that we will fight for historical truth, for the honor of Poles,” he said. US Ambassador to Poland Georgette Mosbacher, when asked by journalists, said that Israel and Poland should not use this kind of rhetoric. “Between close allies, such as Poland and Israel, there is no place for such offensive comments as the statement of Israeli Foreign Minister Israel Katz,” Mosbacher wrote on Twitter. Instead, PMs from the other Visegrad group nations: Hungary, the Czech Republic and Slovakia, travelled to Israel to hold bilateral talks. The summit has been rescheduled for a later date this year. Tensions between Israel and Poland started to grow last year after Poland introduced new legislation that would have made the use of phrases such as “Polish death camps” punishable by up to three years in prison. After pressure from the US, Poland amended the law, removing the potential prison sentence.

>>>

W B J FEBRUARY/MARCH 2019

WBJ

In Review ECONOMY

FINANCE

According to Euler Hermes, in January 2019, 98 companies went bankrupt in Poland, which means an increase of 20 percent y/y. “Another year of double-digit growth in the number of insolvencies (19 percent y/y in January 2018) can be perceived as a prolonged real downturn in the economy for a large part of domestic companies, especially in the SME sector,” Euler Hermes analysts wrote in the commentary. The worst situation has been reported in the industrial sector, construction and transport, due to the decline in exports and delays in payments, the report read.

The net profit of the Polish banking sector in 2018 amounted to PLN 14.7 billion, increasing by 7.5 percent y/y, the Polish Financial Supervision Authority (KNF) reported. According to calculations by PAP Biznes, profits in the fourth quarter of 2018 amounted to PLN 3.18 billion, and in December 2018 alone profits reached PLN 533.9 million. The interest income of the banking sector in 2018 amounted to PLN 44.85 billion and was 5.2 percent higher y/y, and its earnings in the form of commission reached PLN 12.32 billion and were lower by 10.5 percent y/y. However, the level of reserves increased from PLN 728 million to slightly over PLN 1 billion.

Euler Hermes: rise in bankruptcies in January

Banking sector profits up 7.5% y/y in 2018

TRENDING STATS

6.1%

Unemployment in January (Labor Ministry)

6.6%

Retail sales growth in January (y/y, GUS)

AGRICULTURE

Polish meat producers may lose up to PLN 600 mln Polish meat producers could face losses of as much as PLN 600 million as a result of the recent scandal involving the sale of meat from sick cows. “We demand an unconditional prison sentence for fraudsters and disqualification of veterinarians who support illegal activities. We are behind the introduction of round-the-clock monitoring in slaughterhouses,” said Jacek Zarzecki, president of the Polish Association of Cattle Breeders and Producers (PZHiPBM), in an interview with daily newspaper Rzeczpospolita. The prices for Polish beef have fallen sharply, and Zarzecki predicts that if the price drops continue, the industry could suffer losses of up to PLN 600 million. AGRICULTURE

Saudi Arabia introduces embargo on beef from Poland Saudi Arabia has decided to introduce a temporary import ban on beef and beef products from Poland after a report on the illegal slaughter of sick cows was published in January. Vice President of the Polish Beef Association, Jacek Pisula, said the embargo may hit the reputation of Polish producers. “Checks carried out in the slaughterhouses did not show similar irregularities,” he stressed. Belarus also put an embargo on Polish beef, and, in addition, temporarily banned supplies of Polish cattle. The decision is related to a single case of “atypical” bovine spongiform encephalopathy (BSE) reported in Poland.

FEBRUARY/MARCH 2019 W B J

FINANCE

Lenders grant more loans in 2018 According to the credit information bureau BIG InfoMonitor, loan companies provided financing of PLN 7.2 billion in 2018, which means an increase of 41 percent y/y. At the end of December 2018, 571,000 people had to repay loans amounting to PLN 5.2 billion in total. Loan companies account for almost two-thirds of the so-called “small loans” market, which offers up to PLN 2,000, and constitutes 10 percent of the entire cash financing market (together with the banking sector). As much as 76 percent of borrowers simultaneously have a bank loan and a nonbank loan. Although this share is stable, this phenomenon may mean that some people use non-bank loans to maintain liquidity. Borrowers have taken out bank loans of PLN 22.8 billion, which accounts for 80 percent of their total debt, BIG InfoMonitor stated. SOCIETY

43% of Poles expect things to get worse – Kantar Public As much as 43 percent of Poles have a negative outlook regarding Poland’s future, while 34 percent of those polled expect things to improve. Nearly a quarter (23 percent) have no opinion on the matter, showing no change compared to the previous survey, according to a recent poll conducted by Kantar Public. Over a half of respondents (51 percent) see Poland’s current state as positive (a 3 pp drop compared to the previous edition), while 35 percent view it as negative (a 2 pp increase), and 14 percent have no opinion. The poll was conducted on February 8-13, 2019 on a representative sample of 1,015 Poles.

6.1%

Industrial production increase in January (y/y, GUS)

5.3%

Average monthly salary increase in 2018 (GUS)

€5.1bn Trade deficit in 2018

(GUS)

1.2%

Consumer inflation in February (Ministry of Enterprise and Technology)

Expected GDP growth in Q1 (Ministry of Enterprise and Technology)

Highs & Lows Poland’s achievements weighed against its shortcomings Poland gets closer to rich EU countries, but slowly – WEI

Poland 3rd from the bottom in EU in health expenses

Poland is gradually reducing the distance to the richest EU countries, but a number of actions should be taken to exceed it by 2030, the Warsaw Enterprise Institute (WEI) reported. In terms of GDP PPP per capita, Poland gained 1.5 percentage points on Germany last year. Still, it is only 21st in the total European ranking. “2019 will be more difficult than 2018, we can count on economic growth at the level of 3.5-4 percent. I believe that such a slight slowdown is beneficial for the economy because it is better to develop at a steady high pace than in leaps,” head of Polish Development Fund, Paweł Borys, said at WEI conference.

With health care expenses at €700 per person in 2017, Poland ranks 26th, or the third from bottom in the EU, according to Eurostat. In three EU member states – Luxembourg, Denmark, and Sweden – health expenses per person amounted to €5,000 or more. The lowest expenses were in Romania (€400) and Bulgaria (€600). In terms of health expenses in relation to GDP – the highest share in 2016 was recorded in France (11.5 percent), followed by Germany (11.1 percent) and Sweden (10.9 percent). The countries with the lowest share of expenses in GDP are Romania (5 percent), Luxembourg and Latvia (6.2 percent each), as well as Poland (6.5 percent).

Poland 36th in globalization – report Poland ranked 36th in the world in the level of globalization, measuring for 169 countries using the Global Connectedness Index (GCI), according to DHL, the author of the study. With exports comprising as much as 44 percent of GDP, Poland overtook Japan and Canada, among others. Surprisingly, even with all the benefits of globalization, the world is still less connected than most people think, the GCI report stated. Only about 20 percent of global economic production is exported, about 7 percent of phone time (including internet calls) are international calls, and only 3 percent of people live outside the borders of the countries in which they were born.

More than 2.1 mln children in Poland at risk of poverty

13th fastest growing e-commerce market in the world

Most toxic European coal firms are in Germany and Poland

According to the latest report of the marketing portal Interaktywnie. com, “E-commerce 2019,” which is under the patronage of Business Insider Polska, Poles will spend PLN 50 billion on online shopping in 2019. The report also showed that Poland is ranked 13th in the ranking of the fastest growing e-commerce markets in the world. In 2018-2022, the value of the e-commerce market is to increase by $6 billion. According to data from the Digital Market Outlook Statist, the total value of the e-commerce market in the world has increased by 16 percent over the last year, and in 2017 total annual spending amounted to $1.5 trillion.

Three of the ten most toxic coal companies are located in Poland, the report “Last Gasp: The coal companies making Europe sick” has revealed. The research named Polish PGE, ENEA and ZE PAK among those causing the most pollution and impact on health. Four out of ten toxic firms are in Germany (RWE, EPH, Uniper, and Steag), and the remaining three are in the Czech Republic (ČEZ), Spain (Endesa) and Bulgaria (Bulgarian Energy Holding). Just ten companies were responsible for two-thirds of the health damage triggered by coal power plants in 2016. They caused about 7,600 premature deaths, 3,320 new cases of chronic bronchitis and 137,000 cases of asthma symptoms in children.

Over 2.1 million children in Poland are at risk of poverty, some 20 percent of families in the “Szlachetna Paczka” (Noble Gift) program have no bathroom in the house, and one in five families has a monthly income per person of PLN 200 or less, the “Report on poverty” has found. It also shows that in every third large family included in the Noble Gift program, at least three children live in one room, and in 26 percent of large families, at least one child is disabled. In addition, every tenth family cannot afford school trips, and one in forty is unable to buy any toys, new clothes or books.

W B J FEBRUARY/MARCH 2019

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Opinion EXPERT VIEWS ON CURRENT BUSINESS AND SOCIAL TRENDS

Outlook 2019

SHUTTERSTOCK

What to expect in the upcoming 12 months is the eternal question you ask yourself every year at this time. Only this year the big picture is getting less and less clear. I think small and medium-sized companies will have another good year as unemployment remains low, and the consequences of global trade wars, stock market volatility and a downturn in production outputs are going to have a limited influence on local markets. We still have the 2008 financial crisis fresh in our memory, especially how it came out of nowhere in the midst of a steaming economy. This time around it’s going to be different. We have learned our lesson, at least to some extent. Though let’s remember that activities starting this year have already been planned, negotiated and budgeted for several years, but are about to be unveiled only now. It stands to reason that, given the changing economic mood, they may come across as overly optimistic now. I am excited to experience the atmosphere and mood at the MIPIM real estate fair coming up shortly in Cannes – what do investors, developers and agents think about the near and medium-term future for Poland, CEE and the world in general? MIPIM in Cannes in March is usually a good indicator of what’s to come, so it’s a good place to mark in your journal if you are, like me, interested in both micro and macroeconomic trends. We will also be looking closely at some key indicators, such as interest rate hikes or lack thereof from both the ECB and FED. We may also have to look for other indicators here to confirm whether inflation and productivity parameters are in line with expectations. In Poland, this year will see the Sunday trade ban expand to another 12 days. I hear from retailers that this is going to be tough and the extra opening hours on weekday evenings are not going to compensate for it any more. Who will be the winners and losers in this gamble, will online shopping strengthen further and take a bigger share of the pie? This is an important question I will investigate in the coming months as I meet more business leaders from both sides of the table. Exciting times are ahead. On the one hand, be prepared to tighten your belt, but on the other hand, be open to opportunities and have a lean and agile organization to quickly snap up the opportunities as they appear. Because they will continue to appear this year. – Morten Lindholm

W B J FEBRUARY/MARCH 2019

WBJ

Opinion BUSINESS

The show must go on

In many places throughout the world, democracy is beginning to buckle, losing the fight with more effective authoritarian systems of either the hard or soft variety. These hybrid forms of government have a common component â&#x20AC;&#x201C; arbitrary and unconstrained rule. 14

FEBRUARY/MARCH 2019 W B J

OPPOSITE PAGE SHUTTERSTOCK, THIS PAGE BARTOSZ MACIEJEWSKI

emocratic societies are increasingly choosing governments that are less concerned with the viewpoints of minorities and their political opponents. These governments consistently and, sometimes forcefully, promote their own worldviews and adopt their own methods to solve problems and conflicts. Autocratic policies are gaining ground worldwide. This includes the leaders of major countries and world powers. Increasingly, these governments are applying pressure on their political opposition. The leaders of these countries are beginning to unite and choose new, often startling strategic goals and methods of implementation. Some more egotistical, national-centric strategies have aroused general concern. Their rise to power has been enabled by voters who more and more frequently opt for strong-willed representatives and who are increasingly complacent when their leaders eschew the recognized standards of social and political decency. We are increasingly eager to accept and tolerate attitudes where the ends justify the means, turning a blind eye to the erosion of social values, even reverting back to those worldviews that had long been discarded as unjust. Violence and blackmail, as well as oppression, are gaining legitimacy as the sanctioned approach of modern politics. Their increasing impact, power and effectiveness is measured in direct proportion to their visibility on social media. The world is going through a fundamental change right before our eyes. Things that until quite recently were considered unthinkable are no longer hypothetical. They are becoming a reality. Accordingly, we can no longer live in denial, but we must learn to accept the truth and see the changing world for what it is becoming. For many, the only viable response to the often unpredictably changing conditions is to accept the current state of affairs, rather than fight a fight they see as unwinnable – even if these changes are becoming increasingly frequent and oftentimes irreversible.

We can no longer live in denial, but we must learn to accept the truth and see the changing world for what it is becoming

nother fundamental question is whether we are collectively able to adapt to change and actively use it to our advantage, which largely depends on how capable we are of analyzing and understanding the transformation in our environments, including the business environments in which we operate. Our understanding of the changing environment and our ability to navigate it are important skills that we need to improve so as to process change in the most natural way. On the one hand, it makes sense to preserve certain elements of stability, rather than resist the inevitable. If you choose to avoid conflict, you may have to accept that things will be different, but you do not risk total failure. After all, you can’t lose if you don’t fight. Our firm’s established strategy of adapting to change allows us to carry on. As Wojciech Młynarski, the Polish bard of the century, sang: “Let’s do our thing, while we still have it in us to go on.” And while he may never get the recognition he deserves due to language constraints, his words are no less true, and his message is no less valid. We have also recently experienced a significant change. Our firm has changed. A group who suddenly decided on a different development scenario have left the company. They decided they were no longer satisfied with the status quo and that I – the symbol of the firm’s beginning – was no longer needed.

They thought that it was time for their chance to rule (incidentally, a more authoritarian regime in nature). They rejected the positions that they had gained through the long-lasting, sometimes arduous, organic development of our firm. They turned against the organization that had accepted and nurtured them. They turned on their own. And they failed. The culture they chose to abandon turned out to be more resilient, fortified by decades of experience, achievement and synergies. This year, we are celebrating the 20th anniversary of our founding. And while it is regrettable that they had to leave, we continue to thrive. And we will continue to develop even faster and more vigorously. We accept and implement change. The show must go on. We need to embrace change rather than fear it. It can in fact be very positive. And according to Heraclitus, it is the only constant in our lives, anyway.

Piotr Kochański Founder and Managing Partner of Kochański & Partners

W B J FEBRUARY/MARCH 2019

Opinion ECONOMY

Debt levels: Have we learned our lesson from 2008?

Total global debt levels have reached a whopping $247 trillion as of 2018 – up from $164 trillion in January 2009,1 the time of the last financial crisis. That’s up from 213 percent to 318 percent of global GDP 2

FIGURE 1: Total Global Debt as a Percentage of Global GDP 3

FIGURE 2: Global debt as a percentage of GDP since 2008 5

240% 100% 235%

95% 90%

230%

85%

225%

80%

Debt as a % of GDP

220% 215%

75% 70% 65% 60% 55%

210%

2008 2009

205% 2008 2009

2010 2011 2012 2013 2014

2015 2016 2017 2018

One of the most basic principles of finance is that leverage is always correlated to risk. Hence systemic risk in the global financial system is considerably higher today than it was in 2008. That’s not to say that a recession or depression will happen tomorrow. But it does mean that the global economy is less able to withstand a shock, should one arise. Financial shocks can come from unexpected places. In 2008, the financial shock came from subprime debt. It was like the spark that set off the tinder keg. Before 2008, most people hadn’t heard of subprime debt, and to the best of my knowledge, no economist had predicted that this could trigger a financial crisis. It is not possible to predict the origin of the next financial crisis. It might be triggered by the current trade war, loss of confidence in a particular government, a war, the failure of a financial institution, or a combination of the above. Or it might come from a totally unexpected source. Whatever the source of the shock, the higher the levels of debt, the more likely that there will be conflagration and contagion. Because conflagration and contagion are more likely to occur at those pressure points of the global economy where debt levels are highest, for the remainder of this article I will focus on breaking down global debt, to identify places where risk is greatest. As the following chart shows, corporate debt increased the fastest (from 79 percent to 92 percent of global GDP), while government debt also grew healthily (from 62 percent to 84 percent), from 2008 to 2018. Only household debt was moderate 4 (66 percent to 59 percent) over the same period.

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2010 2011 2012 2013 2014 2015 2016 2017 2018

Global government debt as a % of GDP Global non fincial corporate debt as a % of GDP Global household debt as a & of GDP

And yet, in 2008, the general conclusion was that debt levels were way too high and should be paid down in order to make the world a more stable place. Instead, governments and corporations have continued to pile on debt. They have not learned their lesson from 2008. We’ll now examine government, corporate and household debt in more detail. (a) Government debt As the chart below demonstrates, it is the Japanese and Chinese Governments that have piled on the most debt, although Chinese debt levels started from a much lower base in 2008: FIGURE 3: Comparison between 2008 and 2018 government debt as a percentage of GDP 6

250%

Debt as a % of GDP

WBJ

200% 150% 100% 50% 0%

USA

China

Government debt as a % of GDP in 2008

European Union

Japan

Italy

Government debt as a % of GDP in 2018

(b) Corporate debt Again, here China has been among the most profligate, with the European Union also showing healthy increases in debt: FIGURE 4: Comparison between 2008 and 2018 nonfinancial corporate debt as a percentage of GDP 8

350%

Debt as a % of GDP

300% 250% 200% 150% 100% 50% 0%

USA

China

European Union

Non fincial corporate debt as a % of GDP in 2008

Japan

Italy

Non fincial corporate debt as a % of GDP in 2018

It should be borne in mind that the Chinese economy has been the fastest growing major economy in the world – more than doubling over the 2008-2018 period – to become the largest economy in the world on a Purchasing Power Parity basis, so the fact that Chinese corporate debt has increased by over 50 percent relative to GDP points to a truly staggering level of debt growth with Chinese corporations. This is particularly worrying where state-owned banks are lending to state-owned corporations, as well as lightly regulated non-bank financial institutions accounting for so much lending. Much of corporate bonds are low grade: the BBB bond market in the US has exploded as it represented nearly 50 percent of the total corporate bond market in September 2018, versus 35 percent in 2006.9 According to Fitch Ratings, $500 billion of US bonds are just one downgrade away from junk bonds. If downgraded, this would create major losses for investors, potentially creating a vicious circle of investors withdrawing funds from the bond market, further driving up interest rates, etc. c) Hosehold debt Household debt has generally been decreasing in most economies of the world – with the dramatic exception of China (which, once again, started with a relatively low base in 2008). FIGURE 5: Comparison between 2008 and 2018 household debt as a percentage of GDP10

120% 100% Debt as a % of GDP

You might say that a government can never go bankrupt – they can always print more money. But a government may default where debt is denominated in foreign currencies. The more likely scenario is that in the event of a crisis, governments will need to pay significantly higher interest rates to sell bonds. The US Government currently pays about 8 percent of its budget to service debt,7 and this is with extremely low interest rates. What if the US Government had to triple its cost of servicing treasuries during a recession, when tax revenues are falling? Ouch!

80% 60% 40% 20%% 0%

USA

China

Household debt as a % of GDP in 2008

European Union

Japan

Italy

Household debt as a % of GDP in 2018

Nevertheless, there are certain segments of household debt that still provide cause for concern. For example, student loans represent roughly $1.5 trillion in the US11 and have more than doubled since 2008. It is now the second-largest category of outstanding consumer debt (after mortgages), and every year more than a million people default on their student loans, and approximately 40 percent of borrowers are expected to default on their student loans by 2023.12 In conclusion, it seems that most governments and corporations have not learned their lesson from the 2008 financial crisis (perhaps most households have). This creates a virtual certainty that there will be another financial crisis – the only question is when – and it also raises the question as to whether the next recession could be more severe than the one in 2008. 1. Institute of International Finance (IIF) 2. Institute of International Finance (IIF) 3. McKinsey Global Institute – Visualizing global debt 4. McKinsey Global Institute – Visualizing global debt 5. McKinsey Global Institute – Visualizing global debt 6. McKinsey Global Institute – Visualizing global debt 7. https://www.thebalance.com/u-s-federal-budget-breakdown-3305789 8. McKinsey Global Institute – Visualizing global debt 9. https://tortoiseadvisors.com/mc/attachments/512/Market%20Insight_ The%20Storm%20Surrounding%20BBB%20Rated%20Corp%20Credit.pdf 10. McKinsey Global Institute – Visualizing global debt 11. According to the Federal Reserve 12. According to the US Department of Education and studies of Judith Scott-Clayton, Associate Professor at Columbia University

Les Nemethy CEO of Euro-Phoenix (europhoenix.com), a Central European corporate finance firm, and author of Business Exit Planning (businessexitplanningbook. com)

W B J FEBRUARY/MARCH 2019

Opinion BREXIT

Brexit’s consequences for Polish business

“Brexit day” is fast approaching. With many issues still unresolved, businesses across Europe are looking for answers. What are the questions Polish businesses should be asking?

n March 29, 2019 the UK is set to leave the European Union. Despite months of discussions on the potential impact Brexit could have on other member states’ economies, the practical Brexit scenario is still unknown. What we do know is that the UK will become, from the EU’s perspective, a “third country,” which will have both legal, tax, trade and economic consequences for the remaining member states. The draft agreement of November 14, 2018 on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union has set forth provisions for the period when EU directives remain in force upon the UK leaving the EU. Directives are invaluable for goods exchange between EU countries, as well as for the movement of capital and people. The harmonization of VAT regulations and the creation of a

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customs union have allowed for goods to move, despite crossing formal borders, without additional tax burdens on value added or additional customs duties. The solutions for dividend payouts, interest and license payments have allowed capital to move between companies in different countries without extra tax costs. As far as employees are concerned, they took advantage of the freedom to work in any EU country, while being covered by the social security system of the country of residence. Brexit could well bring an end to these simplifications. Currently, tax provisions in the draft deal refer to value added tax and excise duty, which have been provided with interim provisions. Directives are to remain in place for goods shipped to or transported between the UK and the EU so long as the transaction in question was launched before the interim period and ends afterwards. Submitting EU VAT return ap-

plications or corrections on declarations are only possible until March 31, 2021. It is also expected that the jurisdiction of the Court of Justice of the European Union will be governed under similar regulations, meaning that it will maintain jurisdiction over cases instigated before the interim period. However, considering the changes in dates and the fact that in January 2019 the House of Commons dismissed the draft agreement on the UK’s withdrawal from the EU, it is also possible that at the end of March 2019 the UK will leave the EU without any economic or social regulations in place. The UK leaving the EU will also result in significant changes for entrepreneurs who have been doing business with the UK. On the one hand, they could expect international trade to become more costly, with higher customs duties, changing duty rates and delays in cross-border movement. On the other hand, VAT costs will also increase: VAT payments for imports will become obligatory and while it may be refunded, the obligation to pay at customs can affect financial liquidity. Additionally, after Brexit, companies with ties to those seated in the UK may lose numerous income tax breaks resulting from directives: on paid out dividends, interest and license payments. In these cases, only international agreements on avoiding double taxation could be applicable. In order to better prepare for Brexit, entrepreneurs should analyze their transactions with the UK, particularly the direction of goods movement, the value of the transactions and the relevant rates, and they should calculate potential new costs. It is also advisable to look into current agreements on free trade as well as other deals. Every step should be taken to prepare for alternative “hard” Brexit scenarios and limit the potential risks.

Katarzyna KlimkiewiczDeplano Managing Partner, Tax adviser, Advicero Nexia

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WBJ

Opinion BUSINESS Paradoxically, economic growth itself may also support the rise in bankruptcies

Economic growth does not improve liquidity Despite positive economic signals, the number of bankruptcies in 2018 increased again

n 2018, the number of bankruptcies and restructurings of Polish companies totaled 975, or 10 percent more than in 2017 (according to the Court and Economic Monitor at the end of December 2018). Unfortunately, this number is growing from year to year – in 2016 we had to deal with 760 bankruptcies and rescue procedures. And even though as many as 43 percent of insolvent companies are undergoing restructuring in order to keep afloat, the picture remains bleak. It is worth remembering that estimated GDP growth in 2018 was as high as 5 percent. This in turn means that the improvement of the economic situation does not substantially improve the liquidity of companies. Poland’s external environment is partly responsible for this. For a dozen months or so, we have

seen a decline in orders from foreign contractors dictated by the customs war between the US and China and the long-term consequences of Brexit. As a result, it also affects the financial credibility of representatives from the transport industry. Export markets also have a weakening demand for automotive industry products, which for many years was one of Poland’s foreign trade engines. In this situation, it is difficult to be optimistic – the number of bankruptcies and restructuring proceedings in 2019 is likely to exceed the significant threshold of 1,000. Paradoxically, economic growth itself may also support the rise in bankruptcies. A simple correlation resulting from the effect of scale does not explain this dependence. However, it may be that

sectoral consolidation is one of the effects of development. We observe a similar phenomenon in trade and services, where growing players become too much competition for smaller companies. As a result, the weak ones just collapse. Similar mechanisms can also be observed in construction. In general, companies with low turnover struggle with liquidity problems more frequently, and examples of major players such as Ruch SA or Piotr i Paweł chain stores are exceptions that only prove this rule. An additional problem seems to be the attitude to liquidity issues. Although the new restructuring law has been in operation for three years (effective as of January 1, 2016), companies threatened with bankruptcy are still treated the same as those that actually declare bankruptcy. As a result, entities fighting insolvency still have a very limited chance of getting financing. Of course, we cannot deny that new restructuring modes are being applied. The growing number of such proceedings is the best proof that the amendment was necessary. It seems, however, that some of the regulations stopped halfway. As a result, even the appropriate demarcation between a company in a bad condition and an actual bankruptcy that appears in payment credibility reports is still problematic.

Monika LeszkoCichowlas Sales Director, Detective Creditreform

W B J FEBRUARY/MARCH 2019

Opinion LABOR MARKET

Employers get ready, Gen Z is coming! As Generation Z is about to enter the workforce, employers need to up their game if they want to recruit and retain this emerging generation. According to Anita Zajączkowska from TFLS, specialized courses for employees are increasingly often part of benefits packages, aimed at attracting young talent

ech-savvy, hyper-connected, passionate and driven, determined to make a lasting impact and impatient to see results – just some of the qualities that Generation Z is about to bring to the job market. With so much to offer, they feel entitled to expect equally high standards from their future employers. These expectations might be quite challenging to satisfy. It is high time companies took a closer look at Gen Z and tried to understand what makes these young people tick, because contrary to

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what many people think, Gen Z are not just “younger Millennials.” Today’s twenty-year-olds grew up with YouTube and social media, grassroots activism as well as growing global issues and concerns. In fact, Gen Z is seen as the first truly global generation: “informed, equipped and having the highest of expectations,” as well as “ultra-ambitious attitudes,” according to a recent report prepared by EY. Skill development is of the utmost importance to Generation Z and, at the same time, it is also the top reason for job switching among Poles, according to the

latest Confidence Index study conducted by Michael Page, a leading recruitment company. Comfortable offices, state-of-the-art equipment and a rich benefits package – although still attractive incentives – may no longer cut it with the next wave of graduates entering the job market. Helping these young adults become global citizens by giving them an environment where they can thrive, with plenty of opportunities to acquire practical training and develop their skills, should be the goal of every employer. It is also the best way to attract and retain young talent. Employers are well aware they cannot afford to miss out on the opportunity to attract the youngest generation entering the workforce. They offer them a wide array of training, courses, opportunities to travel worldwide and develop their skills. Gen Z, unlike their predecessors, almost universally consider traveling around the globe as an opportunity rather than a burden. One of the best ways to help them become truly global citizens is by offering them English language courses as part of their benefit package. Anita Zajączkowska from TFLS, one of the top English language schools in Warsaw, emphasizes: “English, as a modern lingua franca, is an indispensable communication tool for every global citizen. Companies recognize that employees’ interest in improving English language skills is on the rise. That is why they invest not only in general English courses, but also in specialized ones, e.g. business or legal English.” For both employers and employees, quality is of the essence, putting a lot of emphasis on teaching methods and standards. Gen Z are well aware of their value and expect the best in return. Offering them top-notch development opportunities may be one of the best investments an employer can make.

Anita Zajączkowska Key Account Director at TFLS Szkoła Języków Obcych

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WBJ

Opinion MANAGEMENT and reporting.

The last lifeline

Financial liquidity is one of key indicators of a company’s condition and stability, and losing it – even temporarily – can bring a company down. Usually, when the risk of losing liquidity appears, company owners look to the CFO. But they may not always be able to find and implement the necessary remedial solution quickly enough. Working with an interim manager, who as an outsider is not afraid of radical measures, can help a company regain its footing

aintaining financial liquidity is a priority for all businesses. But even when a company is profitable and its revenues are increasing, or even has an impressive balance sheet, it may still be in danger of insolvency if the inflows don’t cover current obligations. According to the Center for Economic Information (COIG) estimates, in 2018 a total of 600 companies went bankrupt. CFO VS INTERIM MANAGER In a crisis situation, which is what a liquidity loss is, decision-makers usually charge the financial director with finding a solution. Oftentimes this is in vain, because even the most qualified CFO may not have the necessary knowledge and experience to save a company from insolvency. It takes a different set of competencies than managing the finances of a stable company. Besides, a person who is emotionally invested in the company and its employees may find

it hard to make difficult choices. Working together with an interim manager (IM) may be a better solution, and it shouldn’t be seen as an additional cost but as a way of avoiding bankruptcy. One thing that works in favor of IMs is the years of experience in a variety of companies and industries. A large part of an IM’s career is getting companies through a lot of different business problems, so they know best which solutions work in each case. Besides, an IM is a reformer, not an employee. As a person from outside the organization, they are not driven by emotion or sentiment and do not care how they will be perceived by other employees when difficult personnel decisions need to be taken. Importantly, the role of an IM is to come up with a solution quickly using all the tools available. They are focused on the one task at hand, and – contrary to a CFO – do not need to handle regular CFO duties, such as accounting, financial statements

TIME IS OF THE ESSENCE When implementing financial restructuring, it is crucial how quickly you act. Carrying out a company’s long-term strategy is secondary to generating additional financial resources, through the efficient management of working capital. An IM needs to analyze agreements to identify the suppliers who are critical for the company’s continued operations, and negotiate, for example, longer payment schedules. If a company uses credit loans, it is crucial to renegotiate their conditions, (e.g. secure grace periods for interest payments) or obtain a bridging loan. Alternative sources of financing are also worth considering, for example, through a bond issue or a short-term loan. Selling receivables and factoring can also be a helpful solution. There are many ways of regaining financial liquidity quickly. However, response time is critical. Meanwhile, CFOs of struggling companies usually see the first signs of a crisis as a temporary problem and often act too late to remedy them. They also frequently misjudge the cost structure of an organization, focusing too much on financial results and disregarding cashflow issues. They often lack the hard negotiation skills which are necessary when dealing with suppliers and investors. A crisis situation needs immediate and radical solutions, which CFOs are often ill-equipped to find. In that respect, an IM “hired” to solve a particular problem plays an important role. They are not afraid of change and once the crisis has been averted, they can review the current business model and help a company take a new development course and share their knowledge and experience with employees, thus strengthening the company in the future.

Beata Zborowska Partner Mastery of Management

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WBJ

Opinion POLITICS WBJ: The Polish political scene is deeply divided, the lan-

An open society devoid of chauvinist attitudes

Małgorzata Kidawa-Błońska, a prominent Civic Platform (PO) politician and Deputy Speaker of the Sejm, talked with WBJ about preparations for this year’s elections in the European Parliament and the elections for the Polish Parliament, plus the state of Poland’s political scene under Law and Justice (PiS) rule and the challenges facing the EU

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guage of politicians is crude and hateful, and Polish society is aware of this, and of the fact that the prestige of the Sejm, due to the way it functions, is very low. How do you respond to this? Małgorzata Kidawa-Błońska: If in the course of political debate and dialogue, constructive argument is no longer used, but merely base personal affronts, then it is a sign of weakness, a lack of political culture and knowledge and understanding of the real issues. This is deeply depressing and presents a bleak picture of the Polish political scene. In the parliaments of democratic countries, debates are frequently very heated, but the language used by politicians is usually devoid of vulgarisms. The Polish public are losing respect for their parliament. What is more, the Speaker and the Deputy Speakers from PiS have reduced the query time allotted to the parliamentary opposition to a few seconds. The time allotted for presenting government acts is extremely short, which prevents parliamentarians from involvement in proper legislative work. As a result, the atmosphere caused by such a negative way of working provokes some members to respond with improper language. Our parliament often approves acts that have not been well prepared, and so later the ruling party has to make numerous corrections. There have been seven amendments to the same act in three years because the ruling party had to correct its own mistakes. The small group of surviving cultured and professional members are tired of the chaos caused by the governing majority and they feel deeply frustrated. But nothing will change until normal parliamentary freedom and practice is restored in the Sejm and until the Speaker, who is the second most important person in the state, respects the chamber and the members behave accordingly, guaranteeing that legal acts are not passed under such blatant pressure from PiS.

INTERVIEW BY EWA BONIECKA

Let’s turn now to this year’s elections, first of all the European Parliamentary elections, as the results will influence Polish politics and the entire EU. The European parliamentary elections will be crucial for Poland and for our position in Europe. The ruling PiS party, which abolished the constitutional three-fold division of legislative, judicial and executive powers, is also violating the independence of the courts and controlling all state institutions. It is in fact speaking up against the EU, portraying it through the prism of its own propaganda, while knowing that Poles strongly support Poland’s membership. This has put Poland in conflict with Brussels and on the margins of the EU. So, to defend the democratic order in Poland and our place in the EU, PO and the entire opposition need to defeat PiS in the European elections. The question of what kind of people will run in the European elections is crucial. The Civic Coalition, which is made up of PO and Nowoczesna politicians and is open to cooperation with other opposition parties that share common values, will put up candidates who perceive the EU as a guardian of accepted shared values, and rally its members to the cause of democracy, economic progress, common security and the defense of human rights. And they will face up to the problems emerging in Europe and globally. I hope that in Poland, and in some other EU member states, people will not succumb to populist and anti-European parties who want to destroy the Union from within. Yet such populist parties are gaining more influence in some EU member states. Matteo Salvini, the leader of the League party, deputy prime minister and minister of internal affairs in the Italian Government, who is regarded as an influential populist and an anti-EU politician and who is also close to Putin, recently visited Poland. He met Jarosław Kaczyński and proposed the creation of an ItalyPoland axis in order to weaken the

position of Berlin and Paris. How can this influence PiS’ stand in the European Parliament elections? This will depend on the results of the elections in Poland and in other EU member countries. If populist and anti-European parties have strong representation in the EU, Salvini will be able to create a new political faction in the EU. In my opinion, PiS, which now belongs to a marginal faction called the European Conservatives and Reformists (ECR), which is now even weaker due to Brexit, may decide to join Salvini. So the way Poles vote in the European elections will be very important. In order to strengthen the Union,

PO’s process of building a common list of candidates with some other opposition parties for the European Parliament and later for parliamentary elections is based on our strong pro-European and antipopulist stand. In the course of elections to the Sejm, a solid program and vision must be presented. PO has already presented a program embracing an effective regional policy, a modern social policy – which develops the 500 plus program to include the first child and single mothers – as well as other demographic issues; a reduction of taxes, the development of independent cultural institutions, fighting pollution and thinking about

Polish people want a free, democratic and normal country; one that is respected abroad, developing on all levels in the spirit of solidarity, and free from political hatred we should vote for candidates who represent parties based on law and EU values, which belong to the most influential and strongest conservative-liberal faction in the EU, namely the European People’s Party (EPP), to which the PO and Polish People’s Party (PSL) also belong. What we need in the European Union is dialogue, responsibility and a common pro-European stand to reform the EU and assure cooperation between all of its members, and not an internal war with populists destroying the Union. Moreover, the results of the European elections will influence the elections to our parliament and the quality of Polish life in many aspects. What ideas and program for Poland will the coalition of opposition parties offer in the Sejm election campaign? I often visit – as do my colleagues from PO – many places in Poland and engage with people and I know that Polish people want a free, democratic and normal country; one that is respected abroad, developing on all levels in the spirit of solidarity, and free from political hatred.

Poland’s long-term future which embraces the abilities, dreams and ambitions of all generations, not forgetting an inclusive policy for our senior citizens. We want to create an open society devoid of chauvinist attitudes towards people of different faiths and cultures. We support the equal status of women in all fields. Poles do not wish to live in a backwater. Would you like to see Donald Tusk returning to Polish politics after completing his term as President of the European Council? Donald Tusk is politician of great force and personality and he closely follows every aspect of Polish politics and society – both internal and foreign. But he still has to serve one year of his term in Brussels and it remains to be seen what decision he will take once his term is complete. But Polish politics is not just Tusk in Warsaw but also Tusk active in Europe, as he is a politician of international standing. I would be delighted if he decided to return to Polish politics, where he would be assured of a great welcome and very strong support.

W B J FEBRUARY/MARCH 2019

WITH MORTEN LINDHOLM

PHILIPPE COUDIERE

BUSINESS CHAT N’ CHEW WITH WBJ

Over inspiring dishes, a conversation blossoms about all things business and everything else that matters... LUNCH SERVED AT ROZBRAT 20, ROZBRAT20.COM.PL

Morten Lindholm: You came to Poland three years ago, how has it been so far? Philippe Coudiere: It has been

great here in Poland, both on a professional and a personal level I have no intention of going back to France soon, but whether I stay in Poland or move to another country, it is still too early to say. I still have many opportunities to develop the business here. As long as I find it interesting and motivating to be here, and as long as I continue to deliver what my employer expects of me, then why not. My family has also settled in well. In fact, my daughter was somewhat disappointed that there aren’t that many differences between living in Toulouse in France and in Warsaw. That is often also a surprise to our guests: they do not expect Warsaw to be such a modern city. And then they arrive here to discover

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all the opportunities, the level of well-being and the quality of life in Warsaw.

Before becoming General Manager in Poland, you were in charge of Pierre Fabre brands in Asia Pacific. How would you compare your experience there with Poland?

I wasn’t actually posted in Asia Pacific, I was based in the HQ in France and responsible for brand marketing and performance in those markets. So you don’t get the same cultural insight or challenges as when you actually work and live in a different country. In Poland, one of the many great experiences is working with people who feel a deep responsibility and a strong tie with the company. It is really inspiring to see the whole company moving in the same direction. When you get it right and build a team spirit as we have done here then you

not go into any discounting just In order to do that we have for the sake of having yet another developed our digital marketdistribution channel. ing in Poland. That is a trend We have just opened the first nowadays. We’ve made subWhat has been the main focus of stantial investments in content, brand-managed Pierre Fabre your leadership of Pierre Fabre store in the world here in Poland. social and influencer marketing. in Poland since you arrived? Again, we haven’t done this as We have achieved better brand To make sure that our products’ a strategic new business chanawareness and a stronger digital benefits are better communicated profile. We also decided to build We have a job nel for us, but it is support for and recognized. our own media online; a longon our hands our e-commerce platform and Our products are developed in another great opportunity for us term investment that we are conto better cutting-edge labs, making sure stantly tracking and measuring, communicate to listen to and learn from our that qualthat the quality is long-lasting. We as well as experimenting to keep customers. conduct product development in The digital transformation ahead of the digital opportunities. ity costs and explain the air-free tubes, where the ingreallowing consumers to buy prodbenefits of Has anything surprised you, dients are pure and based on a ucts online will disrupt our, as this addieither positively or negatively? few high-quality items, with no well other cosmetic companies’, tional cost In terms of people and busiadditional substances or artifibusiness. This has an immense for customers cial materials which could reduce ness not really; people here are impact on how we should think so nice and friendly, and I do feel the quality. Our products meet strategically about our business, that I understand and get my the highest standards to deliver and how we must organize our point across well, despite our the desired effects without any company to deal with challenges cultural and language differside-effects. We produce prelike country price differences, key ences. mium brands, and maintainaccount negotiations across borI have just hosted a company ing such quality does impact our ders as well as local customer regional meeting for 40 top leadprices. So it is very important to service. This is a very interesting ers from Pierre Fabre here in us to educate and communicate and challenging situation that I Warsaw. Everyone was really the benefits, and this is what we look forward to being part of. have been focused on doing. And impressed with what they saw Thank you for an interesting conand tried. We visited the new Polwith excellent results! However, versation, the insight into your ish Vodka Museum, as my colthe market still offers a lot of industry and the delicious lunch. leagues wanted to see something potential. characteristic of the country. You sell dermo-cosmetics of Actually, I don’t really apprecihigh quality and therefore the ate the direct connection that’s prices are relatively steep. How often made between Poland and do you compare the Polish mar- vodka. I think it’s a shame to catket to other Western European egorize Poles as vodka drinkers, markets in this segment? even though vodka is an integral The Polish market is still very part of Polish culture. But there small and under-developed com- aren’t all that many alternative pared to France, Italy and Spain, gifts that are Polish specialties, and actually, for the same prodalthough there are chocolate, ucts, the prices are lower in cakes, candies or picture books Poland than in those countries. highlighting the beauty of Poland. We must be better at communicating in a meaningful way about What is the next big thing for General Manager Pierre Fabre you? How do you see the future our products’ benefits so we can Dermo-Cosmetique Polska increase the potential of our con- for your company? We are presently testing many sumer base. Nationality: French We also see a lot of opportuni- things online. We have just Background: 19 years of work in opened our online shop (Dermoties, as the average income per Pierre Fabre. cosmeshop.pl) to understand this Pole is rising, meaning that our In Poland since: 2015 target audience is increasing. But business. We have taken these Favorite place in Warsaw: Old Town & steps to get additional insight into we also have a job on our hands Łazienki Park to better communicate that qual- consumer behavior and the jourOther involvements in Warsaw: Member ity costs and explain the benefits ney they take to buy our prodof French-Polish Chamber of commerce, ucts. Our strategy is on educaof this additional cost for cusConseiller du Commerce Extérieur de la tion and convenience. And we will tomers. France à l’Ambassade clearly feel how ambitious, smart and engaged the Polish organization can be.

PHOTOGRAPHS OPPOSITE PAGE KEVIN DEMARIA

FACT SHEET Phillippe Coudiere,

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SOCIAL MEDIA

We know that a social media presence is a must nowadays. We utilize various platforms to bring the best results, which translate into brand awareness and sales results. We know what kind of content engages customers. We know how to speak their language and initiate discussions. We stay up to date with trends. We react instantly. We offer a valuable opportunity to communicate with customers in real time. See more at www.sm.valkea.com

IN FOCUS

(UN)SUSTAINABLE BUSINESS

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Protesters at the COP 24 Summit; the sign reads “Even children know you need to protect nature”.

• COP 24 was held in Katowice between November 26 and December 16. • 196 governments agreed on a rulebook to implement the 2015 Paris Agreement. • 34 states have expressed support for the Polish-British initiative to promote electromobility.

• Global CO2 emissions increased by more than 2 percent in 2018, marking the second year in a row of rising pollution after a 1.6 percent increase in 2017. • Katowice Airport transported over 9,000 additional passengers in the first half of December for the international climate conference COP 24.

>>>

W B J FEBRUARY/MARCH 2019

IN FOCUS (UN)SUSTAINABLE BUSINESS

TOP BRANDS COMMIT TO SUSTAINABLE FASHION AT COP 24

While fashion labels are pledging their commitment to reduce emissions and waste, environmentalists remain skeptical. Is there a way to reconcile the constant pursuit of the latest trends and sustainability? By Anna Rzhevkina

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COTTON FARMING ACCOUNTS FOR 16% OF GLOBAL PESTICIDE USE

ith fast fashion flourishing in the 21st century, the clothing industry has grown tremendously. In the past 15 years the production volume of clothing units has doubled worldwide, according to the UK’s Environmental Audit Committee. In the UK alone, the average consumption of new clothes reached 26.7 kg per person in 2017 (the highest in Europe). Low prices and mass-production has pushed people to buy clothes in constant pursuit of what’s new and trendy.

The true cost of fashion

Clothes affordability comes at a high cost for people and planet. Fashion reinvention puts garment workers at risk, especially in poor countries. Unhealthy working conditions, extremely low wages and lack of security are some of the issues shown in the True Cost documentary (2015) revealing the untold story of fast fashion. The fashion industry contributes to around 10 percent of global greenhouse gas emissions, the main driver of the climate change. That’s more than all international flights and shipping combined, according to figures presented by World Economic Forum. The industry consumes a staggering amount of resources, too. Clothes manufacturing requires 120 million trees to be cut down each year. It takes 2,700 liters of water to produce a single cotton shirt and 10,000 liters of water to grow

FASHION INDUSTRY ACCOUNTS FOR 10% OF GREENHOUSE GAS EMISSIONS, MORE THAN ALL INTERNATIONAL FLIGHTS AND SHIPPING W B J FEBRUARY/MARCH 2019

IN FOCUS (UN)SUSTAINABLE BUSINESS

120 MILLION TREES ARE LOGGED EACH YEAR TO MAKE CLOTHES

sions by 2050. The measures include, for example, phasing out coal-fired boilers or other sources of coal-fired heat. “This charter is about getting the fashion industry united in important climate work. Our industry has a global reach and only together can we create the change that is urgently needed,” H&M Group CEO KarlJohan Persson said. Environmentalists, however, are reluctant about fast fashion commitment to sustainability, unless the companies fundamentally change their business model. “If we’re to be honest about the way we see it: no, they can’t operate as a sustainable circular brand. H&M produces around 400 million styles annually – not items, styles. Around 100 billion garments are produced worldwide annually,” Responsible Fashion Advisor Camille Reed told FashionUnited.

Sustainability and luxury go hand in hand one kilogram of cotton needed to produce a pair of denim jeans. To compare, it takes ten years for one person to drink that amount of water and hardly anyone wears their jeans that long. And when you make and wash the pair of jeans, it emits the same amount of CO2 as driving 110 kilometers. Cotton farming is also responsible for 16 percent of all pesticide use globally. The impact of clothes manufacturing is not even the worst part: as much as 60 percent of clothes are thrown out within a year of purchase. In fact, every second a garbage truck full of textiles is either burnt or sent to landfill. On top of that, when we wash synthetic clothes a huge amount of microplastics is released into the oceans. A single wash of an item of clothing produces 2,000 plastic microfibers that get into the water system and then into our food supply.

A pledge to reduce emissions

Even though there are some initiatives promoting eco-fashion, such as Green Fashion Week hosted in Milan, overall the progress has been quite slow. However, the COP 24 climate conference in the Polish city of Katowice marked a major step forward for the fashion sector. Over 40 top fashion brands, including Burberry, Gap and H&M committed to the Fashion Industry Charter, setting the commitments to reduce the industry’s negative impact on the environment. The signatories pledged to cut greenhouse gas emissions by 30 percent by 2030 and to achieve net zero emis-

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Stella McCartney, a pioneer in sustainable luxury, joined the charter and pledged to encourage some other brands to commit. The designer has been creating sustainable luxury fashion for almost two decades now. She launched her fur-free, leather-free business in 2001, amidst significant skepticism. The response was: no c ompromise. Now the brand’s collections are shipped to 100 countries all over the world. “Climate change is undoubtedly one of, if not the biggest challenge of our lifetime. It is and will affect everyone on this planet and our future,” the designer said in Katowice. However, her sustainability initiatives go far beyond actions on climate change. Stella McCartney is committed to fair wages and respect for all people involved in the industry, including farmers who grow crops and garment workers. In addition, a lifelong vegetarian and animal-lover, McCartney makes sure no harm is done to animals for clothes production. The brand says that fur-free clothes demonstrate what the future of fashion can look like.

IT TAKES 10,000 LITERS OF WATER TO PRODUCE ENOUGH COTTON FOR ONE PAIR OF JEANS THATâ&#x20AC;&#x2122;S ENOUGH WATER TO SUSTAIN ONE PERSON FOR 10 YEARS W B J FEBRUARY/MARCH 2019

IN FOCUS (UN)SUSTAINABLE BUSINESS

EVERY SECOND, A TRUCK FULL OF CLOTHES IS BURNT OR SENT TO LANDFILL

How to find eco-friendly fashion?

Fashion Industry Charter signatories will develop more detailed principles and action plans in early 2019. However, the transformation of the fashion industry also largely depends on consumers’ choices. The criteria for sustainable clothes could be tricky. A garment may be made from a natural material, e.g. cotton, but it doesn’t guarantee that chemistry and pesticides were not used to grow the crops. Another issue with most fabrics is the dyes with which they are colored. Many of them contain chemicals and pollute water systems. Greener alternatives include natural (e.g. indigo), low-impact dyes and unbleached fabrics. The certificates give a clue as to how the cloth was produced: for example, “Fair Trade” means that garment workers get a living wage. “Ecolabel” shows that there was minimum environmental impact during production. Some companies communicate their sustainability efforts on clothing tags. Finally, clothes from recycled materials and second-hand items are among the most eco-friendly options. While not suitable for every consumer, they tackle the key problem: overconsumption. As British fashion designer Vivienne Westwood once said: “Buy less. Choose well. Make it last.”

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BUSINESS IN POLAND GOES GREEN AT LOW COST Selling irregular-shaped fruit, composting organic waste, raising bottle deposit costs or incentivizing employees to carpool; businesses across industries are looking for greener policies and solutions, not only to improve their image, but mostly to save costs

ith the growing awareness of environmental issues among consumers, companies have more pressure to go green. According to the recent GlobalData survey, over 70 percent of consumers take the environmental impact into consideration when they do their grocery shopping, and slightly less – about 64 percent – when it comes to clothing and footwear. A climate change warning issued by the UN Intergovernmental Panel on Climate Change (IPCC) in October accelerated the trend. Nearly three-quarters of Poles are concerned about climate change, and about half of the country’s population believes that climate change results mainly from human activity, the European Investment Bank (EIB) reported. All of the above makes sustainable solutions in business a necessity rather than a choice. Firms often see being environmentally friendly as high extra costs, and there are grounds for such perception. For example, Starbucks made headlines by offering a $10 million grant for a cup that’s easier to recycle. Still, some major companies operating in Poland proved that being environmentally friendly may come at low costs or even generate extra profit. “Wasting becomes more and more expensive and less acceptable,” Bolesław Rok, a professor at Kozminski University in Warsaw, said in an interview with the Polish NGO Responsible Business Forum. The circular economy, which aims to minimize resource input, waste, emissions and energy leakage, will be one of the key buzzwords in 2018, he added. Cutting CO2 emissions by motivating people to return beer bottles, carpooling for employees and other creative ideas presented in the “Responsible business in Poland. Good practices” report help businesses to stand out and increase customer loyalty.

Zero waste target

British supermarket chain Tesco introduced new “Perfectly Imperfect” range of “wonky” fruit and vegetables. At lower prices, consumers can buy products of irregular shape, which earlier did not meet regular standards. The retailer started with parsnips and potatoes and then extended the range to cucumbers, apples and many other popular fruit and vegetables. Last year “Perfectly Imperfect” frozen berries appeared on Tesco shelves. “Whilst visual appearance is still important for many customers, we know that it is taste that’s really important, at great value prices,” the company said. It added that millions of portions have been saved from going to waste. Carrefour Polska came up with another way to contribute to waste reduction. The retailer transfers organic waste to local composting plants that recycle it for agricultural purposes. Carrefour plans to recycle 100 percent of waste from its hypermarkets by 2025. In addition, the company committed to reducing CO2 emissions by 40 percent by 2025 and by 70 percent by 2050, compared to 2010 levels. To achieve that, the retailer installed a system for monitoring electricity consumption in its stores. French DIY chain Leroy Merlin also went for energy-efficient solutions by switching to LED lighting in stores. Energy consumption in shops with LED lighting will be 40 percent lower compared to the old solutions, the company calculated.

Incentives to reduce CO2

Polish beer producer Grupa Żywiec contributed to cutting greenhouse gas emissions by raising the deposit for returnable bottles to PLN 0.50 from PLN 0.35. During the first three or four months about 20 million more bottles were returned thanks to this initiative. As a result, the use of glass declined by 6,500 metric tonnes and CO2 emissions

fell by 5,500 tonnes. At the same time, more returned packages helped the company to react faster to consumers’ needs, especially during the high beer consumption season. Chocolate producer Wawel motivated employees to reduce their CO2 footprint through carpooling – sharing cars on the way to work and back home. The company launched a platform for those willing to take part in the campaign under the slogan “A good ride in good company is a successful beginning to the day!” The person who drives the most people in a month will receive “the best” parking slot, Wawel promised. During the six months up to January 2018, there were more than 1,000 shared rides with an average of four people. Finally, logistics operator DB Schenker has been providing its clients with an eco-calculator – a tool for evaluating CO2 emissions, and comparing levels for various transport solutions.

Small steps do matter

Tackling climate change requires fundamental changes in the Polish economy, but even micro steps have value, considering the time pressure. “At the moment we are paying for what was done in 1970s and later. Even if we stop emissions now, the climate situation will continue to worsen over several or several dozen years,” a professor of the University of Warsaw Szymon P. Malinowski said. Companies’ attention to sustainability and a number of green initiatives are growing in Poland. However, while the energy remains cheap, some crucial actions are still missing. For example, few companies decide to improve building insulation or eliminate energy leaks in warehouses, Malinowski pointed out.

By Anna Rzhevkina

“ Some major companies operating in Poland proved that being environmentally friendly may come at low costs or even generate extra profit.” W B J FEBRUARY/MARCH 2019

LUXURY GOODS

FEBRUARY/MARCH 2019 W B J

THE RISE OF THE

The luxury goods market is doing great, recording constant double-digit growth. Cars, clothes and real estate are the top three largest luxury segments. Still, the share of the really wealthy remains one of the lowest in Europe By Beata Socha

he luxury goods market has been growing at strong double-digit pace over the past five years. In 2018 it reached PLN 23.9 billion, up by 13.9 percent compared to a year earlier and more than double the figure for 2013 (PLN 10.8 billion), according to the latest edition of the KPMG report in Poland entitled “Luxury goods market in Poland.” Forecasts for the following years are also optimistic: according to KPMG estimates, by 2023 the luxury goods market in Poland may reach a value exceeding PLN 39 billion.

Cars and couture The luxury goods market in Poland is dominated by premium and luxury cars, which accounted for 13.5 percent of the registration of all passenger cars in the first three quarters of this year. The value of this segment in 2018 is estimated at PLN 15.5 billion. Altogether the number of premium and luxury cars sold last year stood at some 76,500. The most popular luxury vehicles are Maseratis, Bentleys and Ferraris. But even though their sales are soaring (+52 percent for Ferrari and +90 percent for Bentley), the number of cars is still counted in double digits. In the first three quarters of 2018, Maserati, the most popular lux-

W B J FEBRUARY/MARCH 2019

LUXURY GOODS

ury car, sold 83 cars, Ferrari – 32, and Bentley – 40. Lamborghini, even though its sales tripled compared to the same period of 2017, recorded only 13 sales. Poles are much more inclined to splurge on premium cars, though. Mercedes, Audi and BMW account for 66 percent of all premium cars registered, with Mercedes selling 13,200 premium cars, Audi – 11,600, and BMW – 10,800. “We have noticed a growing interest from entirely new client groups: new technology and internet entrepreneurs, start-up owners and increasingly younger people. For them a car is no longer a status symbol; however, they expect the high-tech solutions. They are pioneers who want to be part of global changes and make choices that are good for the environment,” said Baudouin Denis, General Manager of BMW Group Polska. The second largest segment is luxury clothing and accessories, which is estimated at nearly PLN 2.9 billion, an increase of 7.2 percent compared to 2017. Still, the share of luxury clothing in the entire fashion market in Poland, at 6.8 percent, is still low compared to other European countries. In Italy the segment accounts for 22.7 percent of all fashion and in France – 21.8 percent. Unsurprisingly, women’s clothing represents the majority of the luxury fashion market (61 percent). KPMG forecasts that the luxury fashion market will continue to grow at an average annual rate of 7.2 percent for the next few years, reaching PLN 4 billion in 2023. Luxury living The third largest luxury segment is real estate, although its value depends on the definition of a luxury property and was estimated at PLN 1.3 billion in 2018 (according to KPMG and High Level Sales & Marketing), but it could reach even PLN 3.5 billion (according to Sotheby’s). According to High Level Sales & Marketing (HLSM), 700 premium apartments were sold last year in Poland’s top seven residential markets: Warsaw, Kraków, the Tri-City, Poznań, Katowice and Łódź, which is 19 percent more than in 2017. Warsaw alone recorded 182 premium property sales, accounting for a quarter of the total market. It was also the capital where the record-high transaction was closed: an apartment near Łazienki Park was sold for PLN 14.5 million. Warsaw also had the highest average price per sqm, at PLN 31,800. HLSM sets the threshold for luxury property at PLN 25,000 per sqm in Warsaw, marking a 29 percent increase compared to 2017. The Tri-City came in second with PLN 17,500, with prices relatively unchanged (up by 1 percent y/y). Though beyond the reach of most Poles, even those considering themselves well-off, luxury property prices are still modest. According to Sotheby’s, the price of similar properties in New York, Paris and London are between five and ten times higher.

62,000 Number of HNWI in Poland

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PLN 23.9 billion

Value of the luxury goods

market in 2018

More than aspirational buying Luxury property, unlike luxury clothes, accessories, jewelry or alcohol, is more than just a status symbol that many middle class Poles occasionally splash out on. “A luxury house or an apartment means spending at least a few million złotys, meaning that aspirational buying of luxury property is practically impossible. These goods are reserved for those that can actually afford them,” said Arkadiusz Wojciechowski, Managing Director of Poland Sotheby’s International Realty. Still, not all luxury properties are necessarily acquired through purchase. “In Poland, after the turmoil in the 20th century, we are starting to see the symptoms that have existed in Western countries for centuries; that is young people inheriting property from parents or relatives. Everything seems to indicate that both the number and the wealth of Poles should continue to rise,” Wojciechowski added. The one percent For now, inherited wealth still accounts for a very small percentage in Poland. The majority of affluent Poles are still self-made millionaires. The number of High-Net-Worth Individuals (HNWI), with net assets exceeding $1 million, increased by 5,000 over the past year and reached 62,000 in 2018, according to Credit Suisse. Compared to Western Europe, where the number of HNWI is in the millions (2 million for Germany, France and the UK each), that number is barely significant. Poland’s wealthy elite accounts for a mere 0.16 percent, which is much lower than elsewhere in Europe, even compared to the Czech Republic (46,000 HNWI), Finland (80,000) or Greece (87,000), all with populations four to eight times smaller than Poland’s. The size of their wealth is also relatively modest. The overwhelming majority (88 percent) of HNWI are worth between $1 million and $5 million. Only 359 people own property valued at over $50 million, 17 of whom hold assets worth over $500 million. Poles are definitely getting richer, with the number of high-earning Poles increasing at a double-digit pace (up 15 percent y/y in 2018). Last year there were nearly 1.2 million high-earning people, i.e. those making a monthly income over PLN 7,100 gross. Some of them are already in the market for luxury goods, others will join in within the next few years. And that is definitely good news for those who cater to extravagant tastes.

LUXURY GOODS

Demand for premium on the up In Poland, alcohol traditionally means vodka and beer. However, ordering a glass of wine in a restaurant or buying a bottle for a special occasion is becoming more and more popular. Not only is consumption growing, but more Poles are switching to premium brands. WBJ talked with Robert Ogรณr, CEO of wine producer Ambra, about changing consumer tastes and market trends

FEBRUARY/MARCH 2019 W B J

INTERVIEW BY ANNA RZHEVKINA

WBJ: Why do Polish consumers “ With the growth mostly prefer semi-sweet wine over dry? Robert Ogór: In northern countries, historically consumption of semi-sweet and sweet wine has prevailed. Some 30 to 40 years ago in Scandinavia, Germany and the UK the share of sweet wine was very high. Poland is not an exception, but to some extent there is a delay in consumption development. The transition to dry wine, through which other countries have gone, is just beginning in Poland. Extremely low wine consumption should also be taken into account. I expect that with consumption growth and premiumization – the two main factors defining market development – the share of dry wine will grow. Poland has the lowest wine consumption in Europe. What is the reason behind that? Before the political transformation [in 1989 – ed.] wine was barely available in Poland. Most other Eastern European countries produced their own wine, while Poland at that time did not. Furthermore, imported wine was very expensive. Poland started with very low wine consumption compensated by vodka and beer. An average Pole drinks about 100 liters of beer per year, and only about four liters of wine. Even with the wine market growing by 5-7 percent annually, Poland still has a lot of catching up to do to reach other EU countries. What are the reasons behind the growing popularity of Prosecco and rosé wine? Sparkling wine for a long time was associated only with New Year’s Eve celebrations. Prosecco has changed this perception and broken the stagnation on the market. Prosecco is the most spectacular global trend among sparkling wines. It is the world phenomenon impacting consumption in Germany, the UK, the US and Scandinavia. Poles, just like other nationalities, are fascinated with the Italian lifestyle, of which Prosecco is a part. They discovered that light bubbly wine may serve as an aperitif or a summer drink. Thanks to this, rosé started gaining in popularity as well. In general, the rosé wine segment is growing fast, and not only in Poland. As with Prosecco, it is a global trend as consumers tend to switch to lighter drinks.

of social status, women are in search of their preferred drink, and naturally they turn to wine

What is the role of women in shaping wine culture in Poland? Wine is associated with a cultural lifestyle, with a better lifestyle. On the other hand, alcohol expenses are still dominated in Poland by men’s categories. Vodka and beer account for over 80 percent of spending on alcohol. Considering that there is more or less an equal number of men and women in Poland, women have a key role in wine consumption. With the growth of social status, women are in search of their preferred drink, and naturally they turn to wine. What is special about the wine market in Poland? There is a great variety in the countries of origin. At the end of 1990s, wine from New World countries started playing an important role. A significant market share now belongs to Chile, Argentina, Australia and the US. Additionally, wine from European countries – Portugal, Moldova, Greece and Georgia have seen some success. In Poland consumers have an unusually wide selection. Conversely, in countries that are wine producers, mainly domestic wines are available, and the share of imported products is very low. How quickly is domestic wine production developing in Poland? The total area of vineyards in Poland is about 1,000 hectares. This means a production of less than one million bottles per year. There is strong interest in Polish wine, but it is still a niche product. Domestic wine is expensive, but among them is some very good white wine. However, due to the small size of vineyards, Polish wine rarely appears in regular stores. Wine-makers usually sell directly to clients, tourists and some restaurants.

WINE BOX How do Poles drink wine? An average Pole drinks about ten times less wine than an Italian. However, over 60 percent of Polish citizens drink wine from time to time, as the report “Poles in the world of wine 2018” found out. Wine consumption is driven by growing incomes and a changing lifestyle. Some Poles who travel abroad have adopted the habit of having a glass of wine at dinner. On the other hand, tourists coming to Poland also seek high-quality wine. Despite the development of a winedrinking culture, only every tenth Pole claims to have an extensive knowledge of wine. More than half (51 percent) admitted to having no or very limited knowledge. When choosing wine, Polish customers mainly pay attention to the taste and the price, while the country of origin and grape variety play a less important role. About 40 percent prefer semi-sweet wine, and slightly less go for semi-dry. Discount stores and hypermarkets, known for low prices, remain the most popular places to buy wine in Poland. Only 11 percent of winedrinkers aged 25-39 buy wine in specialist stores most of the time. While the average price in such stores is about PLN 45 per bottle, only one in five Poles is ready to pay more than PLN 30 for wine. Still, wine from the economy segment is less popular than it used to be. Nowadays, as much as 45 percent of Polish customers choose wine priced at around PLN 21-30 a bottle.

W B J FEBRUARY/MARCH 2019

TECH i n s i g h t s

PRESS MATERIAL

Poland joins EU space-tracking body

TECH NEWS

The Polish Space Agency (PSA) has become a member of the EUfunded Space Surveillance and Tracking (SST) organization, which aims to detect, catalog and predict the movements of space objects orbiting the Earth. Poland has been officially recognized as a member since end2018, along with Romania and Portugal, who joined the five founding SST members (France, Germany, Italy, Spain and the UK). According to the PSA, joining the organization will enable domestic entities to participate in projects financed from EU funds whose budget in the current and future perspective may amount to over €350 million. The organization’s mission is to track space objects, mainly human-produced debris. According to estimates, by 2020 there will be over 1 million pieces of space debris larger than 1 square centimeter orbiting the Earth. This includes inactive satellites and their components, as well as fragments from space missiles, shuttle shells and other spacecraft, posing significant risks to mankind and to infrastructure in the Earth’s orbit. “Joining the SST will increase the competencies and competitiveness of the domestic space sector and increase its role in current and future programs of the EU and the European Space Agency and strengthen Poland’s position in the international arena,” PSA head Grzegorz Brona said. The space debris program is one of the top five projects within the National Space Program slated for 2019-2021.

>>>

W B J FEBRUARY/MARCH 2019

TECH

25% of large EU companies already using robots

ECC Games debuts on NewConnect ECC Games, a computer game developer based in Warsaw, debuted on the NewConnect stock market in midFebruary. This is the third debut on the NewConnect stock market this year. The reference price of PLN 0.70 per share meant that ECC Games was valued at PLN 14 million. However, excessive demand for shares meant that the capitalization of the small studio quickly began to swell and at one point amounted to as much as PLN 60 million. Even before noon on the day of the debut, the Theoretical Opening Rate deviated from the issue price by 529 percent to finally stabilize at 328 percent. As a result, during the entire session there was not a single transaction on the company’s shares. ECC games released the mobile version of Car Mechanic Simulator 18 (issued by PlayWay). More than 12 million people have downloaded the game around the world. The company is working on its next release, the highly anticipated Drift19.

FEBRUARY/MARCH 2019 W B J

Two-thirds of Polish IT specialists may work remotely Braster share price soars after signing contract with Indian partner The value of the Polish company Braster increased from PLN 13 million to PLN 18 million in reaction to the news that the company had signed a contract with a partner from India. The contract is for the provision of over 7,000 breast cancer testing devices. The contract is with Boston Ivy Healthcare Solutions, which will be the distributor of “Braster Pro” along with research packages. The device will be sold exclusively to the medical sector. The shares of Braster, listed on the WSE, jumped from PLN 1.42 to PLN 2 in 24 hours, an increase of 40 percent. Braster developed a prototype of an innovative medical thermographic tester used for early detection of breast cancer. So far, the device has been offered in over 70 medical centers in Poland. It is also on sale in Bulgaria and Ukraine.

Microsoft and Skanska to cooperate on PropTech projects Microsoft and the Polish branch of Skanska have signed an agreement on strategic cooperation in the field of PropTech, the companies announced in a statement.

Six out of ten employees may perform their duties from outside the office, according to the latest research by the recruitment company Michael Page. In the case of IT specialists, more than two-thirds of vacancies have the option to work remotely. Although in Poland remote work is not as common as in Western countries, every third respondent uses the option at least four times a month, while 35 percent of employees in the IT sector work remotely on average once a month or less often.

Prime Bit Games planning PLN 2 mln private issue Prime Bit Games is planning a private issue of up to 1 million shares, from which it wants to raise about PLN 2 million, the company said in a statement. Funds from the issue will be allocated for the development of current games and future games planned for 2019. Prime Bit Games designs, creates and publishes mobile, computer, console and browser games. The company also provides services in the field of porting, co-development, graphic design and custom-made games. The company has been listed on the NewConnect market since June 2018.

PRESS MATERIAL

Some 7 percent of all enterprises that employ at least 10 people use industrial and service robots, according to data provided by Eurostat. Among large enterprises the percentage is much higher and amounts to 25 percent. In 2018, according to Eurostat, 25 percent of enterprises employing at least 250 people used robots, in smaller companies (employing from 50 to 249 people), this share was 12 percent, and in small enterprises (employing from 10 to 49 people) only 5 percent. In Europe, service robots are used in warehouse management systems (44 percent), transport of people or goods (22 percent) and for cleaning or disposal of waste and assembly work (21 percent each).

The cooperation will involve the exchange of expert knowledge and the use of solutions in the field of advanced data analytics, AI mechanisms and cloud computing to create breakthrough innovations for the office real estate industry. The two companies will also work together to develop the presentation of Skanska development projects using mixed reality and Microsoft HoloLens glasses. This is Microsoft’s first such agreement with a development company in Poland.

TECH NEWS

PKO BP starts recruiting through Messenger Poland’s largest bank, PKO BP, has started using a recruitment bot created by Emplocity on Messenger. Earlier, Santander Bank and mBank started using Emplobot services as well. Emplobot asks potential candidates some questions about their desired job type, skills and education, salary expectations, and checks if there are offers for the candidate. The candidates’ data remains anonymous until a person agrees to meet with an employer.

Amazon tests autonomous robots to deliver packages Online shopping giant Amazon has started testing autonomous robots to deliver packages in the US, the company said in a statement. The devices, called Amazon Scout, are the size of a small refrigerator and move on the sidewalks at walking pace. Initially, six robots will start delivering packages to customers from Monday to Friday. They will automatically follow the delivery route but at the beginning, employees will accompany them. The devices can safely and efficiently navigate around pets, pedestrians and anything else in their path, Amazon wrote.

Tesla shares slump after job cut announcement Shares in electric carmaker Tesla fell over 10 percent after the company head Elon Musk announced that 3,000 jobs are to be cut. “We, unfortunately, have no choice but to reduce the full-time employee headcount by approximately 7 percent (we grew by 30 percent last year, which is more than we can support),” Musk wrote. He underscored that Tesla products are still too expensive for most people and lower-priced versions of Model 3 are needed.

Movie Games: Plane Mechanic Simulator debuted on STEAM The game Plane Mechanic Simulator from Movie Games has debuted on the STEAM platform and hit fifth place on the Global Bestseller List. Plane Mechanic Simulator is set in England in 1940, when the RAF (British Air Force) was preparing to repel an attack from the German Luftwaffe. Players take on the role of an aircraft mechanic with the task of taking care of the machines that take part in aerial battles. The game is currently available in the Early Access version and new elements may be introduced over time, Movie Games said.

W B J FEBRUARY/MARCH 2019

TECH

FEBRUARY/MARCH 2019 W B J

M&A

M&A SPIKES IN IT ACROSS EASTERN EUROPE

WHILE SOFTWARE DEVELOPMENT COMPANIES IN POLAND, AND EASTERN EUROPE IN GENERAL, ARE INCREASING THEIR IT OUTSOURCING OUTPUT, THE SECTOR HAS BEEN EXPERIENCING A WAVE OF M&A DEALS OVER THE PAST FOUR YEARS. WITH THE STILL LARGELY FRAGMENTED MARKET AND COMPANIES COMPETING FOR IT TALENT, MORE M&A DEALS ARE DEFINITELY ON THE CARDS BY BEATA SOCHA

W B J FEBRUARY/MARCH 2019

TECH Despite an overall drop in M&A activity in

Poland last year, one sector seems to stand out. The IT industry in Poland, and in the Eastern European region, has seen an unprecedented surge in acquisitions over the past four years, particularly in 2018. Poland, Ukraine, Romania and Belarus combined completed over 70 M&A transactions between 2015 and 2018, 28 of which were closed only last year, according to a recent report “Software Development in Ukraine, Poland, Belarus and Romania in 2019” prepared by AVentures Capital, Aventis Capital and Capital Times, three M&A advisories active in these markets.

NUMBER OF M&A DEALS ANNOUNCED IN POLAND, UKRAINE, ROMANIA AND BELARUS IN 2015-2018 28 19

2016

2017

5 2015

2018

Source: Software Development in Ukraine, Poland, Belarus and Romania in 2019

fragmented, with only a handful of companies earning annual revenue of $200 million and above. Out of an estimated 470 software development companies with 50+ employees operating in these four countries, 28 have over 1,000 employees and 250 have over 100. Those that have become large enough are now ripe for plucking. “We can see increasing activity of financial investors as a result of software houses reaching the scale sizable enough to meet their investment criteria,” said Krzysztof Śliżak, Analyst at Aventis. Still, the market is still mainly a playground for sector investors. The majority of transactions were completed by strategic investors, accounting for 79 percent of transactions; while financial institutions completed 21 percent of the deals. As there are hardly any industries as international and easy to globalize as IT, many homegrown tech companies are also eager to move outside their domestic market. In fact, 63 percent of transactions were domestic (both buyer and target were located in Poland), while 37 percent were cross-border deals, with either the buyer or the target from abroad. Despite raising interest of global players, Polish M&A deals were dominated by domestic investors (74 percent of all transactions). Some do it to broaden their service portfolio and tap into new industry verticals. One of the biggest drivers of the M&A activity, however, is the tend to “acquihire,” where larger companies acquire smaller ones to tap into their human resources. This trend has been particularly strong in IT over the past few years, as the shortage of high-quality software engineers is becoming increasingly palpable.

ON THE MAP

“We are seeing an upcoming wave of mergers and acquisitions. Small and mid-sized companies will find it harder and harder to compete for employees while maintaining competitive rates and level of quality,” said Marcin Majewski, Managing Director at Aventis Capital. The trend is can already be seen, as two large private equity groups have been consolidating the market expanding their “platforms.” The two growing corporations: Intive, recently acquired by Mid Europa Partners; and IT Kontrakt, backed by Cornerstone Partners and Oaktree, both act as vehicles for acquisitions. “We expect this strategy will be embraced by more companies in the near future,” Majewski added.

SMALL, BUT GETTING BIGGER

The factors contributing to the growing M&A activity in the sector is the fact that the IT market is still highly

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The global demand for software development services is also why IT outsourcing has flourished in Eastern Europe in recent years, with $13 billion worth of IT services exported in 2018 by four countries: Poland, Ukraine, Romania and Belarus, according to the report. It is the growth of outsourcing in CEE at 20-25 percent per annum, coupled with superior profitability, that has made the IT sector a hot spot in M&A activity, AVentures Capital stated in its report. “The outsourcing market displays steady growth. It will continue to provide global companies with specialists and boost the development of the global tech ecosystem,” Yevgen Sysoyev, managing partner of AVentures said. And even though it is still a drop in the ocean compared to what India and China (which jointly fulfill 80 percent of global demand for software development), it has put the region on the map, giving Eastern Europe a 5 percent piece of the global market share. “The four countries are becoming a large and expanding regional competing force,” the report stated.

M&A

GLOBAL IT OUTSOURCING DEMAND AND SUPPLY (2017) TOP DEMAND REGIONS

Japan 15%

Other 11%

TOP SUPPLY REGIONS Mature Asia/ Pacific 5%

Brazil 10% South Africa 8%

China 33%

Eastern Europe 5%

Western Europe 22% North America 46%

There are some 700,000 IT professionals in these four countries. Poland offers the largest pool of 255,000 IT professionals, followed by Romania with 185,000 specialists, Ukraine with 172,000 and Belarus with 105,000. Due to still slightly higher salaries in IT compared to other Eastern European IT powerhouses, and with a more significant difference for experienced managing positions (IT Project Manager), Poland has also been quite successful sourcing employees from Belarus, Ukraine and Romania. Still, the differences are not as significant as those compared to e.g. neighboring Germany. Polish IT professionals earn around 46 percent less than their German counterparts, which is also what fuels IT outsourcing services. Despite a sizable labor pool, and constant influx of new computer science graduates, the IT market still displays strong imbalances, across all four Eastern European IT hubs. Even the 200 universities and colleges which churn out 60,000 IT specialists each year can barely keep up with the constantly growing

India 44%

demand, creating a bottleneck to further growth of the sector. The need to quickly train more programmers has created a good business opportunity for specialist programming schools. Coders Lab, the largest programming school in Poland according to Forbes, has already trained 3,000 IT specialists and is already present in nine major Polish cities. It is also moving across borders: the company has recently launched a franchise in Romania, in partnership with eJobs, part of Swiss media group Ringier AG. “Currently, IT specialists are one of three most pursued professions in Romania. Companies offer more jobs than there are candidates. … At the moment the market could easily absorb even 20,000 IT specialists,” said Bogdan Badea of eJobs, Coders Lab’s franchisee. Poland’s IT market has as many as 50,000 vacancies, and the niche to be filled is only getting bigger. As the IT outsourcing in Eastern Europe keeps growing, and more global firms decide to offshore their software production to the region, competing for human resources will remain a major driver for companies to tap into talent pools through acquihiring deals.

W B J FEBRUARY/MARCH 2019

TECH

NO GUTS, NO GLORY

WITHOUT RISK-TAKING AND SMART INVESTMENT, THERE’S NO WAY OF CREATING A SUCCESSFUL ECOSYSTEM FOR START-UPS. AND CHAOTIC CHANGES TO THE RULES ARE HARDLY AN INCENTIVE TO KEEP INVESTING. STILL, SOME INITIATIVES ARE SUCCESSFUL, EVEN IN THE LONG TERM. WBJ SAT DOWN WITH DARIUSZ ŻUK, CO-FOUNDER OF BUSINESS LINK IN POLAND AND THE CZECH REPUBLIC TO ASK WHAT IT TAKES TO IDENTIFY RISING STARS AND MAKE A TENFOLD RETURN ON INVESTMENT INTERVIEW BY BEATA SOCHA

WBJ:

What do you think of Polish VC funds. Do you think that their managers have enough competencies to offer so-called “smart money”? Dariusz Żuk: There are maybe a dozen fund managers in Poland who have exited an investment of over PLN 1 million and seen more than a tenfold return on their capital. The market is still very young, though I believe it has good prospects. Soon, investing in start-ups will no longer be a good thing to do image-wise, it will simply become profitable.

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We have yet to see a unicorn come out of Poland’s start-up scene. Are there any barriers to attracting international talent and capital? It’s a vicious cycle: we won’t see global funds and talent come here without success stories, and without capital and talent we cannot create an effective environment for developing global firms. It’s not about a one-shot deal, but about an ecosystem that will create several such projects each year. What we need to break the cycle is for

the state to get involved in a smart way, as well as investment and educational tools that will reshape the current mindset and help leapfrog through some stages. That’s what happened in the US, Israel and Korea. These are the examples we should look at. But rather than try and copy them, we need to create our own unique solutions. What do you think about one such project, Bridge Alfa? Last year, the EU-funded program introduced major changes, e.g. lowering the maximum investment level of EU funds in a single project. It was supposed to encourage Poles to take risks. Do you think the changes were justified? Any change mid-game is hard. This is unfortunately part of our nature in Poland: we don’t have vision and strategy. Instead, we are reactive, we rush to implement haphazard solutions and changes dictated by outside conditions. The changes to Bridge Alfa basically transformed a VC market into a seed model overnight. That’s not the way to go. I know that the problem here was complicated because

EI -NCVOEMS M T ME ER NC ET

IT’S A VICIOUS CYCLE: WE WON’T SEE GLOBAL FUNDS AND TALENT COME HERE WITHOUT SUCCESS STORIES, AND WITHOUT CAPITAL AND TALENT WE CANNOT CREATE AN EFFECTIVE ENVIRONMENT FOR DEVELOPING GLOBAL FIRMS

it involved EU money and regulations, which are often completely separate from our institutions. But if we want to see a global win, it won’t be easy, fast or always nice. Your own start-up ecosystem, AIP, has existed for nearly 15 years now. What were your goals when you started the project? From the beginning of AIP I had one major goal: turning Poland, as well as the entire CEE region, into a global leader in start-ups and the new economy. I saw there was a dire need to create an extensive ecosystem that would support entrepreneurs and encourage Poles to launch new companies rather than work in a corporation. AIP is a unique entrepreneur support system in Europe. But it’s just one out of many tools that can help achieve the goal of creating global firms – business unicorns. We have created funds offering support at different development levels for the most interesting start-ups that join the Incubators and Business Link. AIP Seed invests in early-stage projects. It has supported endeavors such as Qpony.pl, whose shares we later sold to the founders of Allegro. It’s also helped CallPage, which recently received financing from TDJ Pitango Ventures, MOC and Innovation Nest, as well as Sidly, which got funding from MCI, among others. We are also founding partners of bValue VC fund, which invests in later-stage companies, complementing the start-up ecosystem.

What kind of aid can young entrepreneurs receive in incubators like AIP? Under the incubator’s umbrella, entrepreneurs can use our legal entity, accounting, mentoring and networking services. You don’t need to register the company, as we take on all accounting and legal matters, as well as a large part of the risk. It’s the easiest way to test your business idea. Of course, all these start-ups are already making money in their accounts. Last year, their total revenue came in at over PLN 50 million. As of today, we have over 1,000 start-ups, but over the course of almost 15 years, we’ve supported more than 14,000 projects. Start-ups working in co-working spaces is industry standard now. What was it like eight years ago, when you opened the first Business Link? What was your idea behind it? Creating a co-working space eight years ago, even before New York had WeWork, was not only a large endeavor, but also a major risk. We had to create a market for it. Luckily, our hard work and dedication paid off and it turned out to be a great success. It feels very rewarding to see how co-working is developing in Poland, exceeding Italy, Spain and Scandinavian countries. Today, we are comparable to Paris and Berlin in that respect. I believe that Business Link played a big part in developing Poland’s start-up ecosystem. It is where global start-ups entering Poland, like Twitter and Uber, started from. It’s also where Łukasz Wejchert came after leaving

Onet.pl, where Jarosław Kuźniar with our joint initiative and Michał Sadowski with Brand24 started out. We have helped 6,000 entrepreneurs so far. With the help of hundreds of people, we have created a CEE co-working leader, active in over a dozen locations and offering over 35,000 sqm of working space which houses 2,600 residents. Currently, Business Link is home to organizations such as Startup Poland and Startup Hub Polska, in addition to many funds and accelerators, hundreds of startups, like Revoult, and corporations. Some of our locations, including Business Link Astoria, Business Link High5 and Business Link Zebra are fully occupied, and we have waiting lists of people who want to become Business Link residents. Now that AIP has just sold the rest of Business Link to Skanska, what other projects for young entrepreneurs are you involved in? Our two funds, seed fund AIP Seed and VC fund bValue, are closely watching the projects and if there is need, they invest money and time in selected ones. AIP Seed has invested in over 140 early stage projects so far, which is the highest number for seed funds in this part of Europe. We’ve supported Glov, Audiomagic, Sidly, Qpony.pl and CallPage. Today these are global firms, but we started with a small investment at first, usually of PLN 100,000. Now we invest between PLN 100,000 and PLN 400,000 and we try to offer “smart money.” We don’t take over for business owners. They run their businesses themselves. We offer them knowledge and networking, and as they grow, we offer financial help also at subsequent development stages, through our VC fund, bValue. We established it over two years ago, together with the founders of Bakalland, Inpost, Medicalgorithmics and WorkService. The fund is managed by a great team, with Maciek Balsewicz at the helm. Here, the threshold for investment is higher. We invest up to PLN 3 million in a project, and – similarly to our seed fund – we try to make sure our involvement in these companies is smart. bValue has invested in projects such as Shoplo, Tidio, Puella and Senuto.

W B J FEBRUARY/MARCH 2019

TECH

YOUR PARCEL HAS BEEN DELIVERED

THE GROWTH OF E-COMMERCE HAS CREATED OPPORTUNITIES FOR TECH COMPANIES TRYING TO SOLVE THE LAST MILE PROBLEM AND INCREASE CUSTOMER SATISFACTION WITH SAME-DAY DELIVERIES. THERE SEEMS TO BE ROOM FOR NEW PLAYERS IN THE MARKET. WBJ TALKED TO LECH KANIUK, INVESTOR BEHIND VENTURES SUCH AS PIZZAPORTAL AND ITAXI, ABOUT HIS LATEST ENDEAVOR – COLLECTOMATE, WHICH IS POISED TO MAKE ITS MARK ON THE PARCEL DELIVERY MARKET INTERVIEW BY BEATA SOCHA

WBJ: With the rapid growth of e-commerce, parcel delivery seems to

be the one link in the value chain that has a lot of room for improvement. How do you think the last mile problem will be approached? Lech Kaniuk: The last mile problem (i.e. delivering a parcel to the recipient) is a serious issue, one that e-commerce has only begun to tackle. The number of parcels is growing very quickly, the courier, express and parcel market has increased by nearly 50 percent over the past six years. This growth rate is affecting both delivery companies, but also client expectations. The worst part

FEBRUARY/MARCH 2019 W B J

of it is that the last mile problem usually has a negative impact on the retailer's image. Even though the order is completed correctly and sent swiftly, if the client does not receive the parcel, their anger is directed at the store, and not towards the delivery company, which is responsible in these situations. Meanwhile, the delivery firm is doing its best to meet the demands of the job. What about same-day deliveries? They are already a standard service in many countries, but in Poland we have yet to implement them. Same-day delivery, which first appeared

in the West, has also come to the Polish market. Many companies have been trying to introduce this possibility, but delivering an order on the same day in some places is not an easy feat. Undoubtedly, it’s attractive for customers but very difficult logistically, and during the Christmas period it’s hard to imagine it being possible. Naturally, it’s easier to implement same-day delivery locally and there are many companies that do it. In Warsaw, for instance, their number is growing. They deliver parcels and documents within hours, but such a service comes at a price, and the quicker the delivery, the more costly it gets.

E-COMMERCE

COLLECTOMATE LOCKERS ARE AN ORIGINAL IDEA DEDICATED TO BOTH COMPANIES AND REAL ESTATE MANAGERS (L-R) Rafał Dylewski, Co-Founder & CPO of Collectomate, Marcin Ciącio, Co-Founder & CSO Collectomate, Lech Kaniuk, Business Angel

PizzaPortal and itaxi, in which you were involved, were both huge successes. Why did you decide to invest in these start-ups? Is Uber and UberEats their direct competition? I am a co-founder of PizzaPortal, which we initiated in Sweden back in 2006, long before Uber was even created, let alone UberEats. We wanted to digitize restaurant menus. Back then restaurants did not always have a website. In 2012, when Delivery Hero bought our company for PLN 120 million, I started meeting with entrepreneurs and investors in Poland. That is when I met Stefan Batory, the founder of iTaxi, and Łukasz Wejchert, who was the first to invest in that company. As I had the experience of creating a “marketplace” type business, they invited me to join them. That’s how I became a Business Angel at iTaxi. Both companies existed before Uber did. Naturally, every company that operates in the same market is part of the competition.

You are now involved in Collectomate. The start-up has already received a PLN 1.4 million investment from Kogito Ventures and Younick Mint funds. How is it different from InPost parcel lockers or e.g. Pocztex services? Collectomate is a tech company that builds infrastructure-supporting logistics by creating a multi-locker storage and delivery product, which makes it the only such solution in the Polish market. Collectomate lockers are an original idea dedicated to both companies and real estate managers. You can place a Collectomate locker in either an office reception or in a residential building, allowing couriers, regardless of the company, to deliver or collect a parcel. They will no longer need to meet the recipient face-to-face, which is often problematic. Moreover, Collectomate can also be used by individuals, not only by couriers. They can use it to leave e.g. documents using one of the lockers. Collectomate lockers allow you to pick up your parcel at any given time by a

dedicated app – Collectomate App, which serves as an assistant for parcel delivery and receipt. Do you think that the e-commerce market is growing quickly enough to make room for multiple players in the segment? It is true that the e-commerce market is growing at a staggering rate, but it still lacks a solution such as Collectomate. That’s why I’ve been supporting it from the very beginning. What are the benefits of Collectomate parcels and who pays for the service? Collectomate parcels are an added value for office employees and an additional service offered to tenants. The entire cost of Collectomate cloud 24/7 service is a monthly subscription fee paid by the owner or building manager. The office employee, the resident or any other person using the service pays nothing whatsoever.

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TECH

SHARE WHAT’S WORTH SHARING

EACH YEAR BRINGS NEW DEVELOPMENTS AND CHALLENGES, AND WE NEED TO ADAPT TO THE RAPIDLY CHANGING ENVIRONMENT. BUT IT’S THE PEOPLE ON THE MISSION TO PAVE THE WAY FOR NEW TRENDS THAT FACE THE REAL CHALLENGE. THAT’S WHY THE 13TH EDITION OF INFOSHARE, A CONFERENCE DEVOTED TO NEW TECHNOLOGIES, WILL BE DIFFERENT, AND NOT ONLY VISUALLY. WBJ ASKED GRZEGORZ BOROWSKI, CO-FOUNDER AND CEO OF INFOSHARE CONFERENCE, WHAT TO EXPECT THIS YEAR AND WHAT THE EXPERIENCE OF THE PAST DECADE HAS TAUGHT US INTERVIEW BY BEATA SOCHA

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WBJ: The next edition of infoShare will be held in May. The theme is

still new technologies and the venue is still Gdańsk, right? Grzegorz Borowski: New technologies and the reality they create are certainly constant elements that are a big part of our identity. The rapid pace of their development and the range of possibilities they create allow us each year to fill our agenda with household names – people who know the most about these trends and can explain them to participants. This is the key element of infoShare – we create a space where technology fans, industry experts, business and start-ups can meet. They can talk, share ideas, knowledge, contacts, and spend time together. After all, it is sharing that is a central idea of infoShare. What will change this year? This year, we will focus on strong specialization on nine stages. We couldn’t do it without our largest venue – Inspire Stage, where all the inspiring talks happen. The second-largest stage is devTrends Stage for IT specialists – software engineers and architects who want to keep tabs on the latest developments in the industry. Startup

Stage will become Growth Stage and we will dedicate it to investors, start-ups and scale-ups. We will host some of the best scale-ups that have joined our competition and that want to present their products that address the biggest issues the world is facing: climate change, famine or education (Social Impact). We have also tuned in to what marketers need and organized a two-day Marketing Stage. Additionally, programmers can choose between tech talks in four areas, on four stages: DeepTech, Crypto&Security, DataTech and Fullstack Stage. We continue to publish more info about our new speakers. The Arena Stage is a place designed to facilitate knowledge exchange and help participant facetime with our speakers. We will organize report presentations, expert panels and Q&A sessions right after talks on the big stages. How many people do you expect to see this year? The number of participants has been growing each year. We’re really glad we’ve managed to build an engaged community around infoShare over the past decade, people for whom the May gathering is a fixture in their calen-

E -ICNOFMO M S HE AR RC E

dars. We’ve also changed some aspects of ticket pricing. We’ve decided to get rid of free passes. We will charge for the Basic Pass too, but the price is reasonable – comparable to a movie ticket for two people. We want to encourage people to think whether infoShare is real added value for them and make a conscious purchase. In the past, a lot of free pass holders never showed up. It makes logistics and planning more complicated. This year we expect to see 6,000 participants, just like last year. That is remarkable considering that the first infoShare in 2007 started out with 200 participants at the Gdańsk University of Technology. What is the story behind the conference? It was an initiative started by four young managers who managed programmer teams at Wirtualna Polska. Together with three friends: Tomek, Marcin and Andrzej, we wanted to launch a conference different from an academic discussion. We invited experts in programming and all those who wanted to hear about the practical aspects of internet technologies. The first conference had 200 participants and was held at the Gdańsk University of Technology. Fastforward 12 years and we are meeting 6,000 people at Amber Expo. We believe the number will grow, attracting more technology fans, both from Poland and abroad. Fans of new technologies range from start-up founders, investors, corporates and other business. What do you offer each of these groups? New technologies is a natural glue and a durable foundation on which we’ve built our conference. It’s true that the profile of an infoShare participant is varied, depending on what they wish to accomplish here in Gdańsk. Corporations look for innovation to improve their business and production processes. We’ve heard from many young companies that it was infoShare that helped them find a large business partner or get financed. Just look at Photon, which started working with IBM, or Livespace and the Aria fund. Investors come here because – in their own words – this region is teeming with tech potential, ideal for their investment portfolio. Thanks to the annual Startup Contest, the eyes of investors, VCs, CVCs and large companies are all on the top 20 entrants, who are seeking innovative ways to solve global problems. Last year’s win-

ner – ThinAir Water – created a solution for reclaiming water from the atmosphere and making it drinkable. We are thrilled to see the start-up grow. It is really rewarding to be able to match these young innovative companies with global business, also through our Speed Dating tool. This year, the award funded by the City of Gdańsk will be large. The winner will get €20,000, second place – €7,000 and third place – €3,000. Managers and IT professionals, including software developers, IT architects and marketers also come to infoShare for a dose of knowledge and inspiration. Do we know who will appear at infoShare this year? We already have several big names on our agenda, even though we still have a lot of work to do. Some of the confirmed speakers include: Venkat Subramaniam (Agile Developer), Vitaly Friedman (Smashing Magazine), Sean Percival (appear.in), Bryan Kramer (PureMatter) and Christopher Penn (Trust Insights). Importantly, we will also see a strong female presence at infoShare: Ghela Boskovich (Femtech Global), Magdalena Urbaniak (MaxTractor), Anastasiia Voitowa

(Cossack Labs) and Vesela Tanaskovic (Afforest for Future) will come to speak at the conference. infoShare’s agenda also offers seaside activities. What are you planning this year? This year, our After Party will take place at the Gdańsk Shipyard to accentuate the spirit of Gdańsk. We can’t wait for the live concert at the Great Networking Party. Soon we will announce who will appear on stage at Stary Maneż. We also always organize a boat tour along the Gdańsk Bay at sunset. Let’s hope the weather is good. Nights can be cool at the seaside in early May. What happens after the conference? Are you taking a break in June? Defninitely not. In June, we will analyze questionnaires completed by participants, speakers and partners to gain even more insight and make next year’s event even better. June is also when we are organizing our next infoShare event – the Blockchain Next conference in Warsaw. Creating new events is an integral part of our mission – to share what is worth sharing about new technologies.

THE FIRST CONFERENCE HAD 200 PARTICIPANTS ... FAST-FORWARD 12 YEARS AND WE ARE MEETING 6,000 PEOPLE

W B J FEBRUARY/MARCH 2019

Latest news in the logistics, office, retail, hotel and residential sectors

Golub GetHouse unveils LIBERTY TOWER scheme in Warsaw Developer and investor Golub GetHouse has revealed the architectural details of its planned Liberty Tower residential and hotel project in Warsaw. The scheme, which will be located at the intersection of ul. Żelazna and ul. Grzybowska in the Wola district of the Polish capital, has been designed by the American architectural studio Arquitectonica (which has chosen Warsaw-based Epstein as its local partner) and will feature 41 floors. The 140-meter development will accommodate almost 500 rental apartments and an internationally branded four-star hotel offering 267 rooms. Construction work on the investment is scheduled to launch in the second quarter of next year and finish in Q2 2023.

Records in commercial real estate investment market

Interview with Krzysztof Misiak of Cushman & Wakefield

Logistics parks in eastern Poland

Interview with Robert Dobrzycki of Panattoni Europe

Tri-City office market

Interview with Sławomir Gajewski of Torus

Interview with Andrzej Sychowicz of APM Development

Atrium’s strategies in Poland

W B J FEBRUARY/MARCH 2019

LOKALE IMMOBILIA | NEWS

Mixed Use (continued) ECHO INVESTMENT with major mixed-use project in Łódź Warsaw Stock Exchange-listed developer Echo Investment is planning a large-scale mixed-use project in Łódź which will entail the redevelopment and revitalization of 7.7 hectares of post-industrial land located in the city’s Księży Młyn area. The company will build a total of approximately 90,000 sqm of residential, office and retail space on the site. The investment will consist of 20 buildings – including 14 refurbished historic buildings of the former industrial complex of Karol Scheibler – and will be developed in a number of phases. In the first phase of the development, Echo Investment will build two residential buildings offering a combined 270 units. Construction work on those buildings, for which the developer has already secured a building permit, is scheduled to launch in April this year and finish at the beginning of 2021.

BRIEFS WARSAW’S CEDET NOMINATED IN MIPIM AWARDS COMPETITION

The Cedet office and retail building in downtown Warsaw is one of the finalists in the prestigious MIPIM Awards architectural competition that will be held in March during the MIPIM international real estate fair in Cannes, France. The property has been nominated in the “Best Refurbished Building” category. The Cedet project, which was designed by the AMC Andrzej Chołdzyński and RKW Rhode Kellermann Wawrowsky architectural studios and developed by Immobel Group, entailed the redevelopment and extension of a historic department store building. The scheme was completed in May 2018. Cedet comprises more than 22,000 sqm of leasable space. It is currently owned by a Korean fund.

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Logistics BRIEFS MLP WITH NEW LOGISTICS PARK SCHEME IN LUBLIN AREA Developer MLP Group is planning its second logistics park project in the Lublin area, which will sit on 10.5 hectares of land located in Świdnik and will deliver a total of approximately 51,500 sqm of space in three buildings. The company expects to launch construction work on the scheme by the end of this year, said MLP Group’s sales director Agnieszka Góźdź. The first logistics park of the developer in the Lublin area comprises 45,000 sqm and is currently fully leased out to three tenants.

RHENUS TAKES UP 41,000 SQM AT BŁONIE WAREHOUSE PARK

Logistics company Rhenus Logistics has leased 41,000 sqm of warehouse space at a distribution center located at Błonie west of Warsaw. JLL supported the tenant during the process of selecting the location and negotiating the lease agreement. “For years, Rhenus has been designing and implementing storage solutions for large e-commerce projects. Due to the dynamic development of this sector, we decided to launch another warehouse location in Błonie,” commented Sławomir Kossakowski, a board member at the company.

Over

LIDL’S biggest distribution center in Poland is now ready Warsaw Stock Exchange-listed builder Budimex has recently finished construction work on Lidl’s biggest distribution center in Poland. The German discount retailer’s facility is located in Kałuszyn in the Mińsk Mazowiecki area in the Warsaw agglomeration and comprises approximately 58,000 sqm of usable space. It is expected to facilitate the further development of the Lidl chain in eastern Poland. The distribution center is currently in the process of obtaining LEED certification.

1.9 mln sqm

the amount of logistics space under construction in Poland at the end of 2018 Source: Savills

W B J FEBRUARY/MARCH 2019

LOKALE IMMOBILIA | NEWS

Office

Immobel selects contractor for WARSAW OFFICE TOWER Developer Immobel has selected builder Strabag as the general contractor of its Central Point office project in downtown Warsaw. Construction work on the high-rise scheme will launch in April and finish in the first half of 2021. Central Point will be located near the intersection of ul. Marszałkowska and ul. Świętokrzyska, above the Świętokrzyska subway stop where the Polish capital’s two subway lines meet. The development will comprise 19,300 sqm of leasable space over 22 floors.

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Almost

1.5 mln sqm

the amount of office space leased across Poland in 2018 Source: JLL

Retail BRIEFS

BRIEFS VALUE OF ATRIUM’S POLISH PORTFOLIO REACHES €1.96 BLN

The market value of the 22 Polish income-generating properties of shopping center owner, developer and manager Atrium European Real Estate reached €1.96 billion at the end of 2018, compared with €1.52 billion a year earlier. The figure accounts for 67.3 percent of the company’s entire portfolio of income-producing properties that comprises 34 assets and is worth €2.9 billion. Atrium last year completed three major redevelopment phases of its Warsaw malls – Atrium Promenada, Atrium Targówek and Atrium Reduta – and acquired the Wars Sawa Junior retail center in the downtown of the city for €301.5 million. At the moment, 33 percent of the company’s portfolio is located in Warsaw, representing 48 percent of its aggregate market value. In 2018, Warsaw assets delivered 16 percent of Atrium’s net rental income of €178.9 million. The occupancy rate across the entire Polish portfolio stood at 96.2 percent at the end of last year.

PORR TO BUILD YAREAL’S LIXA OFFICES

Developer Yareal has selected builder PORR as the general contractor of its LIXA office project in Warsaw and has launched construction work on the scheme. The development is located in the Wola district of the city and will comprise a total of 65,000 sqm of leasable space in three phases. In the first phase, Yareal will build 22,000-sqm and 6,000-sqm buildings, the first of which will be occupied by bank BGŻ BNP Paribas. The investment will be certified in the BREEAM system at the “Excellent” level.

GALERIA CHEŁM MALL UNDER CONSTRUCTION

General contractor Karmar has launched construction work on the Galeria Chełm shopping center project in Chełm in eastern Poland. The mall is being developed by investors Acteeum Group and Equilis Polska. Valued at approximately €30 million, the scheme will comprise 17,500 sqm of GLA and is scheduled to be completed in the first quarter of 2020. The development has already been almost fully commercialized with major tenants including Lidl, CCC, Smyk, Rossmann and RTV Euro AGD.

PANOVA TO SELL FOUR RETAIL PARKS

Warsaw Stock Exchange-listed builder Panova plans to sell its retail parks in Kamienna Góra, Krosno, Myszków and Sosnowiec. The company has signed preliminary agreements for the sale of special-purpose vehicles that own those properties to Torwell Investment. The value of the planned transaction is yet to be agreed upon by the two parties. The proper agreement is to be signed by the end of the first half of this year provided that the due diligence process is positively concluded by that time and the deal is approved by the banks financing the special-purpose vehicles in question. Panova’s portfolio currently comprises 13 commercial assets.

CASTORAMA BUYS LAND FOR NEW PROJECT IN SOUTHERN POLAND

APOLLO-RIDA COMPLETES GDAŃSK OFFICE PROJECT

Investor Apollo-Rida Poland has obtained an occupancy permit for its Heweliusza 18 office project in Gdańsk. The ten-floor scheme, which was designed by the JEMS Architekci studio and was BREEAMcertified at the “Excellent” level, offers 10,000 sqm of space and will welcome its first tenants in the coming months. JLL is acting as the leasing agent.

DIY retailer Castorama has acquired approximately six hectares of land in Nowy Sącz in the Małopolskie voivodship, with the transaction having been brokered by JLL. The site can house a large-scale retail project. “There are fewer and fewer so-called white spots on Poland’s retail property map,” noted Daniel Puchalski, head of land advisory services at JLL. This is especially visible in large agglomerations which are becoming increasingly saturated, so investors are, in a natural way, turning towards smaller markets that offer opportunities for further growth, he added. A leader in the DIY market in Poland, Castorama currently has more than 70 stores in the country.

W B J FEBRUARY/MARCH 2019

LOKALE IMMOBILIA | NEWS

Hospitality First NOBU HOTEL in CEE to open in Warsaw in 2020 Nobu Hotels, a hospitality company co-founded by American actor Robert De Niro, will open a five-star Nobu hotel in downtown Warsaw. This will be the first of the brand’s hotels in Central and Eastern Europe. Nobu Hotel Warsaw will replace the existing Hotel Rialto, which is owned by Tacit Investment. It will house 120 rooms, event areas and a Nobu restaurant. Its interiors will be designed by Poland’s Medusa Group architects and the California-based PCH studio. The project, which is scheduled to open for business at the beginning of next year, is valued at PLN 100 million. Nobu Hotel Warsaw will be operated by Nobu Hospitality, with Tacit Investment acting as the investor.

BRIEFS GERMANY’S A&O ENTERS POLISH MARKET

Berlin-based A&O Hotels and Hostels will open its first project in Poland in the third quarter of this year. The scheme, which will entail the remodeling of a former office building located in the Wola district of Warsaw, will offer a total of 600 beds in over 200 rooms. “Our hostel will be the largest branded hostel in Warsaw,” said A&O’s chief investment officer Henri Wilmes. “Kicking off our premiere in Poland with such a promising project sets us up really nicely for our future expansion into Eastern Europe,” he added.

Company News JLL’S Trzósło appointed as managing director in CEE JLL has appointed Tomasz Trzósło, its country manager for Poland, as its new managing director in Central and Eastern Europe. Trzósło, who will continue to be responsible for JLL’s business in Poland, will now also oversee the company’s operations in the Czech Republic, Hungary, Romania and Slovakia. Trzósło joined JLL’s corporate finance and capital markets team in 1997 and subsequently became the head of the company’s capital markets department in Central Europe. He has been JLL’s managing director in Poland since 2013.

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Residential

APARTMENT SALES in biggest cities down 11% y/y in 2018 – report Developers sold a total of 64,800 apartments in the six biggest residential markets in Poland – Warsaw, Kraków, Wrocław, the TriCity, Poznań and Łódź – in 2018, which marks an 11 percent decrease on 2017 and is the second-best result in the entire history of the country’s housing sector, according to the latest report by Reas | JLL Residential Advisory. The aggregate value of those transactions was just 4 percent lower than in 2017, with the average apartment price in the six analyzed markets having grown by 11 percent (the figure for Warsaw is 13.3 percent) last year, the study said. The number of new apartments put up for sale by developers in 2018 amounted to 65,700.

BRIEFS MURAPOL LAUNCHES SALES OF 2,000 APARTMENTS ACROSS POLAND

Residential developer Murapol has simultaneously put up for sale a total of over 2,000 apartments covering a combined more than 85,000 sqm of usable space. The units will be built within new projects as well as new phases of ongoing schemes and will be located in 11 cities across Poland, including Warsaw, Kraków, Katowice, Wrocław, Poznań, Gdynia, Tychy, Toruń and Gliwice. Murapol sold 3,560 apartments last year, compared with the 3,605 housing units offloaded in 2017. In the years 2019-2021, the company’s annual sales target is 3,000-3,500 homes.

DOM DEVELOPMENT WITH UPSCALE PROJECTS IN WARSAW, WROCŁAW

Warsaw Stock Exchange-listed developer Dom Development has launched sales of apartments in its Apartamenty Ogrodowa upmarket residential project in the Polish capital. The scheme is located at the intersection of ul. Ogrodowa and ul. Żelazna in the center of the city and will offer 155 housing units, including two-floor penthouses. It is scheduled to be completed in the final quarter of next year. Meanwhile, the company has recently also started selling homes in its Apartamenty Księcia Witolda upscale development in downtown Wrocław. The investment will comprise 128 apartments and will be ready in December 2020.

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LOKALE IMMOBILIA | INVESTMENT MARKET

TESTING NEW LEVELS

2018 was, in many regards, a remarkable period for Poland’s commercial property investment market. Experts predict that the market’s strong performance will continue in 2019 BY ADAM ZDRODOWSKI

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seen in 2006). Record-high transaction volumes were also recorded last year in each of the main commercial property market sectors. Around €2.75 billion, approximately €2.5 billion and about €1.84 billion was transacted in 2018 in the office, retail and logistics sectors respectively. Investment deals finalized in the hotel sector last year were worth a total of some €120 million. After three consecutive years of the dominance of the retail sector, the office sector again attracted the most investor interest in 2018. However, the result achieved in the retail sector is still impressive, argued Marek Paczuski, deputy head of investment at Savills in Poland.

SHIFTING INVESTOR ATTENTION

The bulk of the volume recorded in the retail sector – over 70 percent – is accounted for by transactions closed in Q1 2018. Later in the year investors were gradually shifting their attention to the logistics sector, where volumes kept growing from quarter to quarter. The value of deals in the logistics sector increased by as much as 83 percent y/y in 2018. The impressive growth can, to a large extent, be attributed to the rising levels of demand for warehouse areas that is generated globally by the development of the e-commerce sector. Investors are lured by the logistics sector’s strong fundamentals and prospects for further long-term growth. Experts point out that the sector also offers a very diverse pool of assets – both core and opportunistic funds will find attractive product there. What is more, the sector presents opportunities for portfolio acquisitions of various sizes. Indeed, the abundance of portfolio transactions is something that defines the 2018 investment activity in Poland’s commercial real estate market.

BIGGEST DEAL EVER

he total value of the more than 100 investment transactions closed in the commercial real estate market in Poland last year exceeded €7.2 billion, which means an almost 45 percent increase on the volume witnessed in 2017 (approximately €5 billion), according to Savills data. The 2018 figure marks the best performance of the country’s investment market in history (the previous all-time high, around €5.05 billion, was

As many as seven investment deals of this kind were closed in the logistics sector. They included the purchase by Mapletree of Hillwood properties for approximately €320 million and the purchase by the same investor of Prologis properties for around €260 million. In the retail property sector, ARES, AXA and Apollo Rida sold a portfolio of 28 assets to Chariot Top Group for a total of about €1 billion. This is the biggest investment transaction to have ever been signed in the Polish market. Clockwise from top Other major retail deals included the acquisition left: Warsaw Spire, by Atrium European Real Estate of Warsaw Sawa Gdański Business Junior in Warsaw from a fund managed by CBRE Center, Galeria Katowicka and Wars Global Investors for €301.5 million and the purchase by EPF of Galeria Katowicka from Meyer Bergman Sawa Junior for about €300 million. Apart from large assets, there was also considerable investor interest in smaller neighborhood shopping centers and retail parks located in cities with populations of less than 100,000.

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LOKALE IMMOBILIA | INVESTMENT MARKET TOP 2018 TRANSACTIONS IN THE OFFICE SECTOR PROPERTY

LOCATION

TriGranit

Portfolio (incl. assets outside Poland)

Gdański Business Center “C” & “D”

Warsaw

Skylight & Lumen

Warsaw

Warsaw Spire “A” (50% share)

Warsaw

BUYER Revetas & Goldman Sachs Asset Management Savills Investment Management Globalworth Poland Madison International Realty

PRICE (€ MLN)

450

200

190 175 SOURCE: SAVILLS

TOP 2018 TRANSACTIONS IN THE RETAIL SECTOR PROPERTY

LOCATION

BUYER

PRICE (€ MLN)

Chariot Top Portfolio (28 assets)

Portfolio

Chariot Top Group

1,000

Portfolio

EPP

360

M1 Portfolio (4 assets) Wars Sawa Junior

Galeria Katowicka

Warsaw

Katowice

Atrium European Real Estate Savills Investment Management (on behalf of EPF)

301.5

300

SOURCE: SAVILLS

In the office sector, properties in Warsaw attracted more than 60 percent of the invested capital. Investors were interested in both newly completed quality products and older buildings with the potential for adding value. Notable transactions in the Polish capital included the acquisition by EPF of buildings “C” and “D” in the Gdański Business Center complex from HB Reavis for over €200 million. Among major deals in regional cities was NIAM’s purchase of Skanska’s portfolio for €173 million.

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NEW CAPITAL INFLOWS

There was an increased inflow of new capital into Poland in 2018, which mainly came from the APAC (Asia Pacific) region and predominantly targeted core office and logistics assets, as well as whole logistics portfolios. While similar to previous years, investors from the US, the UK and Germany were among the most active buyers in the country last year, funds from Asian countries such as the Philippines and Singapore made their first acquisitions in the Polish market in the period. Malaysia’s EPF, Singapore’s Mapletree and South Korea’s Vestas all made sizable acquisitions in Poland in 2018. The latter fund bought one of Europe’s biggest and most advanced e-commerce-dedicated logistics centers that is occupied by Amazon. South African investors, involved in previous years in spectacular retail transactions in Poland, last year also became interested in the logistics sector. Redefine Properties, for one, was involved in the purchase of a portfolio of logistics parks from Panattoni Europe. “As the most attractive market in Central and Eastern Europe, Poland is an excellent alternative to the Western European markets,” commented Krzysztof Cipiur, associate director, capital markets, at Knight Frank. He pointed out that Poland has recently advanced in the FTSE Russel ranking, becoming the region’s first country classified as a developed economy. This, in Cipiur’s opinion, will in the long-term have a reflection in investment volumes.

RECORD YIELD COMPRESSION

2018 was also a record year in terms of the compression of prime yields, which reached levels not seen in the Polish market, breaking the psychological barrier of 5 percent in the office and retail sectors and dropping to only slightly over 5 percent in the logistics sector. “This sets new benchmarks for core assets and opens the door for some yield compression for non-core assets and locations,” Paczuski commented. According to Savills, some 2018 office deals were closed at 4.70-4.75 percent, while in the retail sector the figure was even as low as 4 percent. Analysts predict that the positive investment sentiment in Poland’s commercial real estate market will continue throughout 2019. Prime yields are expected to stabilize at the current levels in the coming months. Particularly strong investment activity is anticipated in the office and warehouse property sectors. We should also see more transactions in the hotel sector, said Mateusz Skubiszewski, director, capital markets department, at BNP Paribas Real Estate Poland.

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LOKALE IMMOBILIA | OFFICE

TENANTS FACING A NARROWED CHOICE

WBJ met with Krzysztof Misiak, head of Cushman & Wakefield's office agency in Poland, to discuss the current trends in and prospects for the office property market in Warsaw INTERVIEW BY ADAM ZDRODOWSKI

WBJ:

The vacancy rate in Warsaw’s office property market decreased to 8.7 percent at the end of last year, which is the lowest level since 2012. Can we talk of a supply gap in the Polish capital? Krzysztof Misiak: When it comes to the vacancy rate, it is expected to decrease even further in the coming months, possibly to record-low levels not seen since the 1990s. As for the supply gap issue, it is very relative. Technically speaking, we can talk of a supply gap in the market in a situation when the absorption level is higher than the total supply of space. It’s worth emphasizing that over the last two years, the absorption in Warsaw exceeded the level of new supply. In this situation, tenants leasing space in new office projects have been vacating areas in older, often less popular buildings. However, if we talk about the availability of sizable office areas in recently completed and underconstruction office schemes in Warsaw, it is indeed limited. What is now a major challenge in Warsaw’s office property market for us as a real estate services firm is to find space for clients with requirements covering more than 5,000 sqm. The significant number of large lease transactions that we have seen in the city in recent months has also narrowed the choice for tenants looking for medium-sized office areas, which applies to central office locations in particular. Should developers react by delivering more space? In my opinion, when we look back at the performance of the office sector in the past we will see that increased development activity always gave a boost to the market, even if that meant, in the short term, an increase in the vacancy rate. A situation when tenants have difficulty finding suitable space is not healthy – a 10 percent vacancy rate is said to be healthy and we are already

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below that level in Warsaw. The 8.7 percent rate is an average – in central locations the rate is even lower, while in Mokotów – still the city’s biggest office hub – it is much higher. Do you expect developers to launch more projects this year then? The problem is not that developers are being too conservative, but that they are facing major challenges preventing them from reacting more quickly to the strong demand. Obtaining the necessary administrative permits takes time. Construction costs have risen, which developers are now trying to offset by increasing effective rents. However, the most serious difficulty is the shortage of employees in the construction industry. It is now more difficult to secure a good general contractor than before. Meanwhile, it is worth noting that the scale of office projects in Warsaw has changed significantly in recent years, with many of the new schemes being highrise developments. We are talking about construction processes that no longer take the standard one and a half years, but rather two and a half years. Admittedly, the situation in the construction industry is expected to stabilize in the near future, mainly because the boom in the residential sector, which used to drain the market of contractors, seems to be coming to an end. Do owners of older office buildings in Warsaw find it difficult to lease their properties? The approach of the owner plays a major role here. If the owner looks after the property in the proper way, for example by renovating the common areas and investing in greenery, and if they devise all kinds of initiatives targeted at the tenants, then the building should not have any problems with leasing. Adapting to clients' needs is the most

important thing in the entire process. Who is now driving the demand for office space in the Polish capital? Most office space in Warsaw is leased by tenants from the financial sector, including banks and insurance companies. Also, the BSS (Business Services Sector) industry accounts for a large chunk of the take-up volume in the city. Warsaw continues to be an attractive location for international businesses due to its pool of qualified employees. Suffice it to say that such well-known companies as Credit Suisse, J.P. Morgan and Goldman Sachs have leased office space in the Polish capital in recent months.

It is now a major challenge in Warsaw’s office property market to find space for clients with requirements covering more than 5,000 sqm

Have any of the recent office lease deals in Warsaw happened because of Brexit? There has indeed been talk in the market of the possibility of attracting London tenants to Poland, but such relocation processes do not happen overnight. I have not heard of any companies that would say openly that they want to move their business from the UK to Poland because of Brexit. However, we are in touch with many tenants that have some operations in London and who are saying they want to grow in Poland too. Crucially, very often those companies want to move advanced operations to our country and open knowledge centers here. Flexible office space operators last year accounted for approximately 20 percent of the total take-up volume in Warsaw’s central locations. Will the sector continue its rapid growth this year? Definitely, there is still room for growth in the flex sector. Several large lease transactions involving flexible office space operators who are already present in Poland are now being negotiated in Warsaw. We also expect a few

more foreign operators to enter the Polish market this year. However, the flex sector’s share in the total take-up volume will in 2019 rather not be as high as in 2018. Last year was unique in that some of the biggest operators, WeWork among them, were building their presence in Poland then and were leasing a lot of space. Will the Wola district remain the hottest office location in Warsaw in the coming years? Yes, when you look at the pipeline, most of the major office projects scheduled to launch this and next year are in Wola. Relatively few new schemes are planned in Mokotów, the city center and the Jerozolimskie corridor, the three other big office hubs in the Polish capital. The area between Rondo Radosława and the Dworzec Gdański railway station, where several interesting projects are planned, may become an alternative to Wola. Is there a chance that Warsaw will see the emergence of other new office locations in the near future? The eastern part of the city, for instance, has recently become more attractive due to the construction of the second subway line… The creation of new office locations is a slow process. To date, developers have mostly been focused on the left side of the Vistula, adding space in the Rondo Daszyńskiego area. However, we should not forget that there are big residential areas on the other side of the river. The emergence of new office locations in that part of the city would be an interesting alternative for businesses, as many potential office workers would not need to cross the Vistula to get there. We know that a number of major developers are considering launching projects which would be located east of the river.

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LOKALE IMMOBILIA | LOGISTICS

EASTERN PROMISE?

Until recently a white spot on Polandâ&#x20AC;&#x2122;s logistics property map, the eastern part of the country has seen some pioneering investments over the last few years. Could the region attract more developer interest in the near future? BY ADAM ZDRODOWSKI

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eveloper Panattoni Europe has recently finished construction work on Panattoni Park Białystok, the company’s first project in the capital of the Podlaskie voivodship and the first class-A logistics park scheme in north-eastern Poland. The development – which is located within the administrative boundaries of the city, approximately one kilometer from the S8 expressway – comprises a total of more than 41,000 sqm in three buildings. Its tenants include logistics operator Rohlig Suus Logistics.

Panattoni Park Białystok is the first class-A logistics park in north-eastern Poland

Panattoni Europe – which has been investing in socalled emerging logistics property markets across Poland and earlier also entered two other major eastern Polish cities, Lublin and Rzeszów – believes in the potential of Białystok and the eastern Poland region in general. The developer argues that the growth of the e-commerce market and the development of transport infrastructure mean that such cities are a natural choice for the logistics sector and thus also for logistics space providers.

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LOKALE IMMOBILIA | LOGISTICS NASCENT MARKET

When set against some of the more established locations in Poland, the size of the logistics property market in the east of the country does not look impressive. Cushman & Wakefield says that the existing stock there reached 570,000 sqm in the third quarter of last year. This accounts for less than 4 percent of the aggregate logistics space volume in the country. In Q1-Q3 2018, some 100,000 sqm was delivered in the region (Cushman & Wakefield also counts Kielce as an eastern location), compared to about 106,000 sqm in the whole of 2017. Meanwhile, at the end of Q3 2018, the total existing stocks in central Poland, Silesia and the Warsaw area amounted to almost 1.95 million sqm, over 2.7 million sqm and more than 3.85 million sqm respectively. In central Poland, 210,000 sqm was delivered in that quarter alone. At the end of September, as much as 584,000 sqm was under construction there, while the figures for Silesia and the Warsaw area stood at 383,000 sqm and 259,000 sqm respectively. By comparison, the figure in eastern Poland was over 35,000 sqm. Admittedly, the market is still very young – the first modern logistics parks sprang up in eastern Poland only three or four years ago. The completion of Panattoni Europe’s Białystok development basically means the creation of a completely new logistics location. Some of the major warehouse space developers remain more cautious when it comes to launching new projects in the region. MLP Group, which is already present there, wants to focus on the leading markets in Poland, as well as on the German market, in the near future. The company has been developing a 45,000sqm logistics park in Lublin since 2014, with its final phase scheduled to be completed in Q2 2019. “The entire complex is currently fully leased out and houses three tenants,” said MLP Group’s sales director Agnieszka Góźdź. “This confirms that such schemes are needed and sought after,” she added. The developer is planning another logistics park project near Lublin. Nevertheless, the company sees much more tenant interest and better growth prospects in bigger markets, Góźdź said.. The investment strategy of Prologis, too, envisions growth in the biggest logistics locations in Poland in the near future. The company is now focusing on expansion in four key regions: the Warsaw area, Łódź, Wrocław and Poznań. Next year, the developer will open seven buildings comprising a total of more than 200,000 sqm located within four logistics parks there, said Paweł Sapek, senior vice president and country manager for Poland at Prologis. “At the moment, we are not building any speculative projects in the eastern part of the country, but we are constantly watching the market and monitoring the needs of our clients,” Sapek said. The developer could deliver built-to-suit schemes in the region

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if need be. In Sapek’s opinion, investments in eastern Poland are predominantly of a local nature and are launched as a result of the organic growth of the companies present there. They often only operate in the domestic market or have business relations with Poland’s eastern neighbors.

POSITIVE PROSPECTS

Indeed, logistics property experts admit that most of the companies that take up warehouse space in Poland still prefer locations close to the biggest cities across the country, which also happen to be the most absorptive markets. As for smaller, less-established locations, tenants and developers often choose those in western and northern Poland as they ensure easy distribution of goods to Western Europe, especially to Germany. This matters when one looks at the nature of Poland’s foreign trade. Germany remains Poland’s most important trade partner. In 2017, the country accounted for 27.4 percent of Poland’s exports and 23.1 percent of Poland’s imports, noted Adrian Semaan, consultant in the industrial and logistics agency of Cushman & Wakefield. Other growth barriers in eastern Poland include

Relatively easy access to employees and lower labor costs are an important asset of the eastern Polish logistics locations the lack of major producers who would generate the need for an entire chain of suppliers and distributors around them, maintained Wojciech Waryś, partner, industrial and logistics, at Axi Immo. The logistics property map of Poland is not likely to be redrawn in any significant way in the foreseeable future. However, this does not mean that the east of the country will not grow in importance. In fact, new road infrastructure has already made it more attractive. The S8 expressway connecting Warsaw and Białystok has recently been completed. Stretches of road which will be part of the Via Baltica and Via Carpatia trans-European transport corridors are under construction or in the pipeline. The former will connect Warsaw with Tallinn in Estonia, while the latter will run from Klaipeda in Lithuania to Thessaloniki in Greece, with its Polish stretch set to link the three biggest cities in eastern Poland – Białystok, Lublin and Rzeszów. Both routes will be important for the further development of trans-border logistics in the eastern part of the European Union and, consequently, of the logistics property market in Poland’s eastern locations. There are already some signs of that positive impact.

MLP Group has been developing a 45,000-sqm logistics park in Lublin since 2014

While take-up has remained at roughly the same level in recent years – approximately 85,000 sqm of warehouse space was leased in eastern Poland in Q1-Q3 2018, compared to an average of around 87,000 sqm in the same period of 2014-2017 – its structure has been changing. Apart from companies investing in production processes, logistics operators have also been increasingly active when it comes to leasing space in the region. This is a positive signal as far as the expected growth of the market in the coming years is concerned, Semaan claimed. Apart from improving transport infrastructure, relatively easy access to employees and lower labor costs are also an increasingly important asset of the eastern Polish logistics locations which are attracting companies that plan major recruitment processes. Waryś pointed out that the average unemployment rate in eastern voivodships stands at 7.9 percent (in some locations it is 10-12 percent), while in Wrocław and Poznań the figure is 3 percent and 2 percent respectively. “This is a big difference for companies needing to hire many people,” he said.

EMERGING MARKETS While the biggest warehouse property markets in Poland continue to attract the most developer and tenant interest, a number of new locations across the country have been growing in significance in recent years. They include Szczecin, where at the end of Q3 2018 the existing stock stood at over 575,000 sqm and a further 132,000 sqm was under construction, according to Cresa data. The location benefits from its proximity to the German border and easy access to the Baltic countries that is provided by the port in Świnoujście. Another emerging market located close to Germany – the Lubuskie voivodship – has been attracting the attention of clients put off by the decreasing vacancy rate and forecast rent hikes in the Poznań area. The existing stock there amounted to over 269,000 sqm in Q3 2018 (an additional 74,000 sqm was under construction). Last but not least, Toruń and Bydgoszcz in northern Poland have been witnessing rising demand. At the end of the third quarter of last year, there was over 265,000 sqm of existing space there, while 16,400 sqm was being built.

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LOKALE IMMOBILIA | LOGISTICS

PAN-EUROPEAN AMBITIONS

WBJ sat down with Robert Dobrzycki, CEO Europe at industrial space developer Panattoni Europe, to talk about the prospects for the European logistics markets and the companyâ&#x20AC;&#x2122;s further development plans across the continent INTERVIEW BY ADAM ZDRODOWSKI

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WBJ:

As we talk, the UK is on the verge of exiting the European Union. Has Brexit already had any major impact on the logistics property market in the country? Will such impact be seen at all? Robert Dobrzycki: When it comes to the market fundamentals, they are still very healthy in the UK. The market is “tight” in the sense that new supply is only slightly bigger than demand and the vacancy rate is very low. Supply and take-up volumes have not decreased in any significant way, but it is true that the political uncertainty surrounding Brexit negotiations may, in the short term, delay some decisionmaking processes with regard to launching new projects and signing new lease deals. What may also play a role here is the fact that lease agreements in the UK tend to be signed for longer periods of time than lease agreements in Poland. The commitment that a tenant makes is thus of a more serious nature, which may lead some companies to put off decisions until the Brexit situation becomes clearer. Indeed, at the moment it is very difficult to predict how things will play out and whether Brexit will have any major – positive or negative – impact on the level of demand for logistics space in the UK. Has the situation changed your plans in the UK in any significant way? We are very active in the UK, even though we are a newcomer in the market. Our current commitment there – meaning the value of the products that we have to deliver in the near future – is €800 million, which is quite a lot considering the fact that we have been present in the UK for only a year now. Of course, we are also in the process of negotiating new deals. We are now in eight locations in the UK, in the London and Birmingham areas. We want to expand into the Manchester and Liverpool areas soon.

Brexit has probably had some influence on our activities in the UK, but it has not prevented us from expanding in the market. Had it not been for the UK’s decision to exit the EU, we would likely have even more space in the country today. On the other hand, Brexit was actually one of the main reasons why we entered the market. The uncertainty made some of the established players a little bit less active, and we saw that as our chance to make a strong presence there within a relatively short period of time. The e-commerce-driven logistics sector is the new retail

When it comes to mainland Europe, where is its logistics center today? Germany is definitely the logistics heart of Europe at the moment. The country has everything the logistics sector needs to thrive: it is centrally located, lies on key roads and sea transport routes (it has some of the biggest ports in Europe and is a gateway to the continent for maritime shipping), has a very vibrant production sector, exports a lot of goods and also features strong domestic consumption. Additionally, the CEE region – a supplier park for Germany – is just across the border.

Of course, CEE benefits from Germany’s position – we are very strongly connected with Germany, both politically and economically, and our high supply and demand volumes directly reflect the huge success of the country. It is very difficult to imagine a situation in which any country in southern or western Europe – be it Italy, Spain or France – challenges Germany’s dominant position on the logistics map of Europe. China’s growing activity may further strengthen the German and CEE logistics markets. Germany’s existing stock is already huge – is there still much room for development? Absolutely. Germany currently has approximately 80 million sqm of logistics space, but there is room for much more. We are now building around 300,000 sqm across the country, with our plans for the near future envisioning the delivery of some 500,000 sqm annually. That would account for about 10 percent of the total annual supply in Germany. By comparison, in Poland we complete 1.5 million sqm annually, which accounts for

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LOKALE IMMOBILIA | LOGISTICS half of the aggregate annual supply of new logistics space.

It is very difficult to predict whether Brexit will have any major impact on the level of demand for logistics space in the UK

Apart from Germany, Poland and the UK, Panattoni Europe is also active in the Czech Republic. What are the prospects for that market and what are your development plans there? The Czech market resembles the market in western Poland in that it is a supplier park for Germany. Its western part is very conveniently located close to the automotive hub in southern Germany. Logistics centers in the Czech Republic can service locations in the CEE region, Germany and Austria so many companies are considering leasing space there. This pertains especially to businesses that do not need to hire many people as the shortage of employees is a bit of a problem in the Czech market at the moment. We are very active in the western part of the Czech Republic and have recently also successfully entered the eastern part of the country. We now deliver approximately 200,000 sqm a year in the Czech market. This figure could increase to 300,000400,000 sqm soon. Will you enter any new European markets in the near future? We are looking at France, which is a large, stable and liquid market and seems a natural market for us to expand. As a developer with pan-European aspirations, we have been thinking about the French market for some time, but we want to enter one market at a time. As we now grow ever stronger in the UK, it is probably time for us to start preparing an entry into France. This could happen later this or next year. We are yet to open a local office and acquire land there. What are the main drivers of growth in the European logistics sector at the moment? The e-commerce sector is now

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certainly the main driver of growth in the logistics property market across Europe. E-commerce companies keep expanding – probably at the expense of traditional retail – and they need more and more logistics space. It is difficult to measure exactly the demand generated by those companies, as some of our clients, including logistics operators, lease space that is partly used for online commerce and partly for other purposes, but we estimate that the e-commerce sector accounts for 30 percent of our European business. An interesting aspect of this phenomenon, which we have not yet witnessed in Poland but which can be seen in Western Europe and especially in the US, is a kind of arms race between traditional retailers and companies such as Amazon. The former, aware of the fact that they reacted to the e-commerce revolution too late, are now desperately trying to make up for the lost time and are quickly expanding their online activities, which obviously has a positive influence on take-up volumes. What about the production sector? The production sector also continues to generate a significant amount of demand for new space, which is particularly visible in western Poland and in the western part of the Czech Republic. Germany has a strong production sector, but many of its companies have already moved or are going to move production to Poland or the Czech Republic to optimize costs. When it comes to the UK, it seems that the production sector there will not see significant growth in the near future and demand will rather be driven by other sectors. Will urban logistics see further growth in the coming years? Yes, for sure. There is more and more demand for urban logistics space, mainly because of the

growth of the e-commerce sector. Also, such product is increasingly popular with investors, including with those who have so far only been focused on such asset classes as offices and retail. Such investors feel more comfortable buying urban warehouses than big-box parks in out-of-the-city locations. We have a strong pipeline of urban schemes in Germany and are working on such developments in a number of cities in Poland and the UK. Is the impact of PropTech already visible in the logistics property sector? By all means. Modern warehouses feature many solutions allowing for the automation and optimization of logistics processes, as well as for achieving maximum efficiency when it comes to maintenance costs. For instance, there is a trend towards building multi-level warehouse buildings. Warehouse properties are becoming increasingly specific, tailored to the needs of particular tenants, which is reflected in higher rents. However, the huge operational benefits that come with those solutions offset the higher leasing costs. Logistics assets have been more

and more popular with real estate investors in recent years. Where does this growing investor interest come from and will it continue in the near future? This is a very natural process which, again, is the result of the growth of the e-commerce sector. Traditional retail is having a difficult time and many of the investors who previously bought retail assets have already offloaded them and are now investing in warehouses. The e-commerce-driven logistics sector is the new retail – the capital which used to be allocated in shopping centers is now being moved here. The logistics sector seems to have a brighter future than the retail sector and this is now attracting both experienced and new investors. The logistics sector usually reacts to economic slowdowns very early on – are there any negative signals as far as the global economy is concerned in your industry? No. We may hear about political uncertainty in Europe in the news, but business-wise we do not see any negative signals yet. We actually expect that in terms of demand this year will be even better than last year.

INDUSTRIAL GIANT Panattoni Europe is the European branch of one of the world’s biggest industrial developers, the Panattoni Development Company, which was established in the US in 1986 by Carl Panattoni. Since its entry into Europe in 2005, the company has completed more than 7.5 million sqm across the continent. Major clients of the developer include Amazon, Avon, Bertelsmann, CAT Logistics, CEVA, Coca-Cola, Coty Cosmetics, Dachser, DSV, Gefco, H&M, Intermarche, Leroy Merlin, Raben, ND Logistics, Orsay, Sauer Danfoss and Schenker.

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LOKALE IMMOBILIA | OFFICE

NORTHERN STAR

The Tri-City has been strengthening its position as one of the leading regional office markets in Poland in recent years. The office boom in the Baltic coast agglomeration is set to continue in the near future BY ADAM ZDRODOWSKI

he Tri-City agglomeration in northern Poland – comprised of the cities of Gdańsk, Gdynia and Sopot – saw the biggest annual supply of new office space in years in 2018 (amounting to approximately 93,500 sqm, according to JLL’s preliminary data – see graph). Numerous new office projects are currently under construction and in the pipeline in the location, which is the third-biggest regional office market in the country and benefits from, among other things, its reputation as a

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very good place to live and work.

The total existing office stock in the Tri-City is expected to reach one million sqm at the beginning of 2021. At the moment, only two regional office markets in Poland – Kraków and Wrocław – have more than one million sqm of modern office space each. At the end of last year, the Tri-City stock stood at almost 800,000 sqm, while a further 132,000 sqm was under construction. Strong local developers are a distinctive feature of the market, with some of the biggest Polish and international players also expanding there. Companies that have com-

pleted office projects in Gdańsk in recent years include Hines and Echo Investment (the schemes were subsequently bought by investors GTC and Globalworth Poland). Last year, Skanska launched its first development in the city. Called Wave, the investment will consist of two 14-floor buildings comprising a total of approximately 48,000 sqm of leasable space. The first phase of the project, which will offer around 24,700 sqm of GLA, is scheduled to be completed in late 2019 or early 2020. Oliwa remains the most popular office location in Gdańsk, with the city’s Młode Miasto neigh-

Cityscape of Gdańsk Oliwa at night, Poland

borhood set to gain in significance in the coming years. More development activity is also forecast to soon take place on sites located in the vicinity of Gdańsk airport. In Gdynia, the area of ul. Łużycka in the Redłowo district is an important office location. Experts from JLL expect that the investment attractiveness of the part of the city’s downtown that is located close to the waterfront will grow in the near future.

ABSORPTIVE MARKET

The Tri-City office boom has been reflected in high demand and net absorption levels – at the end of the third quarter of last year, the

vacancy rate in the agglomeration decreased to 6.7 percent (compared to 11.1 percent at the end of 2016) and was the lowest in Poland, according to JLL data. “The Tri-City office market is getting more and more attractive. Strong local New players are coming, while developers are a distinc- the companies already present here keep expanding, which tive feature of the Tri-City translates into steadily growing demand for office space,” said market Marcin Faleńczyk, head of the Tri-City office of JLL. Around 90,000 sqm was leased in the Tri-City office property market in 2018. Compared to Kraków, Wrocław, Poznań and Katowice, the agglomera-

tion offers competitive rents which range from €12.75 to €14 per sqm per month. Just like in the other major regional office markets across Poland, much of the demand for office space in the Tri-City market is generated by BPO/SSC companies. JLL estimates that the sector accounts for as much as 33 percent of occupied office area in the agglomeration. Kornelia Łukaszewska, a leasing manager at Echo Investment, maintained that the market stands out on the office property map of Poland due to its access to well-qualified experts and the growth of the IT sector.

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LOKALE IMMOBILIA | OFFICE She pointed out that her company decided to launch its Tryton Business House project in downtown Gdańsk as early as in 2014. The already completed 23,000-sqm scheme houses such prestigious tenants as Intel (one of the biggest lease transactions of 2016) and EY. Indeed, the Tri-City’s pool of qualified employees is repeatedly mentioned as one of its main assets as an office locaNew players are coming, tion. Unlike some other big citwhile the ies in Poland, Gdańsk and Gdynia companies do not have difficulty in keepalready ing young people and attractpresent here ing talent from elsewhere in the keep expandcountry. The agglomeration is ing, which known for its high quality of life, translates clean air and numerous recreainto steadily tion opportunities. Interestingly, it growing is attracting people from crisisdemand for office space stricken countries such as Spain and Greece, noted Bolesław Kołodziejczyk, head of research and advisory at Cresa Poland.

BULGING PIPELINE

Ongoing urban planning processes will support the further growth of the market. New zon-

Torus's Alchemia in Gdańsk

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ing plans that are now being worked on will enable the construction of more office developments in the Tri-City and potentially also draw more developers to the agglomeration. In Kołodziejczyk’s opinion, one can see that the municipal authorities are paying attention to ensuring the right balance between office and residential space in the urban fabric. “It shows that the Tri-City is learning from Warsaw’s mistakes,” he claimed. Admittedly, some things still need improvement. City officials are cooperating with developers on providing additional roads and railway infrastructure to make moving between and around Gdańsk, Gdynia and Sopot easier. Other, more universal, problems confront developers active in the Tri-City market, too. According to Kołodziejczyk, securing a good general contractor with a sufficient number of construction workers is a major challenge there today. Similar to other real estate markets in Poland, the rising

costs of construction materials and services that negatively impact the profitability of new investments are a major threat to office developers, agreed Marcin Piątkowski, the commercialization director at Torus. All of this is not putting developers off planning new projects in the Tri-City. Companies which have already secured plots of land for future schemes in the agglomeration include Cavatina, Echo Investment, Polski Holding Nieruchomości (PHN) and Vastint. Torus – a local developer that has to date completed more than 120,000 sqm of office space in the market (which translates into over one-eighth of the total existing stock) – will later this year launch construction work on the second phase of its Officyna development in Gdańsk. “We have also secured sites for further tens of thousands of sqm of office space in several locations in Gdańsk and Gdynia. We are constantly looking for new investment opportunities in the Tri-City,” Piątkowski revealed.

Torus's Oficyna in Gdańsk

Annual office space supply in the Tri-City market (sqm)

93,500 79,000 69,000

65,800

Source: JLL

57,300

2014

2015

2016

2017

2018

Skanska's Wave in GdaÅ&#x201E;sk

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LOKALE IMMOBILIA | OFFICE dations of the office market were created by local players, our company among them, which also meant the creation of modern infrastructure to allow large, foreign companies to relocate here. Respectable investors who came in later and successfully developed their business centers here have served as the best possible calling card for the TriCity agglomeration and its sizeable potential as a result of the availability of skilled labor. The large demand and optimistic forecasts continued to entice developers to pursue further and bolder office investments and so we have reached a supply level of about 800,000 sqm. More recently, the natural, location-related attributes of the Tri-City have gained prominence – one can have a good life here and this quality of life has been recognized by more and more people relocating from other regions in Poland, as well as from abroad.

READY TO EXPAND INTO ANOTHER MARKET

WBJ talked to Sławomir Gajewski, president of the management board at developer Torus, about the Tri-City office market and the company’s further investment plans both in and outside the agglomeration INTERVIEW BY ADAM ZDRODOWSKI

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WBJ:

The Tri-City has in recent years emerged as one of the most important regional office markets in Poland. What are the main reasons for the agglomeration’s growing popularity with developers and tenants? Sławomir Gajewski: The Tri-City began to build its position in the business services market – the sector that is largely responsible for office space take-up in regional cities – quite late compared to Kraków and Wrocław. Its growth, however, has been rapid and noticeable in the rest of the country, allowing the Tri-City to forge a strong position. The foun-

Torus has long been the dominant local player in the Tri-City office market, but several large international developers are now also active there. Is the market getting more competitive? Definitely. The level of competition is higher than just a few years ago, but the tenant market has grown as well. New investors continue to emerge and there is strong internal demand generated by the rapidly-growing companies already present in the market. Developers are able to offer a variety of options, so tenants are spoiled for choice. Our company has been concentrating on the quality of the office space we provide, its proximity to roads, public transport and an attractive array of shops and retail services. We get all our buildings certified to ensure they meet the global green building standards.

Work on Torus’ flagship Tri-City project – Alchemia in Gdańsk is nearing completion. What are the company’s further development plans in the Tri-City office market? We have procured land for tens of thousands of sqm of office space located across several investments in the Tri-City. One of these projects – Officyna – is already underway in the Gdańsk suburb of Wrzeszcz. The first phase of the investment will be ready towards the end of this year and construction work on the second phase will have begun by then. Further investments are in the pipeline. Torus is a typical commercial developer that develops and subsequently sells its projects to investment funds. Is it more difficult for a local developer from Gdańsk than for an international developer to create a valuable product that will entice foreign buyers? Yes, it is undoubtedly harder for a local company with a relatively short history to get noticed by institutional investors than it is for more renowned, global developers. One must remember, however, that the main guarantee of security, value and profit in this market is the quality of the product, rather than the developer’s brand alone. This means that selling buildings is not an endeavor that can be accomplished by desire alone. We have proven on many occasions that our products are attractive for investors. So far, we have completed five sale transactions of our office real estate to four different funds, for a total of approximately €200 million. This equals over half of the total office transactional volume conducted by Tri-City developers. Over the next few days, we will be completing another transaction, the largest to date in the history of our company and one of the largest to date in regional Polish cities.

The market is starting to have us somewhat worried, a slowdown is to be expected

Torus has been looking at other markets in Poland for some time now – the company is currently working on hotel investments in Wrocław and Warsaw. Are you planning any office investments outside the Tri-City? We are currently engaged in hotel projects outside the Tri-City – we are completing a project in the historical Lepziger Palace in Wrocław and preparing another in Warsaw. We are also intensively looking for opportunities to apply our office real estate experience in other cities, particularly in one of the largest regional markets in the country. There is a good chance that we will start implementing our plan before the end of the year.

lenges such as growing land prices and rising construction costs. What is your longterm growth strategy in these uncertain times? The increase in land prices and construction costs is a serious challenge for the entire developer community. Everyone is attempting to tackle it in their own way and carefully calculate the profitability of their projects, depending on their chosen business model. We must keep in mind that a challenge for one developer can equal an opportunity for another. We try to broaden our portfolio and seek opportunities in other markets. Developers must remain vigilant, but also continue their strategy.

Looking at supply and demand levels, the office property market in Poland is in very good shape. Will the boom in this sector continue this year? The market is starting to have us somewhat worried; a slowdown is to be expected. At this stage, it’s hard to predict when exactly it will happen, and what the scale and impact will be. The market we are working in has a global dimension to it because the majority of our partners are international companies. We belong to a world ecosystem; that’s something we need to take into account in our plans and actions. Last year brought another record in terms of transaction values in real estate sales, which is evidence that Poland is still an attractive place for investment. I think that, over the next year, we will not be seeing any significant changes in the office real estate market, though developers may exercise more prudence when commencing new projects.

Torus has been investing in CSR activities a lot lately. Why? Will the company continue this course in the near future? Our engagement in CSR stems from a natural need and approaches witnessed among business owners, managers and employees, and the nature of our business as well. We create buildings where people come to work, be active and spend their time. We are changing the city in a noticeable way. It’s a big responsibility that requires the right approach to business development. We could have done many things differently and not have seen through many of our initiatives; but then we would not have been who we are and we would not have had the same satisfaction from our achievements. For us, it’s important that both our core and supplementary activities have a positive influence on our environment, that we stimulate the local economy, that we get people involved and that we support local sporting activities. All that gives a profound sense of meaning to our developments.

Despite the strong performance of the market, developers have been faced with major chal-

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LOKALE IMMOBILIA | RESIDENTIAL

Years of experience Established in 2005, APM Development has to date completed more than 1,000 apartments in Warsaw, mainly in the lower-middle and upper-middle segments of the market. The company is now selling units in such districts of the Polish capital as Bemowo, Mokotów and Wawer.

BUYING PRESTIGE

WBJ talked to Andrzej Sychowicz, the management board president at residential developer APM Development, about upscale housing projects and the company’s plans in the sector INTERVIEW BY ADAM ZDRODOWSKI

Green and cozy

Located near the Park pod Skocznią green area of the Mokotów district, the Cristal Park Residence complex will consist of nine low-rise buildings, with the first phase to comprise 20 apartments. The units on offer range in size from approximately 90 sqm to around 140 sqm.

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WBJ:

APM Development is now working on an upscale project in Warsaw called Cristal Park Residence located in the prestigious Mokotów district. Will the company become more active in the premium residential sector in the near future? Andrzej Sychowicz: Yes, making a stronger presence in the premium sector is part of our business strategy for the coming years. We have always had a vision of what an upscale residential project should look like, but the market has not always allowed us to build what we wanted to build. We feel that now is a good time to start premium schemes in Warsaw as the market here has matured and there are more and more potential buyers ready to pay PLN 15,000-PLN 20,000 per sqm for a high-quality apartment in a prestigious location. What will be the share of premium schemes in your portfolio? Premium projects will not dominate in our portfolio and they will not be huge schemes. Of course, this segment of the residential market will never be as large as the market for affordably priced apartments, but that is not a problem for us. We are not a big listed company which has to sell thousands of apartments annually to please investors. We are a mid-sized family business and we want to develop quality investments that give satisfaction to us and our clients. We come from Warsaw, see ourselves as local patriots and want to contribute to the further development of the city by delivering well-designed buildings and creating nice neighborhoods. Our Cristal Park Residence project, for instance, is located in an area of the Mokotów district of Warsaw that is defined by low-rise buildings and abundant greenery, and thus reflects, to some extent, the urban planning ideas of the garden city movement dating back to the first half of the 20th century.

Do you also want to develop luxury schemes? No, luxury residential projects in Warsaw today most often entail the development of high-rise buildings, which are too big for our scale of operations, or the renovation of historic properties, which is challenging and requires very specific know-how that we do not have.

There are more and more potential buyers ready to pay PLN 15,000PLN 20,000 per sqm for a high-quality apartment in a prestigious location

Have apartment prices in the premium sector increased of late? When it comes to Cristal Park Residence, we have actually launched sales very recently – at the beginning of this year, even though the project has been under construction since September 2018 – so we have not yet had a chance to increase the prices in the scheme. However, to be honest, I do not expect the current prices to go up by the time the development is completed. As for the market in general, apartment prices have indeed been on the rise and will likely continue to go up this year. Admittedly, this is mostly visible in the low-end market segment where some developers have even put projects on hold as rising construction costs have made them barely profitable. In the premium segment there is less upward pressure on prices as developers’ margins are bigger and there is more room for maneuver. On the other hand, prices of premium and luxury apartments are not as strongly linked to construction costs as those of low-end units. Buying a premium property is also about emotions, snobbism and prestige. Do purchases for investment purposes still play a major role in the premium sector? Yes, by all means. In the premium apartment segment, the vast majority of purchases – and we are talking about transactions valued at more than PLN 1 million – are financed with cash.

Residential property remains an attractive investment alternative – in the long-term, it always allows you to make a profit. It’s enough to look at how apartment prices in Warsaw have changed over the last 10-15 years. We saw a major crisis a decade ago, but the prices have since then rebounded with the current levels exceeding those recorded in 2007. Who is the typical buyer of premium apartments in Poland? Most of our clients are affluent Poles who either want to safely allocate the capital they have accumulated over years or are looking for high-quality living space for themselves. Of course, clients in this market know what they want, are very demanding and have high expectations. What are some of the latest technological solutions found in upscale residential projects? Solutions such as remotely controlled lighting and heating systems have already become pretty much standard in this market segment. We want to focus on air quality in our premium projects. The apartments in Cristal Park Residence will be equipped with an air cleaning system – we can say that they will basically be smog-free. More and more clients, especially those in their 30s and 40s, are also asking about charging stations for electric cars – we will provide this solution in our Mokotów scheme. What are your further plans in the premium sector? We have already bought a site for another premium project in the Mokotów district and we are constantly looking for land for more such schemes in Warsaw. We expect that construction work on the new Mokotów development will launch in the second half of this year.

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LOKALE IMMOBILIA | RETAIL

Chaim Katzman (left) and Liad Barzilai, the main shareholder and the CEO of Atrium European Real Estate respectively

PRIME LOCATIONS, DOMINANT MALLS

In 2018 Atrium European Real Estate splashed out on several investments in Warsaw, and the company will continue to focus on Poland in the coming years, say CEO Liad Barzilai and majority shareholder Chaim Katzman BY ADAM ZDRODOWSKI

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ast year marked the tenth anniversary of Atrium European Real Estate’s presence in Poland. And for the leading owner, developer, manager and operator of shopping centers in Central and Eastern Europe, it was arguably its busiest year in the country to date. In 2018, Atrium spent almost €500 million in Warsaw alone, continuing its €300-million program of redeveloping and extending three major malls in the Polish capital, and acquiring a prime retail asset located in the very center of the city. In the autumn of last year, the company completed the second phase of the extension and refurbishment of the Atrium Promenada shopping center in the Praga Południe district and opened

a new 8,600-sqm section of the Atrium Targówek mall in the Targówek district. The Atrium Reduta center in the Ochota district also grew by an additional 4,000 sqm of leasable space, and in line with the latest global trends towards transforming shopping centers into meeting destinations, a couple of the company’s malls got new dining and entertainment areas. Last but not least, in October 2018 Atrium finalized its acquisition of the Wars Sawa Junior retail center in downtown Warsaw from a fund managed by CBRE Global Investors. Valued at €301.5 million, it was one of the biggest investment deals in Poland last year. And the company is already planning further investments. “We will continue to be active in Poland, both on the redevelopment and investment side,” revealed Liad Barzilai, the CEO of Atrium European Real Estate. Atrium’s Central and Eastern European portfolio currently consists of 34 properties: a total of almost one million sqm of retail space valued at a combined €2.9 billion. While the company is present in Poland, the Czech Republic, Slovakia and Russia, its business strategy involves a focus on the former two countries, with Poland and the Czech Republic already accounting for 84 percent of its portfolio. Poland’s share in the portfolio increased from 55 percent in 2014 to 66 percent in 2018. Last year Atrium announced its exit from Hungary (where it sold 20 small retail assets) and Romania (where it offloaded one major shopping mall), which allowed the company to raise capital for the Wars Sawa Junior acquisition in Warsaw. Between 2014 and 2018, the Polish capital’s share in Atrium’s portfolio grew from 20 percent to 29 percent. It is cities like Warsaw and Prague – locations that stand out due to their strong demographics and growing purchasing power – that Atrium believes in, Barzilai explained. In the coming years, the company will focus on large cities, where – following the worldwide trend of urbanization – more and more people now live and work. Atrium concentrates on large shopping centers that are dominant in their catchment areas, and the average size of assets in Atrium’s portfolio almost tripled between 2014 and 2018, Barzilai said. He added that the company will continue to modernize and extend its top assets in the near future.

'RETAIL IS NOT DEAD'

According to Atrium’s representatives, despite the bad press it often gets, retail has a future. “Retail is not dead,” Barzilai argued, adding that the sector has been evolving and adapting to new challenges, with some secondary locations having suffered from the growth of e-commerce. Prime locations, by contrast, have actually been gaining in significance as retailers fight for brand recognition and increasingly see the need to be present in places with heavy pedes-

trian traffic. This is reflected by the fact that some e-retailers are opening brick-and-mortar stores. According to Atrium European Real Estate’s management, we are currently witnessing an increasing polarization of the shopping center market, with prime assets continuing to gain in significance and many of the weaker malls losing out as retail gets radically transformed. Chaim Katzman, chairman of the board of directors and majority shareholder at the company, pointed out that while many shopping centers have been closed in the US in recent years, they were often in locations where key retailers now do not want or do not necessarily need to be.

FIRST-CHOICE LOCATIONS

We want our malls to be the third destination in peoples’ lives, after home and work

Similar processes already are, or soon will be, taking place in other parts of the world. Many retail chains have cut down on the number of locations they want to be present in, but in those shopping centers where they have stayed their stores have actually gotten bigger, Katzman said. Therefore, from the perspective of developers and investors, it has become crucial that one bets on exactly those malls which leading retailers cannot afford to be absent from, he argued. In his opinion, it is today easier to find such assets in large cities than in small urban centers. According to Katzman, while some shopping centers in smaller cities nowadays offer attractive returns on investment, it is only the biggest agglomerations – where demand is set to continue to rise – that can guarantee sustained growth in the future. Over the last decade, Atrium sold the vast majority of its retail assets in CEE that were located outside the biggest cities. In Poland, in the long-term perspective, the company wants to be present in the first-choice cities of Warsaw, Gdańsk, Wrocław and Kraków. It is no coincidence that last year Atrium decided to acquire the Wars Sawa Junior center, Barzilai said. With the annual footfall in and around the property amounting to approximately 60 million, the asset perfectly fits the company’s strategy, he added. In the medium-term, Atrium wants to redevelop Wars Sawa Junior to make the most of the site’s huge potential. “We will be able to reveal our plans when the design and the administrative permits are in place,” Barzilai said. More work remains to be done in the Atrium Promenada shopping mall, which is expected to grow by around 45,000 sqm. The Atrium Targówek shopping center will also probably see further investment, although Atrium has not yet revealed any specific plans. The company will definitely continue to work on the transformation of its centers into must-visit locations with a focus on placemaking being part of its strategy. “We want our malls to be the third destination in peoples’ lives, after home and work,” Barzilai stressed.

W B J FEBRUARY/MARCH 2019

EVENTS

Warsaw Business Journal relives the most important recent business and industry events

9TH KPMG TAX AND ACCOUNTING CONGRESS

New regulations and significant changes in the field of taxes, accounting and law – all of which will have a significant impact on entrepreneurs in 2019 – were just some of the topics discussed at the 9th KPMG Tax and Accounting Congress, which took place in Warsaw on January 15. The KPMG Tax and Accounting Congress is the largest project of this type in Poland, organized by the audit and advisory firm KPMG since 2011. This year’s edition of the KPMG Congress was attended by almost 1,100 people, of which nearly 700 were local. During the event, the upcoming changes in PIT, VAT, CIT and transfer pricing regulations were presented, and new regulations on the Polish Investment Zone and Innovation Box were also introduced. KPMG experts discussed the assumptions of horizontal monitoring, Employee Capital Plans and upcoming XBRL requirements. Speakers also raised the issues of taxation of the digital economy and minimization of tax risk in international transactions. As in previous years, a survey on the Polish tax system was conducted among the participants of the Congress. The results were the basis of the report entitled: “The Polish tax system according to the participants of the 9th KPMG Tax and Accounting Congress,” which was released in February.

W B J FEBRUARY/MARCH 2019

How well does Google really know me?

DO YOU SOMETIMES TREMBLE WITH FEAR when you think about how much tech giants know about you? One day you’re looking at sofas, and for the next month you keep getting furniture and home decoration ads. If you happen to look for a second or two at a commercial before “x”-ing it, or you accidentally click on a pop-up, you will in all likelihood see it again and again. Programmatic algorithms make sure that you get the ads that are most likely to succeed, and if you’ve expressed even a shade of interest in one, chances are you may be convinced to revisit that idea. Does your LinkedIn account often suggest you should invite people you met at conferences years ago and who might actually be a good professional match? That can be useful, right? Facebook’s entire engine is built around what you’ve previously liked and shared too.

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Have you ever wondered what happens if a person is new to social media, though? What if he or she is a “blank slate” of sorts? How does the algorithm go about reeling in a new fish? After decades of eschewing social media, my friend recently yielded to the pressures of today’s world and decided to set up a Twitter account, mainly for professional purposes. As soon as he clicked through the welcome page, Twitter immediately offered him an array of interesting people he might like to follow. The way it stumbled to find the matches can give us casual or regular “users” a unique insight into how these algorithms actually “think.” First off: Andrzej Duda. Naturally, as a Polish citizen, it might be appropriate for you to know what your president has to say. Not interested? Oh well, then maybe you’d prefer Donald Tusk? After all, he is Poland’s former prime minister, now the president of the European Council, and he could well be back in domestic politics soon. He might be worth following. Still no? Well, I guess you’re not into politics that much then. What else could you possibly be interested in? What do I know about you? Let’s see: male, in his thirties, no political views whatsoever… Sports! It has to be sports. Perhaps… Zbigniew Boniek? Former star footballer, coach, head of the Polish Football Association. No? Really? OK then, be my guest, choose your own people to follow. But rest assured, I’ll just be sitting here quietly in the corner, watching your every click and learning, so that next time you crawl out from that rock you’ve been living under, I’ll be sure to have a dozen useful suggestions for you, you cybernetic hermit. It must be a real puzzler for the algorithm using petabytes of data to come up empty. But don’t worry. All it takes Facebook is several dozen likes to predict your future political votes and preferences with an accuracy hit rate of over 90 percent. For that reason, I sometimes chose to click on things that I would never normally be into, just to shake things up a bit. Keep Big Brother on his toes, as it were. However, recently I have been offered a slew of surprisingly off-brand content. Apparently, the algorithm has decided I was in the process of becoming more radical in my views. And not in a good way. That’s when I decided it’s probably safer if the overlords know me for who I really am. Either that or quit all social media altogether. – BKS

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LAST WORD

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JEWEL IN THE HEART OF MOKOTÓW