By Robert Sztemberg, Head of Berlin Hyp’s Warsaw branch office
The Polish investment market has been in the focus of international investors for a number of years. The total investment volume remained unchanged at just over €3bn last year, with retail transactions making up approximately one-third of this total. It is worth noting that there were changes in the investors’ country of origin: Polish investors now account for around 20%. Investors from the US are on the rise, having increased their share to 29%. In 2011, European investors still stood at 80%. Their share has now substantially dropped to 51%.
If we look at the Polish over-the-counter retail sector, we can see that Poland – like every other European country – is facing the major challenges of digitalisation and e-commerce competition, but is also subject to increasingly new trends (e.g. shop concepts, larger food courts with restaurants, etc.). However, positive economic data have been boosting the country’s retail sector and helping it face new challenges and trends. Poland’s economic growth has been stable for many years and stands above average compared to other European countries. A falling unemployment rate has had a beneficial effect on the regional purchasing power. In terms of public debt, Poland is regarded as a star pupil, as the measure lies below the European average and even below Germany’s. In summary, the economic environment in the country continues to be good.
Within Poland, a wide disparity in the development of the net prime yields (NPY) of shopping centres can be seen: while in the largest cities the NPY has been around 5.5%, in the Polish B-cities, it has ranged between 6.3% and 7%. I expect investors to increasingly look at assets showing differentiation – only the best shopping centres in the best locations will attain or slightly undercut the current benchmark yields. With these top properties, however, the trend of profits remains negative.
The highest rents in Poland’s capital Warsaw paint a similar picture. Although they have been rising compared to the year before, the increase has been offset by a growing share in rental incentives. We are seeing an increasing number of sale-based rents. In B cities, the top rents are just under half of the Warsaw level, though a slight upward trend can also be seen. Consequently, the Polish sales floor density in the retail sector is relatively low compared to other European countries. An increase of 3.3% due to the construction of new buildings within the last two years has done little to change this. Nevertheless, this should not obscure the fact that in some locations we are seeing signs of saturation with shopping malls.
The conservative and nationalist Polish government has presented a draft law for the introduction of a retail-sector tax. The proposal has been controversially discussed. The tax is intended to serve the cross-financing of higher social benefits, such as children’s allowance. It is planned primarily to tax large-scale retailers, but in my opinion it will have effects across the whole sector. In detail, the tax would apply to tax retailers whose monthly sales exceed PLN17m (€4m) at a rate of 0.8% of sales. Retailers with monthly sales of over PLN170m will have to expect an additional levy of 1.4% of the sales. A further subdivision may possibly be made at a later point in time with regard to the time of purchase: as required by the government, sales that are generated at the weekend or on public holidays will trigger a further levy. This additional taxation of sales as well as the separate charges will require more administrative outlays from retailers. This could have a negative effect on opening hours and therefore on sales. A final evaluation of this plan is difficult. On the one hand, the money generated through higher social benefits could flow back into the retail sector in the form of higher purchasing power of around €5.5bn. On the other hand, there is the risk that retailers will renegotiate lower rents, which would reduce the value of rental contracts and ultimately the market value of the retail properties. This would have negative consequences for investors and would damage the Polish investment market. rs