This is the 13th in a series of stories on global property that examines the shifts and trends in the housing market on the international stage.
The luxury 52-storey Zlota 44 tower will be one of the tallest residential skyscrapers in Europe when it’s finally complete in 2017. But it doesn’t stand in a traditional real estate hotspot like Paris, Barcelona or London – it’s in Warsaw.
The soaring, sail-like shape of the Daniel Libeskind-designed building, and the tale behind its fortunes, are emblematic of the billowing aspirations of Poland’s real estate market at this pivot point between East and West Europe.
Construction began in 2008, only to continue in fits and starts before the project ran aground on its owner’s rocky finances in 2014. Now, under new owners, it appears Zlota 44 has fresh bearings. Sales began in earnest again this April, launched by Mr. Libeskind himself, at an industry conference in Cannes.
“It’s a fresh moment for us,” said Michal Skotnicki, CEO of BBI Development, which bought Zlota 44 last summer with American partner Amstar.
For $69.1-million (Canadian) the partners snatched up the centrally located luxury property at a deep discount from Orco Property Group. Orco had poured more than $276.4-million into the project since 2006.
Mr. Skotnicki believes the time is ripe to turn the building’s fortunes. “We think we will sell it in three and a half years,” he said, confident that 80 per cent of buyers will be from Poland, rather than foreign buyers as Orco had anticipated.
“Warsaw and the Polish market is improving,” he said, adding Poland is “the country that has developed the most in the last 25 years in Europe.”
In April, the IMF’s World Economic Outlook forecast growth in Poland would increase 3.5 per cent in 2015 and maintain that through 2016. The European Commission, in turn, bumped up its own outlook for Europe’s largest emerging economy in May. Salaries for average Poles are growing 1.5 to 2 per cent a year.
Throughout the economic crisis Poland was one of the few countries in Europe to steadily grow, even despite a mass exodus of its young people during the same time. In 2013 a total of 679,000 Polish nationals settled in Britain alone. Even so, since joining the EU in 2004 the country’s economic growth has outperformed a majority of its EU peers.
Zlota is something new and unique that has emerged in Poland’s residential market as a result, according to Kazimierz Kirejczyk, president of REAS, a consulting and research company specializing in Poland’s residential real estate market. “In general, the vast majority of the product in the market is for middle-class people who are not very rich,” he said.
The multi-storey modern Kurkowa 14 building in the city of Wroclaw graces the cover of REAS’s most recent 2015 residential market report. It’s by-and-large what this ascendant class of Poles is buying, he said.
The building is being developed by Amstar and BBI Development, which bought the topped-out but unfinished building from its initial developer Orco Property Group. (BBI Development)
Even though salaries are generally growing, said Mr. Kirejczyk, for them, the $9,675-per-square-metre price Zlota 44’s owners aim for is still out of reach. The average price in Warsaw is less than $2,626 per square metre. Although Warsaw has the highest average prices among Poland’s large cities, it is still relatively cheap compared with other major EU cities.
A more typical and affordable apartment in Warsaw, Mr. Kirejczyk adds, is about 53 to 58 square metres in a five-eight-level multi-storey building with an underground garage. The vast majority of apartments in Polish cities (about 80 to 85 per cent) are either one- or two-bedroom units like this.
Construction of more than 70,000 apartments started in Poland in 2014. “This is up,” according to Central Statistical Office “by nearly 36 per cent when compared with 2013.”
It’s an environment that has fostered a growing cottage industry of small-scale buy-to-let investors. “Small individual investors,” said Mr. Kirejczyk, “are buying apartments in good locations and they’re renting them to young Poles.” This accounts for approximately 10 to 15 per cent of the units in Warsaw annually, he adds. It’s a less risky proposition than, say, buying luxury property.
In Warsaw, the initial gross rental yield hit 8.4 per cent in the fourth quarter of 2014. In other cities, such as Lodz, the yield was 9.1 per cent. It’s attractive for both domestic small-scale investors and foreign funds and private equity. The potential for appreciation is strong as “Poland is still on a convergence path as far as salaries and property prices are concerned,” Mr. Kirejczyk said.
Institutional investors have not yet moved into this space, but the REAS report says interest is “growing strongly.” Last November Sotheby’s International Realty announced its entry into Polish markets, signing an exclusive 25-year master franchise agreement with a local firm.
Any EU citizen, and even Canadians, can easily buy residential property in Poland. No permission is required for a foreigner who does not reside in Poland, to buy an apartment in Polish territory, Mr. Kirejczyk says.
With the economy growing as it has, Poles who can afford Zlota 44 are a steadily increasing segment of the population. “The situation is changing and there are more and more wealthy Poles who can afford buying an apartment for half a million euros,” Mr. Kirejczyk said.
In addition to Zlota, other luxury properties, such as the nearby Cosmopolitan Twarda 2/4 tower, are also rising. Analysts at KPMG are preparing to publish a report on the luxury market with REAS. “It is just the beginning of this evolution,” said Mr. Kirejczyk of the growth in luxury buildings.
Although Polish luxury is “more Polish,” he explains – meaning it is not as ostentatious as what one might find in London or Paris – that doesn’t mean it is without the amenities one would expect.
Essentially, BBI Developments bought the 38,000-square-metre shell of the Zlota 44 building. They are now fitting each apartment with finishings by London design firm Woods Bagot and creating a 1,400-square-metre amenities floor with a 25-metre-long swimming pool, a private cinema, Jacuzzi and wine cellars.
“It’s important to improve the PR of the building,” Mr. Skotnicki said. The reasons for the property’s failure under Orco rest largely on timing and target market, Mr. Kirejczyk suggests. “They started selling a few months before the financial crisis, targeting foreign investors,” he said.
For Mr. Skotnicki the relaunch of Zlota 44 is a sign of things to come for Poland. He cites a May report from the Boston Consulting Group indicating the country is a world leader in translating its economic growth into the well being of its citizens. “We’re doing this after communism,” he said proudly.
