WBJ Observer June 2016

25 PAGES 25 PAGES

june 2016

Number 06 (28)

OF REAL ESTATE N EWS

REAL EST A NEWS TE

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

For daily news visit us at

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coal dilemma

Dress for success Polish men’s clothing brands are on the rise 28 Honey, yachts and heavy machinery How Poland is trying to enter the middle eastern markets 32 hide & seek Is it possible to crack down on tax havens?

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Coal Dilemma

Light at the end

june 2016

of the tunnel?

also in this issue:

• C o m m e n t a r y • R a n k i n g • IT • N ew s • L i fe st y le • F i n a n ce

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april 2016 • WBJ OBSERVER

news

/ economy

WBJ OBSERVER • april 2015

13

Visit our site - wbj.pl For latest news, features and commentaries.

Morten Lindholm Publisher mlindholm@valkea.com Jacek Ciesnowski Editor-in-Chief, WBJ Observer jciesnowski@wbj.pl Beata Socha Managing Editor, Lokale Immobilia bsocha@wbj.pl Michael Evans Copy Editor Journalists Daria Mamont dmamont@wbj.pl Wojciech Rylukowski wrylukowski@wbj.pl Tomasz Chwinda Art Director tchwinda@valkea.com Aleksandra Szydło Junior Graphic Designer aszydlo@valkea.com Contributors Ewa Boniecka Alicja Ciszewska Vedika Luthra Sergiusz Prokurat Kamila Wajszczuk Adam Zdrodowski

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june 2016 • WBJ OBSERVER

COVER IMAGE: Shutterstock

IN THIS ISSUE

22-27

Polish coal 6

19

6-12 In Review Latest news 13 Dateline 14 Economy

19-20 Piotr Dardziński

news

16

commentary

16 Law Board members

37-43 53-79 tech Insights

Interviews

28

feature

28-31 Clothing Dress for success 32-35 Exports Middle East

Lokale Immobilia

45-51 Finance & Investment 80-81 Ranking Certified buildings 82 Events Infoshare 83 Events Economic Congress

84

lifestyle

84-85 Gadgets 86-87 Lifestyle Thai restaurants 88 Lifestyle Cool globes exhibition

WBJ OBSERVER • june 2016

3

c o mmentar y / O N I N F O R M A T I O N T E CH N O L O G Y

}

Dear Readers Jacek Ciesnowski, Editor-in-Chief, Warsaw Business Journal Group

It seems like coal, and its place in Poland’s energy mix, is one of the few things Polish politicians agree on. Whether it was the PO-PSL government or the new PiS cabinet, every party views the black lumps as the main source of power for years to come.

We investigate whether that's a viable scenario and how much it will cost us.

We also take a look at Polish male clothing brands. While not at the level of global brands such as H&M or Zara, labels like Reserved and CCC have numerous outlets in shopping malls all over Europe, and with Polish men spending more and more on clothing and accessories, this sector has huge growth potential.

We also look to the East and analyze how it can become a major export destination. After decades of neglect, with Iran opening up to the West and other countries in the region representing an exciting destination for companies all over the world, expect

4

f e b r u a r y 2 0 1 4 • W B J O B S ER V ER

a strong push from Polish companies to gain a foothold there.

In our Tech Insights solutions section we talk to one of the founders of the Pirate Bay, plus the Opera browser creator, and take a closer look at Polish start-ups and the common mistakes they make.

In the new Finance & Investment supplement we look at the recently very hot topic of tax havens and how much they cost the global economy.

In the Lokale Immobilia section we cover the logistics and retail sectors and take a closer look at Real Estate Investment Trusts (REITs) and ask the question of whether they can boost the crippled Warsaw Stock Exchange or not.

Have a nice June and we hope to see you soon at the annual Book of Lists gala.

news

/ economy

WBJ OBSERVER • april 2015

5

lll INREVIEW news

News highlights of the past month

The deputy head of the European Commission Frans Timmermans told a news conference that the European Commission has adopted an opinion on Poland’s violation of the rule of law.

Now the Polish government will have two weeks to respond to the opinion. If its reply turns out to be unsatisfactory, the EC may launch the second stage of the rule of law procedure. It may lead to imposing sanctions on Poland, including the suspension of voting rights in the EU Council.

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june 2016 • WBJ OBSERVER

“As of now, we haven’t found a solution to the situation,” Timmermans said, adding that the EC is concerned about the composition of the Constitutional Tribunal, unpublished rulings and the amendment to the law passed by the PiS-controlled parliament in December that effectively paralyzed the constitutional court.

The Commission would like to see Polish authorities find a way out of this situation, Timmermans said. “The government will have a chance to reply to the

opinion. We will continue dialogue.”

The Vice president of the EC, who traveled to Poland in a bid to solve the dispute, said Prime Minister Beata Szydło confirmed the will to continue dialogue.

“Despite our joint efforts, we haven’t managed to find solutions to the main issues at stake,” Timmermans admitted.

In reaction to the EC’s decision, Prime Minister Beata Szydło told Fakt newspaper “the opinion is just an opinion, it will have no impact on decisions made in Poland.”

Image: Shutterstock

European Commission issues critical opinion on Poland’s rule of law

news

WBJ OBSERVER • june 2016

7

news

World’s largest bank grants mBank a €130 mln loan P

T

he Polish cabinet has approved a bill on introducing a minimum wage of PLN 12 per hour for persons without a regular employment contract, the government press center CIR said in a statement following the cabinet’s weekly sitting.

The bill stipulates that the PLN 12/h wage will be introduced as of January 1, 2017. It will be applicable to persons employed on the basis of civil law contracts as well as the self-employed, and will be indexed annually to the minimal wage growth indicator,” the document reads.

Earlier, in March, Elżbieta Rafalska, the Minister of Family, Labor and Social Policy, claimed that the hourly minimum wage of PLN 12 might be introduced in September 2016.

Raising the hourly minimum wage to PLN 12 was one of the promises made by PiS during the electoral campaign.

Poland overtakes Greece in terms of per capita income

Living conditions for the population of Poland are ahead of Greek life standards, Rzeczpospolita wrote, citing International Monetary Fund (IMF) data. It is the first time in modern history that Poland has been ahead in terms of living standards compared to Western European countries.

The IMF focused on per capita income. According to the report, the average income earned per Pole in 2015 stood at $26,455, whereas Greeks per capita income was six dollars less - $26,449. In 2017, this difference is likely to reach $1,500, the newspaper said.

The IMF forecast also shows that Poles will overtake the Portuguese in terms of living standards in 2018 (Poland per capita income will amount to $30,692, versus Portugal - $30,134).

The IMF published a statement, arguing that Poland’s GDP growth will remain strong in 2016 and accelerate to close to 4 percent in 2017 on the back of strong private consumption.

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june 2016 • WBJ OBSERVER

More than 900,000 Poles have CHF denominated loans

The Credit Information Bureau (BIK) informed that at the end of March, there were 907,600 debtors in Poland holding 534,900 CHF denominated mortgages.

Only 3.4 percent of them struggled to pay monthly installments on time.

The “franc-debtors” account for 26 percent of all mortgage loan holders in Poland, BIK also said. Additionally, 66 percent of them are Generation X-ers born between 1967 and 1981 and nearly a fifth (18 percent) live in the Warsaw agglomeration.

According to data, the total stock of CHF denominated loans is valued at PLN 136.8 billion.

Images: Shutterstock

Introduction of PLN 12/h minimum wage postponed till January 2017

olish commercial lender mBank has concluded an agreement with the Industrial and Commercial Bank of China (ICBC Europe) in terms of receiving a €130 million (PLN 575 million) loan, ICBC informed on its website.

“The Industrial and Commercial Bank of China (Europe) S.A. Poland Branch has signed a bilateral Loan Agreement with mBank, providing Poland’s fourth biggest bank with a three-year, €130 million loan,” the statement read.

“This is the first loan facility we have provided bilaterally to a local financial institution in Poland,” Deputy General Manager of ICBC’s Poland Branch Li Qin said in a statement. mBank is a unit of German Commerzbank, one of the leading commercial banks in Poland. The Bank has been listed on the Warsaw Stock Exchange since 1992. At the end of 2015, total assets of the bank equaled PLN 123.52 billion.

news

“Maybe 20 percent of the potential investors who would have invested are putting a question mark, saying ‘I’ll wait for a final solution in that respect,’” said

Amazon becomes available for Polish companies

Deputy Prime Minister Mateusz Morawiecki about foreign investors’ attitudes toward Poland's constitutional crisis.

T

he largest American internetbased retailer, Amazon, officially enabled Polish companies to sell their items via Amazon platforms.

From now on, Polish firms can sell their products on Amazon.co.uk (Great Britain), Amazon.de (Germany), Amazon.fr (France), Amazon. it (Italy) and Amazon.es (Spain). It is still unknown whether the ecommerce giant plans to open an e-shop with a Polish domain.

“We have been present in Poland for a long time. We are improving the customer experience through free delivery and reducing delivery times, as well as offering Kindle. The next big step is to offer a growing range of products, including those developed by Polish manufacturers,” announced Steven Harman, Amazon Europe’s CEO. Currently, Amazon has four locations in Poland employing 4,500 people in total - in Gdańsk (the Center of Technology development), Wrocław, Poznań (logistics centers) and Warsaw (Amazon Web Services office). Amazon has invested over PLN 2 billion in Poland since 2014.

The Warsaw restaurant and bar “Mokotowska 69”, which was opened at the beginning of May 2016, is the second project, following “Merliniego 5”, carried out by Andrzej Rudnicki-Sipayłło and Bartek Czerwiński.

It was designed for those who enjoy Polish cuisine and those who would like to try classic Polish dishes with a modern twist, such as steak tartare, smoked eel served on potato pancakes or roasted duck with pears and blackcurrant.

The restaurant also specialises in steaks made from American Black Angus certified prime grade by the USDA, Scottish Aberdeen Angus and highest quality Japanese Tajima-gyu cattle, “Kobe-style”: class 5, marbling 9+.

ul. Mokotowska 69, 00-530 Warsaw www.mokotowska69.pl +48 22 628 73 84, +48 22 627 20 33

WBJ OBSERVER • june 2016

9

news

Moody’s cuts Poland’s outlook Rating agency Moody’s has maintained Poland’s long-term foreign debt grade at A2, but has changed the outlook from stable to negative.

Moody’s explained that the key drivers for the decision to change the outlook on Poland’s A2 government bond ratings were the following: (1) Fiscal risks related to a substantial increase in current expenditures as well as the intention to lower the retirement age, the latter raising age-related costs over time.

(2) Impairments to the investment climate from a shift towards more unpredictable policies and legislations, as reflected in the ambiguity with respect to the conversion of foreign-currency denominated mortgages and in the prolonged stalemate between the government and the country’s constitutional court.

Amrest finalizes German Starbucks takeover WSE-listed restaurant chain operator AmRest has finalized a deal with Starbucks Coffee Company to take over 144 Starbucks brand restaurants in Germany for €40 million, the company said in a filing.

“In line with initial assumptions, Starbucks Deutschland has been renamed AmRest Coffee Deutschland,” the filing read.

AmRest wants to triple the number of Starbucks outlets in Germany.

AmRest will pay a license fee to the amount of 6 percent of revenues of each Starbucks restaurant in Germany to the owner of the brand, and a $25,000 one-off fee for opening a new restaurant. The group will also bear the cost of local marketing spending: the annual fee will amount to 4 percent of sales revenues in the first year of the agreement, the Polish Press Agency said.

financial sector jobs have migrated to Warsaw since 2011as annual operating costs in the Polish capital are 60 percent lower than in London, the Financial Times said.

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june 2016 • WBJ OBSERVER

O

n May 13, the construction of the NATO missile shield base at Redzikowo (Pomorskie voivodship) began in the presence of Poland’s President Andrzej Duda.

Poland and the US signed a deal on interceptor missiles eight years ago.

Despite the foundation stone formally being put in place, builders have already been at the site of the former airstrip for some months.

President Duda proclaimed that the con-

struction of a missile defense system will strengthen the security of Poland.

Meanwhile, local communities in the Słupsk area have been vocal in protest, they are concerned about the impact on the local Baltic tourist industry, among other things.

“We oppose the terrible policy of the Polish government on the missile shield. We oppose the lack of interest in the health and safety of the community,” a letter from residents read.

Images: Shutterstock

4,000

NATO missile shield base being built in Poland

news

PwC opens global drone center in Poland

P

wC, a professional services company, has opened its first global center of excellence, named Drone Powered Solutions, to focus on the use of drone technology and data analysis in business.

According to the company, commercializing drone usage in sectors from construction to insurance could lead to the disruption of $125 billion in traditional industries.

“The breadth of potential applications is so huge,” said Michał Mazur, partner at

PwC’s drone-powered solutions division.

“Monitoring infrastructure, managing construction sites, insurance assessments, structural checks. It is all about connecting drone abilities and attributes with business needs,” Mazur said.

The center is located in Poland, because the country is the first in the world to introduce a complete legal framework and institutions regulating the commercial use of drones.

Olga Grygier-Siddons, chief executive of PwC in Central and Eastern Europe,

said, “I am very proud that we have developed a global center of excellence right here in Central and Eastern Europe that uses drones and geospatial data analysis to help clients. This is the first PwC team of its kind anywhere in the world.

“For a long time, business success in our region has been based on cost competitiveness, but now there is a real desire on the part of our clients and colleagues to instead compete on value, created through innovation.”

00-810 Warszawa ul. Srebrna 16

WBJ OBSERVER • june 2016

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I Te w / sb o/ dsnapsh y l e a s i ontg n

BIG Money The Polish Central Bank NBP has unveiled a new PLN 500 note. The bill will be in circulation starting from February 2017. The Central Bank’s President Marek Belka explained that the note is being introduced because of a growing demand for high-denomination banknotes and to lower storage costs.

“The new bill will help in lowering costs of ordering and storing strategic stock, thus it will lead to savings in the functioning of the NBP,” Belka said. Polish king Jan III Sobieski will appear on the face of the PLN 500 bill, hence the chronological continuity of the “Polish rulers” series will be retained. The banknote was designed

by Andrzej Heidrich, the author of other Polish bills currently in use.

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f e b r u a r y 2 0 1 6 • W B J O B S ER V ER

Calendar June-August news

June 13-14

Spotlight Hotel Investment Poland Event: Spotlight Hotel Investment Poland will gather developers, investors, hotel chains, financial institutions, as well as suppliers of products and services for hotels to discuss the prospects for growth, financing and managing of hotel projects. The conference comprises five panel discussions: the Polish Hotel Market, Development, Investment, and Chain and Financing.

Location: Hotel Intercontinental, Warsaw Web: spotlighthotel.pl/home-en.html

June 16

Manufacturing Excellence Awards & Strategy Summit Event: The conference will present experts from many sectors of manufacturing, including FMCG, Food, Heavy Industries, and others. The speakers will present their efforts not only to survive in these challenging times, but will also discuss how to build a competitive advantage, in order to expand their businesses while keeping costs and investments under control.

Location: Hotel Intercontinental, Warsaw Web: manufacturingawards.eu

June 20-21

Investment Forum Event: The Forum will be attended by about 300 guests: investors from Poland and Central and Eastern Europe; representatives of the largest consulting companies, the IT sector and industrial concerns, governments and parliaments. The conference is also aimed at start-ups – Start-up Stage: Innovation first! – serving as a bridge between investors, corporations and promising start-ups.

Location: Conference Centre, Ludwik Solski Theatre, Tarnów Web: forum-ekonomiczne.pl

/ economy

June 15-16

Polish Chemistry Congress Event: One of the biggest such events in Poland. Each edition focuses not only on the Polish sector, but also with a global view. With representatives of the biggest Polish and international companies in attendance, it's the perfect meeting point for everyone in the industry.

Location: Best Western Premier Hotel, Kraków Web: kongrespolskachemia.pl

June 20-22

Balt Military Expo Event: Organized since 1998, BALTMILITARY-EXPO has close ties to the sea and the coast. It focuses on maritime safety and security, the latest defense systems, sea and land rescue and is dedicated to the Polish Navy and other types of armed forces and services subject to Poland’s Ministry of Interior. It will be an excellent opportunity to present the latest and most groundbreaking products and solutions dedicated to the armed forces.

Location: The Amberexpo Exhibition & Convention Centre, Gdansk Web: baltmilitary.amberexpo.pl

June 28-29

ABSL Conference Event: Since 2010, the Association of Business Service Leaders (ABSL) has hosted an outstanding opportunity to share knowledge and experience among top level executives in the business service sector. It aims to create the opportunity to interact and share ideas among key business and political influencers, and also to discuss the latest megatrends within the industry and beyond.

ABSL Conferences gather up to 1,000 business leaders and sector stakeholders, each year introducing almost 100 speakers and panelists.

This year’s keynote speaker is Condoleezza Rice.

Location: The International Conference Centre (MCK) in Katowice Web: absl-conference.com

August 4

Charity Beach Volleyball Tournament Event: This is the 7th annual charity beach volleyball tournament organized by the commercial real estate sector. This year, the proceeds will be donated to the Foundation Society of Friends of The Children’s Memorial Health Institute. All funds raised will be spent on vehicles which will be used to transport blood and medicine.

Location: La Playa Bar, Wybrzeże Helskie 1/5, Warsaw Web: jll.pl

WBJ W OB BS J EORBVSEERR •V EjRu n • em 2a0r1c6h 2 0 113 5

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news / economy

facts and figures Data overview for May

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

-1.1%

487

was Poland's CPI inflation

TRADE VOLUMES

9.5%

6.0%

y/y industrial output growth

sHares

registered unemployment rate

PLN 72.97 billion Bonds

PLN 479 million

3.2%

y/y retail sales growth

futures

2.88 billion Złoty undervalued

budget deficit at the end of April

Deflation holds

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

Down to one-digit rate

Poland’s registered unemployment rate, April 2015 – April 2016

“I am trying to implement this program, which Poles voted for by electing me president of Poland,”

12

-0.5

said President Andrzej Duda announcing that a decision to lower the retirement age will be made this year.

11.5 -1

11

-1.5

10.5

-2

9.5

june 2016 • WBJ OBSERVER

apr. ‘16

feb. '16

mar. ’ 16

dec.’15

Jan, ‘16

oct.’15

nov.’15

sep. ‘15

Jul. ’15

aug. ‘15

Jun. ‘15

apr. ‘15

may ’15

apr. ‘16

mar. ‘16

Jan. ’16

feb. '16

dec. ‘15

oct. ‘15

nov. ’15

sep. ‘15

Jul. ’15

aug. ‘15

Jun. ‘15

apr. ‘15

10

may ’15

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

14

-1.34%

PLN 11.1 billion

Deutsche Bank’s Global FX Research team, led by Alan Ruskin and George Saravelos, said that the Polish currency is “extremely cheap” and undervalued by some 10 percent.

As much as 53 percent of unemployed Polish citizens consider labor migration, according to the latest Work Service survey.

commentary / law

Book of lists 2016-2017 guide to Polish business and industry available in june

WBJ OBSERVER • may 2016

15

commentary / law

Anna Wyrzykowska Co-Head of Company Law & Corporate Governance Practice WKB Wierciński, Kwieciński, Baehr

Łukasz Czekański Counsel at Tax and state aid Practice WKB Wierciński, Kwieciński, Baehr

Time to close the financial year – on liability of management and supervisory board members In case of most companies, June is the month for approval of financial statements and management reports.

While the management report is prepared by the management board, financial statements are typically prepared by external accounting firms, and the role of the management board is to review (in general) and sign them, based on trust in the competence of professional accountants. However, only a few know that both members of the management board and members of the supervisory board can be held liable for any damage resulting from presenting incorrect financial statements. Practice shows that the most frequent incorrect or inappropriate presentation and disclosures within the financial statements consist of so-called “creative bookkeeping,” or failure to disclose events of material importance to the company which may, in the future, result in tangible financial losses.

According to the Accounting Act, members of the management board, and members of the supervisory board are obligated to ensure compliance of the entity’s financial statements and management report with the applicable law. Furthermore, they are jointly and severally liable towards the company for any damage caused by any action and/or omission that may constitute a breach of the above obligation.

As a rule, it is the member of the management board who is responsible for performing accounting duties, also if they are assigned to another person with the latter’s consent (e.g. to the chief accountant). If the management board is composed of several members, and the person responsible for keeping accounting records has not been designated, the responsibility lies with all the members

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june 2016 • WBJ OBSERVER

According to the Accounting Act, members of the management board, and members of the supervisory board are obligated to ensure compliance of the entity’s financial statements and management report within the applicable law of the management board (even those who do not handle the company’s financial affairs).

Thus, it is to be remembered that assigning another person to prepare financial statements does not automatically discharge the management board from liability for damage, in case of them being incorrect. Members of the company’s management board are held jointly and severally liable, together with members of the supervisory board, which means that the company may demand that its claims be satisfied, on request, by all members of the management board and the supervisory board jointly, by some of them, or by only one person.

Importantly, the occurrence of the underlying liability for damage may, at the same time, be connected with the risk of members of the management board and supervisory boards being held criminally liable under other provisions of the Accounting Act. More details on liability of members of management and supervisory boards, based on Accounting Act and on other acts, can be found in the recently published book by the authors of this article, entitled “Liability of members of authorities of capital companies.” u

WBJ Observer presents

Born on the Track, Built for the Road – Audi RS Models Audi is a brand known for its sport traditions and effective application of sport solutions in mass-produced models.

Thanks to close collaboration with engineers specializing in motorsports, Audi is a pioneer in the development of Diesel engines and innovative technologies.

The RS models are a symbol of the highest effectiveness and the most advanced technological solutions. quattro GmbH, Audi’s subsidiary, is responsible for the manufacturing process.

Its creations are a symbol of fascination with quattro, a perfect four-wheel drive that has changed the face of the automotive industry, and a symbol of the dynamic Audi style.

Adrenaline-Driven Cars The models manufactured by quattro GmbH have a special mission – they push the limits of the impossible. The RS initials confirm that the models that bear those letters are charged by the most powerful engine in a given family, and equipped with permanent four-wheel drive. They are characterized by a simple style, while maintaining outstanding usability properties.

One of these models is the Audi RS 6 Avant performance, powered by a four-liter V8 TFSI engine with a spectacular output of 605HP, which makes it the fastest runner on the road. It accelerates to 100 km/h in just 3.7 seconds and its top speed is 305 km/h. The same powertrain can be found in the Audi RS 7

Sportback performance – a high-performer with a slim, sporty design and distinctive look.

For those expecting even stronger emotions, the Audi R8 is available with one of three engines and one of two body styles.

The car will not only thrill motor racing fans: the Audi R8 V10 plus has 449 kW (610 KM) of power and needs only 3.2 seconds to accelerate to 100 km/h. Its top speed is 330 km/h.

Audi Sport Performance How is obtaining such extraordinary performance possible?

All mass-manufactured Audi models have been perfected in the world’s most demanding design laboratory on sport racing tracks. The conditions there are ideal for checking what needs to be improved.

Constant progress, based on the use of state-of-the-art technologies, particularly refers to the models that participate in the most famous long-distance race – the 24 hours of Le Mans.

Audi’s achievements are impressive – 13 victories in 17 years of participation.

The best solutions are introduced in all Audi models, thus allowing everyone to enjoy the emotion of the drive. All you need to do is sit behind the wheel.

Michał Bowsza, Director, Audi, Volkswagen Group Polska

WBJ OBSERVER • june 2016

BROUGHT TO YOU BY Volkswagen Group Polska

A combination of exciting horsepower, thrilling style and extraordinary parameters – customers all over the world are familiar with the sport versions of Audi models bearing the characteristic red diamond badge. This emblem ensures the best performance and great driving satisfaction.

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Filled with news and views covering food, drink, culture and local interest: Poland’s No. 1 English-language city magazine www.warsawinsider.pl www.facebook.com/warsawinsider

interview / piotr dardziński

Scientists and businessmen on new playgrounds i n t e r v i e w b y e wa b o n i e c k a

Image: Jan Malinowski/WBJ

Piotr Dardziński, the undersecretary of state in the Ministry of Science and Higher Education, sat down with WBJ Observer to talk about the current state of our universities, the upcoming changes to academic institutions, the steps being taken to increase scientific research, and building closer links and easier cooperation between scientists and businessmen

WBJ Observer: You represented the Ministry of Science and Higher Education at the Polish-Swiss Innovation Day conference, which was recently organized in Warsaw. At that event, the Swiss delegation presented the Polytechnic in Lausanne as an example of the successful transformation of a modest institution into of one of the best universities in the world. The presentation was extremely impressive, and it occurred to me that it may be worth evaluating the success of the Polytechnic in Lausanne in detail and treating it as inspiration for our universities, what was your take on it?

Piotr Dardziński: The answer to your question of whether we can be inspired by the example of the Polytechnic in Lausanne lies in the hands of our scientific and academic community. They could potentially choose some ideas for consideration. Of course, it is not possible to change the structure of the university and the composition of professors and students in one year. But I think that we could consider taking the first steps towards introducing a more innovative way of teaching into our colleges and giving them a more international character. We have huge human potential in Poland – many promi-

WBJ OBSERVER • june 2016

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interview / piotr dardziński

nent scholars and professors, and extremely talented students – but our universities are too closed in their activities, they have overly bureaucratic structures and are placed too far from the world of business. Nowadays, universities cannot be ivory towers; they have to be open to the outside environment. The academic community should be more open to cooperation with professional people, who can look at the process of educating with an experienced eye and so generate new energy, as the chairman of Lausanne Polytechnic did. We have Polish scholars teaching at highly reputable foreign universities conducting innovative research, so our universities could make the effort to encourage them to work in our colleges and bring their experience here.

Does the Ministry of Science and Higher Education have any influence on the running of universities?

Universities have autonomy, but it is the ministry, as the regulator in the domain of higher education, that sets the framework in which our universities function. The government is currently preparing a bill, which among other things will reduce outdated bureaucracy in universities. The bill was discussed with representatives of the academic community and it should be implemented in the 2016 academic year. If we want to make a jump in the development of the country, students must learn that the teaching process is linked with research and they should be made to feel that they are active participants in the educational process.

Education in public universities is free in Poland, yet the money provided from the budget for their operation and conducting research is not concurrent to their needs, so how can all of those reforms be financed? In other countries the private business sector is involved in supporting universities and their scientific activity. Is that how we have to do it in our country?

There is always too little money for higher education, everybody agrees upon that. The aim of our government is to provide 1.7 percent of GDP for science in 2020, and even that is not very much. The fact is that people in academia work hard, but the system of managing and distributing public money for higher education is not optimal and we have to improve it. Our ministry announced the preparation of a new bill concerning higher education, because there is a need to create a new environment – one in which our financial potential will be properly used.

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We are also introducing various measures to encourage businesses to get involved in financing scientific research and cooperating with universities. We can already see the trend of businesspeople increasing their budgets for that aim. Funds from the European Union for educational ventures are now provided directly to firms cooperating with scientists, which, together with the funds from the Center of Research and Development, should bring positive results.

We would like to see an increase in funds for science, and that science in Poland is not only associated with universities, but also with companies, which can run their own research centers and employ talented students and scholars, like it is in the real world. Businesspeople and managers in charge of firms are more frequently turning to scientists because they are aware that if they want to be competitive on foreign markets, they have to introduce innovation into their products. We should choose industrial branches with the biggest potential for expansion and provide them with innovative technology. Polish scientists and businessmen should act together on a new, improved playground.

Those entrepreneurs interested in building innovation point out that it is connected with financial risk, because one innovative proposal will result in making a better product, while another is just a costly experiment. They complain that current state regulations are not clear in that matter, and the tax system does not take their financial risk into consideration. How do you react to those opinions?

Well, we can’t cheat ourselves. Not every innovative project is fit for implementation, and risk is an integral part of scientific discovery, but such are the ways of making progress in science. As far as state regulations and the tax system are concerned, we are preparing necessary and anticipated changes. Prime minister Beata Szydło has appointed a special group of experts from all ministries, in which the Ministry of Science and Higher Education is responsible for innovation in science and works on behalf of the Board for Innovation. The new regulations will improve the conditions for conducting scientific research and implementing their results in business.

For example, the amount of tax deductions for those firms that introduce innovations will be increased to 50 percent of expenses.

The rule regarding better protection of intellectual property and patents will be of great importance to scientists. We would like to

introduce some of these changes by January 2017. There is also a large, comprehensive document called “The white book of innovation,” in progress, which gathers diagnosis of all problems dealing with innovation – it should be completed within two years.

There are prevailing voices from universities which state that, no matter what we do, scientists from Poland do not gain international fame, no one will win a Nobel prize, even while there are significant innovations in such fields as medicine, astronomy and information technology.

What do such opinions reflect?

I think that it is a self-protection mechanism – bad historical experiences and national complexes. The paradox is that Polish scientists, students, entrepreneurs, and those working abroad in many professions are gaining recognition. But, as a country we still have the feeling that we are not appreciated enough, and we should do everything to reject such feelings. Coming back to science, I think that there is now significant determination to strengthen our potential, to develop innovative research and implement the results into our economy. But it cannot be done merely through bills, so the determination of the government should be mirrored by the determination of scholars and entrepreneurs.

My last question concerns the declining popularity of humanistic studies – there are still fewer students choosing them. Is a qualification from a humanities faculty unnecessary in life and on the job market?

The opinion that humanistic studies are not necessary is a vast oversimplification. It is true that when we talk about innovation, we usually have technical studies in mind, but humanistic studies are also important – they teach logical thinking and provide ideas, which are needed in human development. I would like to ask whether the May 3 Constitution was not innovative? Humanistic and philosophical thinking have important and creative meaning. We cannot become technologically obsessed people. The importance of the humanities is indicated by the fact that our ministry is organizing a program of competitions that will engage high school pupils and students in developing their interest and knowledge of philosophy. Poles should have the ability to think with broader horizons, because such an approach is needed in various professions – including technical fields. And humanistic studies, which are developed at a high level in our universities, are a means to such an end. u

C L Ey G A L n Oe M wM s E N/ TeAcRoYn /o m

TO ADVERTISE: TOMASZ PAWLAK, TPAWLAK@WBJ.PL, +48 501 791 461 78

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cover story / c Coal

Decarbonization – a must or heresy? b y woj c i e c h r y lu kow s k i

Poland didn’t use the opportunity to tap into elevated coal prices on the world markets to increase the effectiveness of coal extraction. Instead of reinvesting the profits, they were consumed. Now the mining sector generates huge losses and remains a headache for the government, which is pushing to make it profitable again

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cover story / Coal

PLN 500 mln is how much each of three state-owned energy companies will pay in for a 17.1% stake in a new coal group

Image: Shutterstock

On

April 26, representatives of mines, power companies, banks, financial institutions and unions signed an agreement to establish new coal entity Polska Grupa Górnicza (PGG) in yet another bid to heal the Polish mining sector. The new company emerged in the place of the now defunct Kompania Węglowa (KW), which would have gone bankrupt if it wasn’t for the lastminute accord. The state-owned, biggest coal producer in Europe recorded a loss of approximately PLN 700 million in 2014 and around PLN 1 billion the following year.

With 15 mines in its portfolio, only three were profitable, and the biggest laggard, the Brzeszcze mine, generated losses of PLN 247 per ton. Prior to establishing the new entity, the four worst performing pits were handed over to state-owned mining restructurization company (SRK) to later be shut and the 11 remaining mines formed PGG. The idea behind the new project is that twelve investors will recapitalize the coal group to the amount of PLN 2.42 billion, with Polish state-owned power firms PGE, Energa and PGNiG contributing the most - PLN 500 million each in fresh capital for a stake of 17.1 percent. And banks (Alior Bank, Bank BGŻ BNP Paribas, BGK, BZ WBK, and PKO BP), along with state-owned Węglokoks declared the acquisition of new PGG bonds worth PLN 1.37 billion, as a result of the refinancing of the current KW bond program. After the agreement was reached, Energy Minister

Krzysztof Tchórzewski declared that mines will increase productivity and effectiveness of coal extraction, making PGG “the best coal enterprise in Europe.” But the minister's optimism is based on thin premises.

Poland is based on coal For many, many years the sentence “Poland is based on coal” has been repeated like a mantra, becoming a kind of common wisdom. The truth is that 85 percent of energy in Poland is produced from coal, but the other truth is that the sector recorded nearly a PLN 2 billion net loss last year and there are no signs that the trend will turn around any time soon.

Poland’s dependency on coal has historical roots. Accelerated industrialization after the Second World War required increased coal extraction, which reached its peak in the 70s and 80s, when Poland became the fifth biggest coal producer in the world. Exports of the fossil fuel allowed the communist party to receive much needed foreign currency from the West. The scale of operations was so enormous that the authorities had to offer wide-scale social benefits and privileges to entice workers to come to the Silesia region, Poland’s coal heartland. At that time, miners were the apple of the eye of the ruling party. However, within a decade after the fall of communism, demand for coal fell by 40 percent as many heavy industry plants were shut. Between 1998 and 2002, when the government, led by Jerzy Buzek, undertook the biggest restructuring effort in

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cover story / Coal

recent history, around 100,000 miners were laid-off. In total, the number of coal miners working in the industry fell from 400,000 at the beginning of the 90s to 140,000 in 2002 and further to around 100,000 in 2015. Despite the decreasing number of underground workers, overstaffing and low productivity have become main features of the sector, negatively affecting its profitability.

But there are also other reasons for the poor results: deposits that were easily accessible have already been extracted, geological conditions are difficult, mines are underinvested and characterized by low effectiveness. On top of that, miners and administrative staff have enjoyed unreasonable benefits, including a thirteenth and even a fourteenth (!) salary, bonuses for miner’s day, transport cost refunds, a coal allowance worth a few thousand złotys a year, vouchers for food and others.

Top management have been politically nominated, with salaries not corresponding to financial results.

However, the major factor making coal extraction in Poland unprofitable is the low prices on world markets. Poland’s deep mines compete with open pit mines in Australia, the US, Kazakhstan and elsewhere, where extraction costs are much lower. In Russia, the cost of producing a ton of coal may be as low as $25, whereas in some Polish mines, it amounts to more than $100 per ton. Although 90 percent of demand is satisfied with domestic production, Poland is a net importer of coal, which means it imports more than it exports.

Janusz Steinhoff, former minister of the economy and the man responsible for the sector reorganization in Buzek’s government, admitted that “not only falling coal prices led to this situation, but also a lack of any motivation to carry out the restructuring process, making empty promises and ignoring economics by the previous gov-

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ernment.” Nonetheless, in the last couple of years, the mining sector in Poland had been bringing in profits as prices on the world markets were very high. In 2011, Polish mines earned PLN 3 billion, but the profits were consumed and spent on higher salaries instead of being reinvested to increase effectiveness. With China’s slowdown and Australia’s growing extraction, such price hikes are unlikely to occur again. Additionally, Western countries and the US are decreasing their dependency on coal, selling surpluses on international markets.

And falling oil prices have further dragged down the prices of coal, which declined from the all-time high of nearly $140 in January 2011 to the unprecedented low of $48.6 in January 2016.

“Decarbonization is heresy” “If a country has 90 percent of European coal deposits, if the energy sector is based in a decisive way on coal, then speaking of decarbonization is heresy and has an anti-state

character,” said President Andrzej Duda, referring to Poland’s energy security and economic calculation. There is widespread belief that energy from coal is the cheapest, which is generally true, but the case of Poland is more complex as the final price of one MWh doesn’t show hidden costs. Over the past 25 years, the state has financially supported the mining sector through direct and indirect subsidies, including financial transfers, canceling outstanding debt against central and local government, subsidizing social security contributions and internalizing externalities.

According to a report by Greenpeace, the bulk of direct subsidies were channeled into the mining sector in the 90s prior to Poland joining the EU. It was at that time when the most comprehensive restructuring plans were carried out. In the last couple of years however, due to EU law, this form of public aid was limited to R&D, downsizing workforces and environmental recultivation. Despite that, the state still finances the sector with abundant cash flows. For every złoty paid into the ZUS social security scheme by a miner, the state adds another PLN 0.8. Considering that miners retire early (aged 48 on average) and the chances that they will reach retirement age are 1/3 greater than in the case of an average man, the hidden value of subsidies to the social security scheme amounts to 152 percent, Greenpeace said.

Overall, the total value of public aid to the mining sector and coal-based electricity generation amounted to around PLN 160 billion between 1990 and 2012, Greenpeace estimated. In comparison, the

cover story / Coal

state supported energy production from renewables with the sum of PLN 19 billion in the period 2005-2012, of which PLN 7.4 billion was earmarked for co-firing biomass, which indirectly supports the coal sector, and PLN 4.7 billion went to old hydroelectric power stations. Only PLN 6.9 billion was spent on wind farms and other new generation renewables.

This won’t change anytime soon as Energy Minister Krzysztof Tchórzewski recently declared that “because of the renewable energy madness we are reducing our GDP growth.” In the meantime, the conservative Law and Justice government has passed a law banning construction of wind farms close to dwellings and hiking property taxes for wind farm owners, with the unspoken aim of stifling the industry.

With Poland’s deposits, coal should provide energy security for at least the next 20 years. But it’s time to think of other

Images: Shutterstock

}

sources. “Poland should differentiate its energy mix. Considering lack of investments in the coal sector, we will be coal importers in the future,” Steinhoff said.

Despite that, he is not a supporter of moving away from coal. The issue of profitability should be solved by far-reaching restructurization and the problem of CO2 emissions should be tackled by upgrading infrastructure. “Why eliminate one of the sources of energy? The only reasonable way of reducing CO2 emission in Poland is increasing the effectiveness of coal combustion. We have outdated power plants and there is huge space for modernization,” Steinhoff claimed. Nonetheless, upgrading infrastructure is a costly undertaking and with capital involvment in the coal group, energy companies may have trouble financing it, if the PGG project turns out to be a flop.

Janusz steinhoff:

“not only falling coal prices led to this situation, but also a lack of any motivation to carry out the restructuring process, making empty promises and ignoring economics by the previous government.”

Will it work this time?

So, how economically viable is the new governmental plan to rescue PGG with money from power utilities? The ministerial optimism expressed in the declaration that it will be the best coal company in Europe is not equally shared.

Think-tank WiseEuropa said in a report that the integration of the energy sector with the mining sector will have negative economic consequences unless it’s followed by the closing of consistently unprofitable mines and increasing the effectiveness of the others. It means limiting coal extraction by 40 percent in Poland’s three biggest mining companies and reducing the workforce by half by 2018. The report also stated that PGG, in the form that it emerged under the April agreement, has little chance of being profitable. The accord stipulates that only 4,000 out of 32,500 miners will take advantage of the voluntary redundancy program or the early retirement scheme. Head of Solidarity at KW Bogusław Hutek admitted that unions have agreed to suspend the fourteenth salary, but will not allow further redundancies or cuts to other benefits. And if the company generates a profit in 2017, the fourteenth salary could be restored…

Currently, only five out of 11 PGG mines are profitable, or are close to reaching profitability. Without further reorganization, the money from power utilities will be consumed within two years, and the well-performing mines would be forced to cover the losses of the laggards, instead of making necessary re-investments. The government is planning to merge the eleven mines into five, of which two – the most profitable and the highest loss generator – will be standalone entities. According to Maciej Bukowski, head of WiseEuropa, this move is necessary, but it will only work if the mines are categorized according to their profits, with a group of the worst performers destined for closure. As of now, the government has made no declaration regarding shutting down the pits. “Whether the PGG project will succeed is conditioned by determination of politicians and managers’ effectiveness. Of course, far-reaching restructuring is needed, which would encompass liquidation of some of the permanently unprofitable mines as nothing indicates that the exports of coal will be profitable in the foreseeable future,” Steinhoff admitted.

There is also the question of the effect of the plan on the energy companies. Some analysts declare openly that they would transfer the costs of helping the mines onto

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25

end-users. According to Krzysztof Kubiszewski from DM Trigon, the price of energy could grow by 11 percent at the Polish Power Exchange, which would translate to increases of around three percent for private users. Should the restructurization of PGG fail, each household could face covering the unprofitable mines with an annual sum of between PLN 220 and PLN 260, WiseEuropa said. It also added that in the next two decades, the energy companies would have to spend billions of złotys on modernizing infrastructure to maintain competitiveness.

The investment in PGG without its further reorganization could limit investment capabilities of PGE and Energa by PLN 12 billion.

Success conditional on political will Does coal mining in Poland have a future?

The example of the Silesia mine is telling.

After being taken over by a Czech company, the mine has started operating 24/7, the number of people working in administration was reduced by half - from 130 to 75, and miners’ benefits were reduced. Soon after the acquisition, the mine became profitable, with money being re-invested, not consumed.

When it comes to large state-owned companies, the picture is completely different. In heavily indebted Kompania Węglowa, 800 people worked in its headquarters, of which 28 were directors. Top management earned huge salaries, completely at odds with the desperate financial situation of the group.

At the other end of the payroll, the situation was equally dysfunctional, with 160 different trade unions vehemently protesting against any changes to miners’ benefits. And their salaries are more than decent. Suffice to say that an average miner earns 90 percent more than an average Pole, has an 89 percent higher pension, retires 11.2 year earlier and has 15 different salary bonuses per year. And it’s all subsidized by the state budget.

Poland could produce coal profitably for the next twenty years or so, but the government needs to have the guts and resoluteness to permanently shut down unprofitable mines and reorganize the sector. This will be politically difficult as miners’ unions are the strongest in the country and every move against their benefits is answered with massive protests in Warsaw. However, should the money from power utilities be wasted and consumed, in two year’s time PGG would require another cash injection from taxpayers through state-owned companies. And we would be right back to the same situation as we are in today. u

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The Silesian in 2004-2011,in Museum the ratio of Katowice is investment in situated in the road and rail transport was once industrial 86:14 in favor of downtown road – far off of the from the 60:40 city, including recommended the site of the to Poland by ‘Katowice’ the European Commission coal minewithin closed its balanced in 1999. transport development policy

“To survive, conventional stores will have to shift their approach away from the direct sales model to more of a customer advisor approach.

PLN 160 bln was the estimated value of public aid to the mining sector and coal-based electricity generation between 1990 and 2012, according to Greenpeace.

Images: Shutterstock

cover story / Coal

cover story / Coal

2019 Images: Shutterstock

is when the passenger rail market in Poland will be fully opened.

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feature / clothing

B y K a m i l a Wa j s z c z u k

b y K a m i l a Wa j s z c z u k

Sewn of good fabric Globalization has various consequences. One of them is that when you're on a high street or in a shopping mall in any given city, you are likely to recognize the logos of the most popular international brands. Nevertheless, if the city happens to be Warsaw, Kraków or Poznań, for example, the most popular international brands will be accompanied by the likes of Vistula, Bytom, Reserved or Top Secret – brands created in Poland and occupying a significant position on the market.

This doesn’t mean that you won’t see any of these names abroad – Polish clothing is slowly, yet surely, gaining ground around the world

s

o

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feature / clothing

individual outfits, rather than relying on standard men’s suits. For leisure time, Polish men choose modern, stylish clothing in which they feel comfortable. Sportswear is also becoming an increasingly important part of men’s fashion.

In 2015 the value of the men’s clothing market grew by 3 percent year-on-year to PLN 7.02 billion compared to a 3.2 percent y/y growth (to PLN 12.32 billion) recorded in the women’s clothing segment, the research firm said. “The reason for the relatively slow performance is the specific consumption patterns of Polish men, who are usually driven by the practical value of the apparel they purchase. As they are less fashion-oriented than Polish women, the scale and dynamism of their purchases are respectively at a lower level,” Euromonitor analysts wrote.

Nevertheless, looking good is becoming an increasingly important aspect of personal image among men in Poland.

Although these changes are occurring slowly, a rising number are paying more attention to the purchasing of their outerwear in order to make a good impression at work or at social events. “The significant driving factor is steadily rising salaries amongst a significant number of consumers, which is especially noticeable in the largest Polish cities. Moreover, the younger generation who live in the largest cities care about their image and tend to follow current fashion trends. Evidence of this trend is also the increasingly widening male client list of personal stylists,” the research firm added.

Image: Shutterstock

P

olish women have always aimed to be trendy, even in communist times, when getting your hands on fashionable clothing was something of an achievement. Many of them even opted to make their own clothes to ensure they looked good. This drive for a smart, fashionable look was not necessarily true for men. However, in the past few years their attitude has been changing.

Euromonitor’s research shows that Polish men are spending increasing amounts on clothing. They buy consciously and are guided chiefly by the quality of clothing, but not particularly by brand. Similarly to women, working men are increasingly choosing to put together their own

Strong local standing While Poles may have been fascinated by everything foreign – or more precisely Western – in past decades, they have also always been loyal to well-known local brands. This attitude has not just remained unchanged, it seems to be growing stronger. Crowds storm numerous events organized to promote young Polish designers and it has become trendy to wear clothes designed and produced in Poland. “‘Slow Fashion’ and other events organized in Warsaw and Łódź show that Poles, especially women, seem tired of clothing supplied by the big chains and that they are searching for an original look,” said Bogusław Słaby, president of the Lewiatan Association of Fashion Industry Entrepreneurs.

Young designers may be the future, but

The big names

Market leaders by segment Men’s clothing 1. LPP SA 2. H&M Hennes & Mauritz AB 3. Inditex, Industria de Diseño Textil SA 4. Vistula Group SA 5. Redan SA 6. C&A Mode AG 7. OTCF Sp zoo 8. Adidas Group 9. Otto Group 10. New Yorker Group-Services International GmbH & Co KG Women’s clothing 1. LPP SA 2. Inditex, Industria de Diseño Textil SA 3. H&M Hennes & Mauritz AB 4. Otto Group 5. Orsay GmbH 6. Redan SA 7. C&A Mode AG 8. New Yorker Group-Services International GmbH & Co KG 9. Pepkor Holdings Ltd 10. Camaïeu SA Source: Euromonitor International

established brands are already important players, even more so if only the men’s clothing segment is taken into account.

LPP, the owner of such brands as Reserved, Cropp, Mohito, Sinsay and Tallinder, is the market leader with a more than 10 percent share in the Polish apparel market, according to the firm’s own data. The company already has 962 stores in Poland and hopes to cross the 1,000 threshold before the end of the year. It also has foreign expansion plans.

Another major player is the Vistula Group, which sells clothing under the brands Vistula, Vistula Red, Vesari, Wólczanka, Lantier, Lambert and Deni Cler, and jewelry under the W. Kruk brand. In total, it has more than 320 stores around Poland, including 198 under the flagship Vistula and Wólczanka brands.

Both the Vistula and Wólczanka brands were well established in Polish menswear before most foreign players had even considered entering the market.

The same can be said of Bytom, taking its

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feature / clothing

name from the original factory’s location, a city in Silesia in southwestern Poland.

The firm now sells in almost 100 stores across Poland and its network continues to grow.

Another well-established name, now undergoing a revival, is that of Próchnik, selling as Adam Feliks Próchnik and Rage Age. Known for decades as a menswear manufacturer, it has recently introduced womenswear. The company is in the process of building a sales network, which is to consist of about 50 stores in Polish shopping malls.

Redan, which manages brands such as Top Secret, Troll and Drywash, targets mostly women, though its position in menswear is also strong. The company

also has a budget division, Textilmarket.

In each of these segments it has more than 350 stores (in Poland and abroad).

Polish market leaders outperformed the general market in 2015 but their expansion is part of a more general trend.

“The growth of Polish companies was in line with strengthening positions of other apparel and footwear giants (H&M, Tesco, Deichmann, Zara), as the market was becoming more concentrated,” said Povilas Sugintas, research analyst at Euromonitor International.

London, Moscow, Abu Dhabi Local companies active on a saturated market are likely to look for demand elsewhere. Some Polish clothing companies

have already found markets abroad.

In total, Polish clothing exports may not be that impressive (only about 2.4 percent of total exports) but they are likely to grow. In 2015 their total value amounted to €4.24 billion compared to €3.37 billion a year earlier, according to data from the Ministry of Development.

Market leader LPP is also a forerunner in terms of foreign presence. In January this year the company made news by opening a Reserved store in the capital of the United Arab Emirates, Abu Dhabi.

Just a month earlier, it had signed a preliminary agreement to start operating on London’s prestigious Oxford Street. It is already present in 20 countries in Europe and the Middle East, and generates about

Room for growth

Menswear and Womenswear market value (PLN mln) 2015 Growth Segment 2014 Menswear

6,812.5

7,017.9

3%

3.2% Womenswear 11,933.50 12,318.5

Source: Euromonitor International 37 percent of its revenue through exports.

Redan’s export sales represented only 7 percent of their total revenue in 2015, after a decline due to the unfavorable situation on East European markets, where both political and economic factors have played a part. Growth in the Czech, Slovak and Romanian markets has so far not compensated for the loss.

Direct exports under Polish brands in past years had focused largely on the eastern direction, with Russia as a major market. Unfortunately the political situation has taken its toll on the sector, just like many other Polish industries, and eastbound clothing exports have declined, Słaby explained.

Sewing powerhouse?

An aspect that is not visible in official statistics is exports of apparel ordered in Poland by foreign companies. While many Polish companies are placing orders in Asia, prestigious brands from the West

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Images: Shutterstock

feature / clothing

tend to manufacture in Poland. However most of them tend to use “made in the EU” labels on their apparel.

Goods sold under foreign brands constitute a large part of Polish clothing exports – possibly even about 70 percent. Following a period of less activity, Poland has once again become an important spot on the clothing manufacturing map.

Poland’s competitive advantages are quality and experience. The latter dates back to the earlier days when Poland was one of the few countries in Europe that offered the production of quality apparel.

“The tradition has remained – western companies trust us,” said Słaby.

Also, in the case of many major Polish sector firms, part of their top-notch production is being brought back to Poland.

This is because Asian manufacturers are unable to meet the concurrent requirements of short deadlines, short series and high quality, Słaby added.

Though big players such as LPP and Redan commission a large part of their production volume in the Far East, part of their clothing is made in Poland. Others, such as Bytom and Vistula Group, have also maintained local factories – in Tarnowskie Góry, Kraków and Ostrowiec Świętokrzyski.

According to Słaby, the small share of Polish-branded exports is not only due to the low recognition of Polish brands.

“It requires major investments, not all players are in a good enough condition to enter foreign markets,” he said.

However, things may look different in a couple of years as Polish companies are preparing increasingly ambitious expansion plans. Others are still focusing on establishing their position on the domestic market, but in future years they may have to adjust their strategy in order to continue growing.

In Słaby’s opinion, one of the biggest challenges the industry has to face today is the shortage of employees, as education aimed at clothing production is not sufficiently popular among young Poles. The industry is, however, working to change the situation through various means of promotion.

Regardless of that fact, Słaby is convinced there is potential for further growth of Polish clothing brands – “The perspective is optimistic. The sector has prospects. The problems are being resolved but we still need time.” u

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feature / middle east

Advancing in the Middle East B y a l i cj a c i s z e w s k a

Middle East countries are very far from being able to be named as Poland’s major trade partners. Yet, Polish exporters would lose a lot if they neglected to establish solid trade ties with these fast-growing regions

To

many, the Middle East may seem to be the very center of the world’s largest wars, inhabited by either wealthy sheikhs or rather poor societies. However, this region is recognized as one of the most promising for European companies, since it has been recording soaring GDP for a few decades.

“Although a major part of the Arab world has plunged into massive turmoil, we have to keep in mind that it is a very diverse region and one can find big markets there which operate without any interference.

Properly prepared and directed expansion could bring Polish companies real business success,” Przemysław Polaczek, managing partner at Grant Thornton pointed out. Over the last five years, Saudi Arabia’s economy has risen by 5.3 percent year-on-year on average, Qatar’s GDP increased by 9.6 percent, while the United Arab Emirates (UAE) recorded a 4 per-

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cent growth. At that time, the euro zone grew by just 0.6 percent (IMF), hence, it took Saudi Arabia seven months to make up the numbers which it took the euro zone five years to achieve. Despite some declines, forecasts continue to be promising. HSBC estimated that the UAE’s GDP will slow to 3.1 percent in 2015, Saudi Arabia’s to 3.6 percent and Qatar’s to 5.6 percent. Meanwhile, the euro zone economy will rise by only 1.3 percent.

One percent that matters Last year, Poland recorded a trade surplus with almost all the region’s economies. The total turnover reached nearly €9 billion, and exports alone amounted to €5 billion (see: table). Overall, an increase in exports with Middle Eastern countries stood at some 10 percent on a yearly ba-

feature / middle east

Image: Shutterstock

Image: Shutterstock

sis. Poland exports grains to Saudi Arabia, Iran purchased sound receivers, Jordan acquired aerial vehicles, mainly from PZL Mielec. Qatar was a buyer of mechanical and electronic devices, Kuwait - food and agricultural products. Lebanon and Syria imported foodstuff, such as sugar, bread, chocolate products, among others. What’s interesting, almost half of the products sold to the UAE market were mobile phones.

Despite the fact that the exports to Middle Eastern countries account for only one percent (0.5 percent to Turkey alone), those markets have potential to become quite profitable for Polish companies. Experts claim that Polish food, energy, apparel, furniture, construction and cosmetics sectors have, and will, benefit the most from the trade exchange. In particular, Saudi Arabia, Qatar and the UAE, where the emerging middle class is in need of consumer goods. Polish fashion retailer, LPP opened around 200 stores in Poland and abroad in 2015, expanding its number to some 3,200. As the Ukrainian crisis had an impact on the firm last year, LPP will expand its business mainly in the EU and the Middle East, i.e. Egypt, Saudi Arabia, Kuwait, Qatar and the UAE. Wójcik, a producer of children’s clothing is also considering entering the Middle East. Moreover, the Polish cosmetic sector, which is currently the sixth largest in Europe has been conquering the region too.

Polish-made cosmetics are recognized as high quality products at reasonable prices. Inglot Global Cosmetic is planning to open 100 stores in the United Arab Emirates by 2020. Opening stores in the UAE is a part of the company’s broader strategy of launching 220 units in the countries of the Persian Gulf Cooperation Council. As for now, Inglot has 19 stores in the UAE. The region accounts for 8 percent of the firm’s total sales revenue. Delia Cosmetics proudly admitted that in comparison to 2012, it doubled its sales in the

Middle East last year. Eveline owns 120 outlets in Dubai alone. Laboratorium Kosmetyczne Dr Irena Eris is finalizing agreements with distributors in Bahrain, Kuwait and Qatar. Polish companies admit that the Middle East is difficult to enter, but it’s worth the effort. “We think that the market is really challenging, but it creates opportunities to establish long-term trade relations,” Ewa Sabaj, Export Manager at Blux Cosmetics told Bankier.com web portal. Arab countries are one of the directions that Polish shipyards have moved in. As many as 100 Polish boat and yacht manufacturers sell nearly their entire production output (99 percent) abroad and in Europe.

The Far East, as well as the Middle East, are their major markets according to the Polish Chamber of Marine Industry and Water Sports. An interesting detail is that Poland is the world’s second largest small motor yacht producer and the sector has been chosen by the Polish government as a beneficiary of financial aid provided from EU funds.

Polish technology has also entered the Middle East. The mobile payment system provider mPay signed a seven-year deal with Bahrain-based eTime IT Solutions this year. It was the firm’s first international contract. In line with the deal, customers from such countries as the Kingdom of Bahrain,

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feature / middle east

Bread basket for the Middle East Due to the unfavorable climate conditions, Arab countries face an undeniable lack of food. For instance, Saudi Arabia imports some 90 percent of its fresh and processed food, Iran buys around 85 percent. Poland’s food and foodstuff exports will be valued at €25 billion in 2015, according to estimates from the Ministry of Agriculture. Domestic producers have been selling food products to the Middle East, as it was mentioned above, and experts claim this sector is one of the most promising in the mutual trade exchange. Nevertheless, Polish exporters have to deal with strong competition from the likes of German and French firms. What’s worth noting is that Polish food processing technology is also desirable in Arab countries, in addition, Polish companies may successfully establish joint ventures in the sector, the Saudi Arabian embassy to Poland pointed out. Sławomir

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Majman, the former president of the Polish Information and Foreign Investment Agency (PAIiIZ), recognizes the Polish food sector’s achievements in the United Arab Emirates and believes that Poland should pursue exporting food there. The Ministry of Economy also identified Oman as one of the biggest potential importers of Polish food and food technology, but such countries as Jordan, Lebanon and Kuwait have not been mentioned.

Go Iran?

Former Minister of the Economy, Janusz Piechociński said that the landmark nuclear deal with Iran creates a great opportunity for Polish farmers, since the Persian country imports 85 percent of its food products and, what has to be noted, Polish food exports to Iran have grown threefold since 2011. The minister claimed the improvement of relations with “a big market that has money,” is a good sign for the Polish economy. Poland may offer Iran such foodstuff as fruit, juices, honey and grains as well as car parts, medical equipment, furniture and building materials. “The normalization of relations with Iran is a great opportunity to sell several thousand railway carriages, several thousand trams, subway cars, very large amounts of food. This is a huge opportunity to export Polish poultry and beef, a great opportunity for many technologies,” Piechociński stressed. A few weeks later, Piechociński went on a trade mission to Iran where he signed an agreement of economic cooperation with the country. The document is to enhance intergovernmental cooperation as well as the trade exchange between the two economies. Piechociński stressed that “the Polish government knows the specification of Iranian crude oil and it can be processed at Polish refineries. “Under the agreement, a joint committee will be established whose main tasks will be to analyze the current economic cooperation of the two countries and suggest recommendations for the governments.

The former economy minister suggested that Poland, precisely PAIiIZ, should introduce the Go Iran program. Majman shared his optimism saying that it is high time to bring it into being. Although Go Arctic has recently been launched, there has been

Images: Shutterstock

Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Oman will be able to use mPay’s application to pay for bus and parking tickets. Firstly, the app will be delivered to the Bahrain market, within a year after eTime IT Solutions obtains the necessary permits.

Experts stress that the Middle East region is a great construction site nowadays, where high quality materials, services and professionals are necessary.

“Arab countries are characteristic for many investment projects, which are not only offices, but hotels and housing schemes, there are entire cities being built from scratch,” Antoni Mieleniczuk, the president of PolishSaudi Economic Chamber told Puls Bzinesu daily. Saudi Arabia alone will earmark $550 billion for infrastructural investments in years 2012-2015.

Krzysztof Woźniak, head of the international banking department at HSBC Polska argued that local authorities invest in “great infrastructural projects,” with the support of foreign entities, and this is an opportunity for Polish contractors or consultants specializing in the creation and management of engineering ventures. Unfortunately, some claim that Polish construction firms could be too weak to enter the Middle East, additionally, the leading firms have Spanish (Budimex and Mostostal Warszawa) and Austrian (Strabag) owners who will not let them be present in the market in which they have been operating for years, Maciej Stańczuk, the president of Polish-Saudi Arabian Business Council told Dziennik Gazeta Prawna in 2012.

feature / middle east

no official announcement for the implementation of the Iranian project, even PAIiIZ staff are wary of giving any details regarding the idea suggested by Piechociński. Let’s hope it did not die when the minister left office. The Minister of Development, Mateusz Morawiecki, who replaced Piechociński, called for deepening cooperation with ASEAN countries. So far he has not mentioned anything about advancements in Iran. Moreover, following the mission, the Polish-Iranian Business Council was established. The council was formed during a conference on “How to export to Iran,” held in Warsaw. The Chairman of the Council, Jacek Sosnowski, stressed that “trade relations between Poland and Iran must be enhanced, so Polish companies are not left behind by their competitors from other European countries.”

Acting on their own Meanwhile, Poland’s largest refiner, PKN Orlen has become interested in investments in the Iranian oil sector in the event that economic sanctions imposed on the country are lifted, according to the Shana press agency, which cited Jarosław Zacharski, G&G Manager at Orlen. This was not the first time the media has speculated about the Polish company getting involved in the Iranian market. In late April, Reuters said that PKN Orlen had bought a 122,000 metric ton shipment

of Iran’s gas condensates for its Mazeikai complex, however, the news was denied. What is more, Iranian media reported that Polish statecontrolled gas and oil giant PGNiG is keen on carrying out investment projects in Iran after the possible lifting of sanctions that had earlier been imposed on the country. “Years ago, the Polish firm participated in the Lavan gas project and now it is ready to come back to the developing Iranian market,” PGNiG representative to the Middle East, Bogusław Sozański told Mehr agency, adding that the company is likely to open its office in Tehran. Abbas Sha’ri-Moqaddam, the Iranian deputy petroleum minister informed that talks with the Polish party have already begun and they are regarding cooperation in petrochemical projects. “The main subject of the talks with the European firm is a purchase of equipment and the newest technology for the petrochemical industry,” he said. However, he did not mention the name of the “European firm.”

Hunting for new chances “As for now, we are making our presence felt in the UAE and Saudi Arabia but there are lots of countries in the Middle East with which we can cooperate closer,” Radosław Jarema, the CEO at Akcenta, CEE leading non-banking financial institution argued. Furthermore, regarding the above, Polish companies have also started advancing in Iran. In his and other experts’ opinions, Jordan, Qatar, Bahrain, Kuwait and Iran (if the market opens), could, and should, be of interest to Polish exporters in the near future. u

Trade exchange with Middle East countries, 2015, data in € million Country Exports Imports Turnover Balance Turkey 2,796.8 2,592.0 5,388,8 204.9 The United Arab Emirates 697.4 114.1 811.5 583.4 Saudi Arabia 572.5 162.8 735.3 409.8 Israel 461.1 296.5 757.6 164.6 Iraq 168.8 608.2 777.0 -439.4 Jordan 84.9 1.1 86.0 83.8 Lebanon 61.1 11.5 72.6 49.6 Kuwait 63.9 0.4 64.3 63.5 Oman 37.8 8.3 46.1 29.5 Qatar 44.5 17.1 61.6 27.4 Iran 45.1 29.3 74.4 15.8 Syria 7.3 1.0 8.3 6.4 Bahrain 17.8 22.9 40.7 -5.1 Yemen 9.6 0.0 9.6 9.6 Palestinian National Authority 5.7 2.0 7.7 3.7 Total 5,074.3 3,867.2 8,941.5 1,208.9

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More success in Polish-Iranian trade The May 2016 trade mission of the Polish-Iranian Business Council to Tehran and Karaj (Islamic Republic of Iran) brought further developments on the Polish-Iranian business front. The Council, representing its members, signed a number of MoUs and Letters of Intent and moreover organized a series of bilateral meetings between Polish companies and their Iranian partners.

- One of the Polish firms invited to a series of pre-arranged negotiations was Natanek Nova whose representative met three corresponding firms, including Aryamasir, and discussed cooperation in transportation and logistics – says Nima Akhavan, Vice-Chairman of the Polish-Iranian Business Council. – The Polish company was given access to 3 different counterparts and the partnership is now coming into effect.

PIBC has several affiliates in Iran who are active in preparing sales, distribution, investment and partnerships on the Iranian side.These operations are performed by individuals as well as consulting firms to provide the best results and the quickest possible means of entry for Polish businesses into the Iranian market.

Nima Akhavan adds: - Over the course of the past few months we have proven that individual, personalized trade visits to Iran are successful and dedicated B2B meetings that solely concentrate specific Polish and Iranian companies result in highly effective talks between parties. Our affiliate companies and agents constitute our full representation in the country and let the Polish side have a deeper insight into Iranian potential.

Out of the number of sectors that are interesting for Poland, Iran expresses greatest hopes in investment, hotel and leisure, manufacturing, technologies and commodities. This does not mean that direct exports to Iran is not possible, but the idea of manufacturing locally will be brought up right away.

- We are not only representing our member firm but also conduct negotiations, perform pre-sales activities and common communication for them. – describes Jacek Sosnowski, Chairman of the Polish-Iranian Business Council. – One of the most fruitful meetings with Tarsam, manufacturer of packaging lines, resulted in co-operation with a Polish supplier of worldwide patented packaging technologies.

- PIBC also signed a number of memoranda to begin Iranian

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expansion of Polish companies active in the following sectors: Sulphur, innovative technologies for railway and manufacturing, telemedicine and e-health, oil & gas machinery and energy among others. – Jacek Sosnowski continues: - The big hit though is investment. We presented to our Iranian partners a scheme of financing and investment options for the hotel and leisure sector and this is exactly what Iran is looking for at the moment.

The program is designed not only to provide money for building projects but also to promote Polish subcontractors and suppliers of materials, installations and fittings.

As Poland is only one of the European countries trying to enter Iran with its products and services, the Polish-Iranian Business Council also looks at the other direction of trade. What it promotes in Poland is Iranian stone (such as onyx or travertine), car parts and food. The latter is not yet well known in Poland but presents high marketing and sales potential. Experts see prospective in importing saffron, nuts and dried fruits on a larger scale. Being in the world’s TOP15 in car manufacturing, Iran is capable of supplying Polish factories with prefabricated parts and vehicle equipment. This kind of co-operation has already started but organizing it into key partnerships would bring mutual benefit.

Furthermore, PIBC is now looking for a Polish company willing to enter a know-how (and non-investment) partnership aimed at starting a potassium sulfate production line in Iran.

Contact: www.pibc.org.pl.

IT / body leasing

Tech Insights

WBJ OBSERVER • march 2016

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Tech / Jon von Tetzchner

Browsing histories Is there room for yet another internet browser in the hyper-competitive browser industry?

How has the internet browsing business changed, where is it headed, and when will we finally get to the promised land of the Internet of Things? – WBJ Observer asked Jon von Tetzchner, the co-founder and former CEO of Opera Software, currently working on his next endeavor – Vivaldi Technologies i n t e r v i e w b y b e ata s o c h a

How is Vivaldi different from other browsers?

If you look at all the browsers on the market

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today, they’re all limiting their functionalities – if something isn’t used very often, you cut it. Some of it is dictated by the business model, some by the company’s philosophy.

We have a different philosophy. We all spend a lot of time on the internet. Probably more than an hour a day. A lot of people spend three, or even up to 10 hours a day on the internet. We’ve made a tool that will adapt to you and your usage. Take tab management for instance. Many of us have a lot of tabs open simultaneously. What happens in other browsers is that they don’t get enough space and get crammed. We’ve done several things to make their use more efficient: if you close a tab by mistake, there’s a simple “undo” button. Another functionality we’ve added is “tab stacking” – you can get your

tabs one on top of another, so they don’t get too crowded.

How is the market responding to Vivaldi?

Extremely well. We get a lot of positive feedback from end users and from journalists.

People like what we are doing.

Do you think the browser market is saturated as it is?

I don’t think so. If you asked me if there is room for another car, I’d say yes. Look at Tesla. Even after a century of competition in a market, there is always room for improvement and change, for something a bit different.

Of course, building a browser is not trivial.

I’ve seen a lot of companies try and fail. It’s

Image: Vivaldi Technologies

WBJ Observer: Your latest endeavor, Vivaldi Technologies, officially released the Vivaldi browser in April 2016. What is it like to deliver a product in such a competitive market?

Jon von Tetzchner: I’ve been making browsers my whole professional life, since 1994. When we started working on Opera, the leading browser was Mosaic and most people today don’t even know what Mosaic was. So, starting again with Vivaldi was not unfamiliar territory. This is something that my team and me know better than anything else.

Tech / Jon von Tetzchner

about whether you have the stamina, the right product etc. If you count local browsers, there’s between five and ten browsers currently on the PC market. And, yes, there is room for more, if you know what you’re doing.

What are the challenges of working on a freeware product?

It’s not a problem if you have a working business model. You don’t need to have people pay for a product. You get money through search partners and affiliated bookmarks. At Opera we had revenue of $1 per user per year.

It boils down to how many people you need to create the necessary revenue. I like that we can focus on one thing: creating a product attractive enough for people to want to use it.

How has the browser industry changed over the past 20 years, since you founded Opera?

It’s been changing gradually. When we started with Opera, we only had PCs. We had to convince people that browsers would also be needed on mobiles, on pads, on television.

One by one, they have all fallen into place and people have realized that mobile is a part of the internet equation. When we were doing it for the first time in 1999 at Opera, that was not the case. First we did PDAs, then mobile phones like the Nokia 9210, then smartphones and we moved from there. We made our first delivery on a web pad in 2000.

That was years before the iPad. Yes. We believed in mobile technology and for a long time we had to convince people it was going to happen. They didn’t believe me until the iPad came out. We worked with Ericsson, Nokia and Motorola. Sadly, many of those projects never came to the market. The financial crash happened and a lot of promising projects were scrapped.

After PCs and mobile devices, what’s the next frontier for the browser business?

Television and consoles. We’ve delivered on Samsung, Sony, Toshiba, as well as Nintendo Wii. I think that television still hasn’t used all its potential and has a way to go when it comes to internet browsing.

What about the Internet of Things? Naysayers claim that if it was going to happen, it would have happened by now.

As the cost of processing power is being reduced significantly, it opens up a lot of devices to being connected. Sure, I would expect

Browsers market share For desktops

39.61% Chrome Microsoft Internet Explorer 36.55% Firefox 7.86%

Microsoft Edge 4.71%

3.6% Safari Opera 1.79%

5.88% Other For mobile devices and tablets Chrome 48.21%

28.11% Safari 8.00% Android Browser Opera Mini

4.36% Microsoft Internet Explorer Mobile 3.20%

8.12% Other Source: Netmarketshare.com my home to be more automated that it is today. In a lot of ways we haven’t really come that far from the technologies of the 1970s.

There’s a book on home automation using the Timex Sinclair 1000, a computer launched in 1982 that had 2 KB of memory!

If you can control your home with that thing, why haven’t we come further with the processing power we have available now?

Why indeed. What do you think is standing in the way?

The technical solutions that are being offered have not been standardized. You need a standardization body to take advantage of the wealth of innovation that is out there.

That’s what happened with the World Wide Web. The reason why the Web is so successful is because it was done at CERN and the guys responsible for it decided not to patent it. They decided that everyone could develop the Web, and they were just providing a great tool.

There are a lot of small and big companies. It is possible for a big company to launch technology that is good or even great, but if it isn’t backed by other companies, it becomes limited. I remember that at the first Web conference, a person from Apple said that the Web was a copy of their HyperCard. The reason HyperCard has disappeared and the Web turned into a massive success is that the Web

is open, not to mention that the people who did it were brilliant.

How can we solve the problem of standardization, or the lack thereof?

It would require all the parties that want to engage in this market to come together and agree on certain principles. Ideally it would be through the W3C – the World Wide Web Consortium. Things have been moving slowly, though. We were working on this at Opera from 2005, looking at communication between devices. I think we had some good ideas and I would like to see something come out of that.

You worked with a lot of Polish programmers at Opera. What do you think of their skills?

They were great. They were very competent and I do hope to work with them again.

Why did you decide to work with Poles instead of outsourcing to India, for example?

We did some work in India as well. But with Poles, distance is important and communication is easier. Polish people are very much like Scandinavians in the way we behave, talk, and how we engage. That’s why Poles who move abroad and work in Scandinavia integrate well with the community. u

WBJ OBSERVER • june 2016

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t e c h / P e t er S u n d e K o l m i sopp i

inter v iew by beata soc h a

A gated community The internet may have once been used for a free flow of information, but it is becoming increasingly monopolized, with a handful of corporations in charge of all of our data. WBJ Observer talked to Peter Sunde Kolmisoppi, co-founder of the highly controversial torrent search engine The Pirate Bay, hacker and activist, about the future of the internet and media

WBJ Observer: What prompted you to create The Pirate Bay? Peter Sunde Kolmisoppi: For us it was fun and it was about trying out new technologies, as well as to providing a place for Scandinavian people to share files. There was no big mastermind plan behind it.

The website has changed its address many times. Why? It always gets censored in every country.

That doesn’t sound too optimistic. What do you expect the internet to be like in 10 years’ time?

Even worse. A lot of fiber cables are owned more and more by the same companies, so the ownership of the infrastructure is more and more centralized. The ownership of our data is also increasingly centralized, with Facebook buying Whatsapp and Instagram, and they are likely to buy more companies. I think we’re going to end up with three or four super-companies that are going to own 95 percent of our internet.

Can the problem be solved? Should the internet have more anti-monopoly oversight?

The regulations that are being put in place determine what we cannot do on the internet instead of defining our rights as users. Finland is the only country where the internet was made a human right. It is a human right to have access to the internet. We should do that in all EU countries.

Besides, we should make sure we have an understanding of what the internet means. Ownership of the internet should be more local or regional. Just like with roads. You wouldn’t allow a road, say a highway, to be owned by a company.

Whether or not you are against a class society, we all understand that basic infrastructure should be open to everyone.

That is not happening, instead it is being monopolized.

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Is there anything that governments can do to prevent data monopolization?

If governments were more hardcore, they would. But they’re not. It would be good if the EU said, for example, that your data is owned by you, and a corporation can only post it for you. But if you want, you can freely take it to another provider. Regrettably, that’s not going to happen because companies like Facebook simply have too much power already.

How do you respond to the accusation that The Pirate Bay promotes stealing?

Stealing means taking something from someone and preventing them from using it. By definition, sharing cannot be stealing. It’s a violation of license, a civil type of case, not criminal. Also, what we see is that there is a correlation between how much people copy things and how much money they spend on media. The more they copy, the more the industry makes. So the argument doesn’t hold.

For me, personally, I don’t care about the entertainment industry, I care about culture. Culture is what connects people all over the world.

Do you think that services such as Netflix will render peer-to-peer file transfer obsolete?

In some cases it will. In most countries, however, society isn’t wealthy enough for everyone to afford such services.

Besides, Netflix has a really bad service in many poorer countries.

But where and when it does limit peer-to-peer activity, it will widen the gap between those who have access to culture and those who don’t, and lead to even more of a class society. u

Images: Shutterstock, Wikimedia

How has the internet changed over the past ten years, since the early days of The Pirate Bay? It has changed from being very open and decentralized to being very closed-down and centralized. People do not talk much about the internet itself. They talk about being on Facebook, Tumblr or Twitter, but not about the internet, and it has changed tremendously over the years. From a doorway that is open to anyone, it has become more and more like a gated community. You can’t leave or enter without permission.

commentary / IT

Marcin Gabryszak Pałucki Trusiński Prawo I Podatki sp.j. trainee Advocate IT LAW SPECIALIST

Life after Safe Harbor – will it be better with Privacy Shields?

Contrary to the European Union, the United States is known for its liberal approach to personal data protection. Proof thereof lies in the fact that there is no equivalent of the Inspector General for the Protection of Personal Data overseas. This may seem shocking, but the United States treats personal data protection more as a part of consumer rights rather than an important element of the right to privacy.

This liberal approach has resulted in the issue of personal data transfer from the European Union to the United States.

European legislation, Directive 95/46/EC in particular, requires foreign companies processing personal data to “ensure the appropriate level of personal data protection.” This regulation led to a problem – namely the question of how to standardize requirements for the American market with regards to personal data protection, if only because of fast technological development and data transfers, including personal data.

On July 26, 2000, the Commission made a decision by which it decided that all organizations from the United States which were to become members of the so-called “Safe Harbor” program shall be deemed to have met the requirements related to the protection of personal data of European Union Member State citizens, thus making an unprecedented decision and a very big nod to the American market.

Obtaining a “Safe Harbor” certificate did not require any extraordinary effort and the procedure was not too complicated either. The only requirement was confirmation of the use of safety according to Directive 95/46/EC. The submitted declarations were not subsequently controlled in terms of their content.

This led to a dispute, which resulted in the decision of October 6, 2015 – file no. C-362/14 – in which the ECJ declared the aforemen-

tioned decision of the Committee to be invalid, thus national courts had to analyze each case in order to determine whether American companies guarantee the protection level of personal data required by European regulations.

The situation described above forced the creation of a new, effective system of personal data exchange between the European Union and the United States. But was it created successfully?

At the beginning of 2016 (and after the transition period following the verdict regarding Safe Harbor), Brussels and Washington informed that they had ended negotiations related to a new mechanism enabling transfers of personal data of European citizens to American companies.

The new programme was given a working name of “Privacy Shields.”

The proposed solution, however, is currently being criticized during ongoing discussions. The solution is not going to change too much in practice. Critics indicate that it will be based on the similar (erroneous) assumptions as Safe Harbor, with particularly striking elements such as lack of a regulator and of a mechanism enabling jurisdiction over control measures applied to personal data processing, especially given that the new mechanism will also be based on the declaration of an applicant.

A solution to the issue of transnational personal data processing to the United States would definitely involve the implementation of universal regulations in this country, ensuring personal data protection under auspices of a regulator or a regulatory body. However, this is very unlikely to happen in the next few years. u

WBJ OBSERVER • June 2016

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commentary / start-ups

Ken Globerman, is a marketing and investment professional operating in New York and Warsaw.

He writes, teaches and works with investment funds, corporate accelerators and small to midsize companies on investment strategy, investment communication and strategic financing issues.

Top 7 Missteps Made By Polish Start-ups

#7: Feeding an addiction to “free” money

“Free” money refers to grant funding that needn’t be returned. Since joining the European Union in 2004, Poland has been a net beneficiary of economic development funds, with an eye towards supporting small businesses. The positive impact: a

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significant increase in local start-up capital. The negative impact: fund recipients conditioned to complete projects rather than build financially sustainable businesses. For serial entrepreneurs who prefer to build things rather than sell them, it’s clear how this construct could become addictive. #6: Making cool stuff rather than listening to what customers want

Polish start-ups are awesome at building things, they are often comprised of very technically talented teams that evolve out of academic projects or PhD dissertations. As a result, leadership is usually technically strong but lacks balance with softer intuition.

Polish start-ups often get caught up building the perfect prototype with tons of cool features without stopping to invest appropriate energy into whether anyone is interested. It’s the “if you build it, they will come” philosophy. #5: Copying foreign success for Poland

Many businesses have been built upon copying the success of others. But copying foreign success and focusing solely on the Polish market can be tricky.

Poland’s relatively large European economy acts as both a blessing and a curse. The blessing is obvious.

But the potential curse is that it’s neither quite strong enough nor big enough to scale most internet-enabled services start-ups in isolation. Successful startups from small countries like Estonia, Slovakia and

Image: Shutterstock

The start-up scene in Poland has evolved rapidly over the past decade. Thanks to the support of a few well-managed investment funds, select technology parks, EU public funds and supportive corporate accelerator programs, the Polish start-up ecosystem has moved beyond infancy, and is now making its way through economic adolescence.

Like most adolescents, maturity comes with its fair share of growing pains. I’ve spent the better part of five years meeting and working with dozens of small businesses and start-ups in Poland. And while working with some very talented people, I’ve witnessed some basic missteps worth sharing. Here is my top seven:

commentary / start-ups

Israel understand this right away. They build brands that avoid becoming constrained by geographical borders or pigeonholed by cultural bias. #4: Undervaluing sales, marketing and customer relationship management

The typical Polish technology start-up consists of a couple of co-founders with advanced technical degrees, perhaps a small technical support staff, and one totally inexperienced sales/marketing person.

The sales/marketing person on board acts more like an order taker rather than a relationship manager or deal closer. Start-ups often downplay the role of sales and marketing, hoping they can rely on external sales partners, online marketing and social media. Now to be fair: can a sales channel strategy work? Sure. Have products gone viral through social media? Of course.

But I’ve witnessed too many Polish start-ups completely miss the value of building a strong customer relationship management culture into their respective organizations from the onset. #3: Overstressing valuation.

Too little concern for everything else

What’s my start-up worth? When it comes to raising capital, time and time again, I find co-founders fixated on valuation. I’m not suggesting valuation is unimportant, but most co-founders fail to prioritize it appropriately with the many other factors one can find in a term sheet, such as: preferred rights, operational control, board composition and other investment conversion features. Valuation should be considered in conjunction with all of the other details. Start-ups that work on raising their “Financial IQ” go a long way.

#2: Awkwardly handling Polish roots with potential foreign partners

Poland is a wonderful place: full of rich landscapes, resilient people, interesting cities and a complex history.

But few outside of the region are aware of it and you’ll rarely hear Poles express things quite this way (they see this language as “showing off ”). No one likes a showoff, but the opposite impulse works against one’s natural ability to promote. Poland lacks a strong international identity. Combine this with poor promotional instincts, and you have a greater challenge selling to outsiders.

Start-ups can enhance their success rate by fine-tuning their “Polish narrative” and learn to leave behind a positive, lasting impression. #1: Misinterpreting the investor/ co-founder relationship

An institutional fund operates very differently from an angel syndicate or your Uncle John, who may personally invest in your new start-up. Family members have an emotional attachment, fund managers have partners to answer to, and angel investors come in many different forms. Start-ups in Poland often fail to recognize that how much capital they receive must be evaluated along with from whom they receive it. Closing early stage fundraising is less the end of a transaction and more the beginning of a relationship. And like in any relationship, everyone needs to be prepared for the long haul and expect to deal with unanticipated bumps in the road – together. u

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FINANCE

commentary / law

& INVESTMENT

WBJ OBSERVER • may 2016

45

finance / tax havens

Taxtilting havens at windmills?

The fight against those who avoid taxation through transferring money to tax havens constitutes a global problem, which to some extent resembles constructing anti-theft deadlocks. There are businesses and people who achieve a master level in developing security and become experts in bypassing security measures. A perfect system does not exist, but if it is highly accurate and advanced, it can eliminate a whole mass of tax fraudsters

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Image: Shutterstock

b y s e r g i u s z p r o k u r at

Image: Shutterstock

finance / tax havens

“Tax havens are at the heart of financial, budgetary, and democratic crises.” These words begin the book “Wealth of Nations”

by Gabriel Zuckman, which introduces a thorough analysis of tax havens. Another acknowledged economist, Thomas Picketty, who also considers the problem of tax havens as a serious one, says: “Why is this so? Quite simply because modern democracies are based on a fundamental social contract: everybody has to pay taxes on a fair and transparent basis so as to finance access to a number of public goods and services. Of course, there is ample room for disagreement about what ‘fair’ and ‘transparent’ taxation means.” In practice, however, despite lofty goals of the state, high taxation and an overly restrictive fiscal system has lead to an expanding grey economy among the poor, and an exodus of the rich to tax havens.

If there is a choice, everyone will always want to pay less, not more, won’t they?

However, the problem of avoiding taxation, both by individuals and large corporations, is a fact. And it constitutes an extremely serious threat. There is no state resistant to this type of phenomenon. Tax havens have never had it better. As Gabriel Zucman states: “On a global scale, 8 percent of the financial wealth of households is held in tax havens. For example, in the spring of 2015, foreign wealth held in Switzerland reached $2.3 trillion.” These exorbitant amounts were transferred quietly out of view and away from interest. And suddenly a financial tsunami for tax havens was released.

The scandal of the Panama Papers – the leakage of documents from Mossack Fonseca & Co. – will lead to aftershocks for a long time. Since the editorial team of the German daily paper Süddeutsche Zeitung was contacted by a mysterious whistleblower, it has taken a year to analyze the 2.4 terabytes of data containing approximately 11.5 million files: electronic data, correspondence, document scans and identity documents belonging to the company’s customers. The whole thing would be unmanageable for one editorial team, so the journalists passed the received data over to the Washington-based organization, ICIJ. Finally, close to 400 journalists from 76

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countries were involved in the processing of the documents. Among the documents that leaked out of the Panamanian law firm, some directly or indirectly indicate that tax havens have been used by a dozen current and former heads of state, and over 100 politicians and government officials. The data covers the period from 1977 until December 2015 and shames, among others; the President of Ukraine, Petro Poroshenko; the family of Xi Jinping, the head of China; people from Vladimir Putin’s political camp; footballer Lionel Messi; actor Jackie Chan; Silvio Berlusconi; Mexican drug traffickers and several Polish millionaires. One day after the disclosure of the Panama Papers scandal, irate Icelanders gathered on the streets of Reykjavik. The demonstrations numbered 22,000 people demanding the resignation of Prime Minister Sigmundur David Gunnlaugsson, whose name also featured in the documents.

Mossack Fonseca is one of the five largest companies in the world offering legal services to business establishments in exotic countries, with discretion guaranteed. The firm employs over 500 people in more than 40 offices all over the world, including two in Switzerland and eight in China. In 2013 it issued invoices for amounts exceeding $42 million. It is the third largest law firm in the world, in terms of size. Its two larger counterparts still operate in the shadows, away from media publicity. There are also a number of smaller law firms dealing with the same subject. In 1994, Mossack Fonseca helped a small Pacific country – Niue, which has just 1,200 inhabitants – become a tax haven. The

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Panamanian firm chose Niue and wrote laws that suited its own needs, because it wanted a location in the Asian time zone without any competition. Mossack Fonseca has been given a 20-year exclusivity for the registration of companies on Niue. Niue’s advantage was that it offered registration of companies both in Chinese and Russian, which attracted customers. Up to 2001, the government of Niue received $1.6 million per year, but then obstacles began to appear and a search for new locations began.

Ever since taxes have been in operation, the practice of tax circumvention has also been widespread. We must be aware that the closure of one entity and the development of regulations blocking one particular path, will lead to the creation of another entity and another way to optimize tax benefits. This is a natural process. For example, Panama has a zero tax rate for income obtained outside that country. And the lack of agreement on the avoidance of double taxation with Poland makes businesses registered in Panama virtually invisible for fiscal authorities. Establishing a company there, and the operative costs, starts from $1,000 per year. A company in Panama can be bought over the internet.

There are also legal agencies offering the same services as Mossack Fonseca in Warsaw. However, they do not present as refined an approach to the subject as the leaders for accountancy services in tax havens.

Governments around the world are trying to fight the avoidance of tax payment.

For example, the US authorities are aware that this phenomenon ruins the budget and

$1.6

million is how much the small pacific nation of niue (1,200 inhabitants) recieved per year from registration of foreign companies

finance / tax havens

Images: Shutterstock

There are currently 462 companies listed on the Warsaw Stock Exchange, including 49 foreign firms

hits citizens. They are also convinced that they cannot afford to tolerate such abuse.

Secondly, studies of this phenomenon in the US have been conducted for years, their trust law and holding law has a history of more than 120 years. This is why the law is very restrictive and precisely approaches the issue of tax evasion. It is associated with absolute penalties of imprisonments and huge fines.

The US is the undisputed leader in combating the phenomenon of companies fleeing to tax havens. Despite this, kings of tax dodging – the Googles, Apples, and Amazons of this world – produce and sell the most, but often pay little in taxes.

In the EU the coordination of action is more complex. In most EU countries the General Clause is valid. It is an instrument intended to combat the avoidance of taxation.

The solution offers tax authorities the possibility to contest certain types of contracts or transactions – of a civil-law character – that, according to these bodies, are focused exclusively on tax dodging. Furthermore, a draft of a directive on a Common Consolidated Corporate Tax Base (CCCTB) was developed, which was to facilitate the creation of appropriate solutions for the taxation of international corporations, and discourage corporations from avoiding and syphoning taxes. Unfortunately, the idea has failed.

Although the adoption of the project has already been made, eight member countries, with Poland among them, have not agreed to

introduce these regulations. Poland contests the idea of the CCCTB directive, because it fears that areas of certain countries will be better utilized by international holdings.

The EU cannot reach a consensus on tax rates either. Moreover, some countries knowingly introduce some solutions that encourage taxable persons from other countries to move their income tax to their territory. For example, Austria and Luxembourg and even the Czech Republic or Slovakia are called “smart tax havens” within the European Union. From the pool of European countries we can also add Switzerland. The message is simple – run your business in another country, but come to us to settle your taxes. You will have better conditions and higher profits and our tax control will be hospitable. It is a “quiet” agreement, based on the promise that if you come to us and pay taxes, we as a country, will not scrutinize you.

The European Union has noted this damaging practice and has forced Luxembourg and Austria to make adjustments. The status of a tax haven is also slowly diminishing in Cyprus, which has been forced to change its operation model due to the rescue program imposed by Brussels. The euro zone has agreed to save this tiny country from bankruptcy, but at a price of greater transparency.

Nevertheless, for some, the battle against tax havens has been viewed as lost from the start. From London to Delaware, from Hong Kong to Zurich, offshore banking centers

are essential cogs in the financial machine of capitalism, used by the rich and powerful throughout the world. We can’t do anything about them. Some countries will always impose less tax and fewer rules than their neighbors. Money will always find a safe haven: strike here, it will go over there.

Tax avoidance takes place on a global scale, and the only effective way to help it are measures taken at international level. A lot has been done. At a summit held in April

“the Googles, Apples, and Amazons of this world produce and sell the most, but often pay little in taxes.

2009, the leaders of the G20 countries declared the “end of bank secrecy.” Since then, offshore tax evasion has been high on the political agenda. As a result of international arrangements, after 2018 there will be four tax havens in the world: Panama, Bahrain, Vanuatu and Nauru. Their total population is only 0.06 percent of the world population and their gross domestic product constitutes 0.12 percent of global GDP. From a territorial perspective these states constitute only

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$42 Over

a fraction of the Earth. All other tax jurisdictions in the world have agreed to exchange information automatically, e.g. if a Polish citizen receives money in a Peruvian bank, Peru, even unasked, will forward this information to the Polish authorities. More than half of the world’s tax jurisdictions, including the whole of the European Union (except Austria), will introduce this system by 2017 and the remaining countries by 2018. This global agreement, under the auspices of the OECD, does not solve the problem of tax avoidance completely, mainly because it does not comprise companies, nor does it comprise complex legal entities in which the beneficiary of the funds is difficult to identify. But this is what other initiatives are for, as on a European level, the OECD, or the largest economies in

the world that are part of the G7 or G20. This year, the UK will be the first to introduce a ban on registering companies with bearer shares, which allows the concealment of the identity of current and former holders of shares. Moreover, in Poland, from January 1, 2015, Poles who control companies abroad must notify the Polish tax authorities about this fact. This change has been recommended to the member states by the OECD; and it applies not only to companies operating in tax havens, but also in countries which apply more favorable tax rates than in Poland.

According to Zucman, an important step should be the creation of a worldwide register of financial wealth, tracking who owns what in stocks and bonds.

This international financial register would

“As a result of international arrangements, after 2018 there will be four tax havens in the world: Panama, Bahrain, Vanuatu and Nauru.

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act as a central depository: it would be coordinated by governments and international organizations, allowing national tax administrations to fight tax evasion and to levy taxes on capital-income flows and wealth stocks. Central depositories already exist, but they are not truly global, rather national, and importantly they are private, not public. Among others are the Depository Trust Company (DTC) in the US, and Euroclear and Clearstream in Europe.

The problem is that these private institutions do not exchange information with governments and tax administrations on a systematic basis. Zucman’s proposal is clear. Governments should take control of these central depositories and gradually unify them into a global financial register.

This, however, will increase the role of the state and limit freedom of investment among individual entities and businesses.

Until the formation of central repositories, everything is in the hands of local public authorities. Each state should create an individual tax system, so that economic entities are aware that, on the one hand, it does not pay to avoid taxation, and on the other hand a favorable system has been created, so it is more beneficial for a business owner to pay taxes and develop a business in their country of origin. u

Image: Shutterstock

mln is how much mossack fonseca issued in invoices for 2013

commentary / law

Katarzyna Kosicka-Polak, legal advisor, partner at MKZ Partnerzy

Tax havens – only for the rich?

The Panama Papers case, as well as the subsequent discussion about tax havens, raises the question: who, and when can we think about offshore money transfers?

Contrary to commonly expressed opinions, attempts to save money through tax havens are completely legal. Many foreign specialists, experts, advisors, and international law lawyers, whose goal is to protect their client’s financial and legal interests, are often engaged in transactions of this type. So, if everything looks so good, we have the means and no bad intentions – such as the intent to participate in money laundering – is there really anything to think about?

Only for the rich?

The larger the scale of activity, the greater the need for tax optimization. Hence, among the clients of tax havens one can find lots of very wealthy people. But are the attempts to pay lower taxes by using the services of a foreign entity intended only for the mighty of this world?

It turns out that tax solutions are also available for small and medium-sized businesses. The clients of our law firm always evaluate the limit of their profitability individually. Only with such knowledge can we use “made to measure” and suitable solutions.

Counting on financial salvation According to experts, it appears that clients have unrealistic expectations of the potential savings. Running a business abroad entails costs that one has to incur in order to maintain the company, such as fulfilling reporting obligations, and paying salaries for tax and law firms that manage the foreign entity on behalf of a client. These costs can be sizeable. For this reason, some entities withdraw from the idea of settling their taxes outside Poland.

Therefore, according to experts, it is crucial to know precisely what the client’s expectations are. The key word is “safety.” A competently carried out optimization, which is monitored by professionals, as well as the constant checking of tax interpretations and laws, guarantee the safety of both the client and the entities that carry out the optimization. Let us also remember one thing: in practice, any country – even Poland – can be a tax haven for a specified activity or legal form of a company. In certain

situations, one can settle income tax in our country in a more favorable way than, for example, in Panama.

How to get into heaven One needs to prepare for a visit to a tax haven. Establishing a company itself is not a problem and can take only a few hours. The real challenge is the elaboration of a proper tax model, which is fully compatible with Polish law. A model which is improperly filed in relation to the needs of a client may have serious consequences, including a tax rate of 75 percent and liability for tax offences. Therefore, one should only use the services of advisors who can ensure the compliance of adopted solutions within Polish law.

Single capital market transactions, for example the sale of shares in a company, are usually considered the easiest to optimize. Moreover, a lot depends on the amount of money we manage. When the sums are relatively large, one might be interested in FIZ investment certificates. Physical goods cannot be transferred to a tax haven. The export of cash, shares, or works of art involves the risk of infringement of many regulations.

The last temptation of the taxpayer Will the Panama Papers case close the golden age of tax oases? In the discussion of future scenarios, one cannot omit the damage to image caused by the recent scandal, and the response of many countries’ governments (like, among others, the US and France). Tightening or abolishing the freedom of capital movement would require changes in a number of rules in every country. Instead, it is worth strengthening the legal tools used for monitoring cash flow, which consist of the registration of transactions above specific sums and which impose certain obligations on the private sector (banks) in case of a reasonable suspicion that an illegal transaction has taken place.

Effective methods of fighting against cybercriminals still need to be developed – hackers know the saying “money loves silence” and make use of this knowledge by publishing the data of tax havens’ clients. u

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June 2016

25 pages of real estate content

Wave of speculation Is the amount of specultaive warehouse development a sound idea? > 58 Big or small New retail concepts are replacing traditional malls > 64 A lifeline for WSE Real estate investment trusts could pump cash into the stock exchange > 72

lokale immobilia / news

>LOKALE IMMOBILIA

NEWS

l office

Dominikański office complex officially opened The official opening ceremony of Dominikański, the largest office complex developed by Skanska in Wrocław, was held on May 17, 2016.

The opening ceremony was attended

by Adam Grehl, the deputy mayor of Wrocław, as well as representatives of the fund that purchased the project – Union Investment – and the project’s architects, along with representatives from Skanska. The complex consists of two seven-storey office buildings and the baroque Oppersdorfs’ Palace, which has been adapted to serve office functions. Leasable space totals 40,000 sqm. The complex was commissioned for use in August 2015.

In December 2014, Dominikański was purchased by Union Investment for €117 million. u

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Warsaw Spire officially opened

W

arsaw Spire, an office scheme comprising 100,000 sqm within three buildings and the largest office project of recent years, was officially opened on May 12, 2016.

The opening was attended by the Belgian Ambassador to Poland, Colette Taquet; the mayor of Warsaw, Hanna Gronkiewicz-Waltz; Ghelamco’s CEO, Paul Gheysens; and the head of Employers of Poland association, Andrzej Malinowski.

“When we launched Warsaw Spire, we were told the project was too big for the capital and we would have problems

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finding tenants. We, however, saw the project’s potential from the very beginning: both in its impeccable design and location,” said Jeroen van der Toolen, managing director at Ghelamco CEE. The building’s tenants include: Samsung, JLL, MasterCard, Frontex, BNP Paribas Securities Services, Bilfinger HSG Facility Management, Adecco Poland, Daftcode and Ghelamco itself. The building will also house The Heart Warsaw, a new co-working platform for start-ups and scale-ups launched by D-Raft, MasterCard and Ghelamco. u

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Equator IV construction to start this year Development company Karimpol is planning to start the construction of the Equator IV office building in Warsaw later this year.

The 14-storey tower will be located on Al. Jerozolimskie between the Warszawa Zachodnia station and Plac Zawiszy and is to offer 35,000 sqm of space in total, including 19,000 sqm of office and 645 sqm of retail/ service space, including a canteen. The building will have seven elevators, 226 parking spaces on four underground levels, 78 bicycle spaces, as well as showers and locker rooms for cyclists.

This is the fourth office building to be developed in the Equator complex and Karimpol’s eighth development project in Warsaw. The company still owns Equator II but has already sold the other two buildings. u

Images: Ghelamco, Skanska Property Poland, Deloitte, Waimea, Grupa Waryński

Warsaw spire features 100,000 sqm and has been awarded a BREEAM "Excellent" rating

lokale immobilia / NEWS

waimea logistic park near the Ukrainian border

l wa r e h o us e

Waimea opens logistics park near Ukraine, develops in Szczecin eqlibrium is set to be completed in 2017

W

aimea Holding has opened the first stage of Logistic Park Korczowa, located in Młyny, next to the Korczowa border crossing to Ukraine and close to the A4 highway. The entire complex will comprise three buildings, altogether featuring 50,000 sqm of logistics and manufacturing space.

“The Waimea Logistic Park Korczowa is a logistics gate to the East, dedicated to companies that want to store and package their goods or use logistics services within the EU before delivering them to Ukraine or other eastern markets,” said Andrzej Rosiński, CEO of the company.

The investment could create as many as

1,200 workplaces, said Rosiński. The region has one of the highest unemployment rates in the country, 5-6 percentage points above the national average.

The developer has also recently signed a contract with the Management of Szczecin and Świnoujście Harbours for the lease and construction of a logistics center in the harbor in Szczecin.

The Waimea Logistic Park, Port Morski Szczecin will comprise a storage area of 45,000 sqm. It will consist of three halls designated for warehousing and logistics. The park will offer areas which would be possible to adapt for the storage of light production, as well as office and social areas. u

900,000 sqm

is how much office space will be added to the Polish market in 2016, which constitutes 11 percent of the current stock, according to JLL.

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Waryński finalizes another stage of EQlibrium The construction of EQlibrium office scheme is entering its final stage, following completion of the main construction works, Grupa Waryński informed. The project should be delivered in January 2017, as the company is set to install the facade.

The EQilibrium office scheme will offer 10,500 sqm of A-class office space and underground parking for 113 vehicles. The project is located in Warsaw. u

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Deloitte leases 2,500 sqm in SkyRes Warszawska

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lobal advisory Deloitte has selected the SkyRes Warszawska office building as the location for its CE Business Services Center in Rzeszów. The company will occupy 2,550 sqm. It is one of the biggest ever lease agreements for Rzeszów’s office market, JLL, which represented the tenant, informed.

Deloitte will begin moving to its new address in August 2016.

Ultimately, Deloitte CE Business Services Center will employ 300 specialists. As a result, this will be one of the largest business services centers located outside the sector’s traditional powerhouses of Warsaw, Kraków, Wrocław and other major agglomerations. u

skyres warszawska in Rzeszów

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lokale immobilia / news

l r e ta i l

Warsaw’s high streets in need of strategy – report

D

oxygen park in Warsaw

KTW office complex

l investments

l office

Oxygen Park sold

TDJ Estate to develop office complex in Katowice

Y

areal has sold its office complex Oxygen Park to Golden Star. The value of the transaction has not been disclosed. Oxygen Park features 18,000 sqm of office space and is 100 percent leased. Its tenants include Merck, Fujitsu Technologies, Sodexo, Lionbridge, Grupa Wirtualna Polska, and Agfa Graphics.

The building was designed by JEMS Architekci architectural studio. Its general contractor was RD Bud. The deal was facilitated by BNP Paribas, Yareal was represented by Gide Loyrette Nouel law firm, while Golden Star was consulted by Smolarek, Rogala, Caban – Adwokaci i Radcowie Prawni law firm. u

ter

10.3

MLN sqm

was the total warehouse stock in Poland at the end of Q1 2016, according to Cushman & Wakefield.

TDJ

Estate is planning to start construction of the KTW office complex in Katowice at the end of Q2 or early Q3 2016. The project is located near Spodek, the site of the demolished DOKP (Silesian railway) skyscraper. The plot was bought from the Polish State Railway (PKP). The complex will consist of two connected buildings: the 66-meter and 14-floor KTW I, and KTW II that will be 133 meters in height with 31 above ground floors. The total commercial area of the complex will amount to 61,800 sqm.

The buildings will be constructed in phases. In the first 12 months, the ground work will be carried out – up to the zero level (the foundations and underground car park) – with the KTW I building, which is to be BREEAM certified at the “Very Good” level and to be completed within two years. Construction work on the second building will start depending on the leasing progress of the first building. TDJ Estate bought the 0.7 hectare plot for PLN 29 million in 2013. u

espite strong economic fundamentals and high purchasing power (€11,751 per capita), Warsaw’s high street retail is not developing at the expected pace, according to a report by BNP Paribas. The biggest obstacles are the lack of appropriate venues and municipal strategy towards the development of ul. Nowy Świat and ul. Chmielna, two out of the top three high streets in the capital. “The situation may improve, provided legislation allows the combination of the units into larger areas,” BNP Paribas experts said.

Monthly prime rents in Warsaw’s high streets range from €50-60 per sqm on ul.

Nowy Świat and ul. Chmielna, up to €80-100 per sqm on Pl. Trzech Krzyży. Warsaw high street rents are significantly lower than in Prague, the report stated, where prime rents reach up to €170-200 per sqm in the best locations on Na Prikope and Parizska streets.

Two out of three top high streets in Warsaw, ul. Nowy Świat and ul. Chmielna have become predominantly catering hot spots. The retail offer has deteriorated, particularly on ul. Nowy Świat, which used to hold top spot as a retail destination in Warsaw. However, ul. Chmielna is expected to expand its offer, as three commercial schemes are currently underway in the neighborhood: Astoria Offices with 1,400 of retail space scheduled to be delivered in the summer, CEDET – a refurbished mixed-use scheme offering 7,000 sqm of GLA, and Centrum Marszałkowska, a mixed-use scheme featuring 13,500 sqm of office and retail space.

The only location that is developing coherently on the capital’s high street map is Pl. Trzech Krzyży (Three Crosses Square), which has been attracting premium and luxury brands, including Ralph Loren, Dolce & Gabbana, Valentino, Omega, Gucci, SaintLaurent Paris, Giorgio Armani, Louis Vuitton, and Bottega Veneta. The street’s offer will be further enhanced once the refurbishment of the Ethos mixed-use scheme is completed. u

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west station ii

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he two-stage commercial complex is being built on land owned by the Polish State Railways (PKP) in a joint development between HB Reavis, Xcity Investment and PKP. The West Station II building is scheduled for completion in Q3 2017.

Together with West Station I, which was topped out in late March, the two buildings will comprise 68,400 sqm of office space. The scheme also involves improvements to the immediate area around the station and has so far included the new Warszawa Zachodnia railway station building, the reconstruction of part of the junction of Al. Jerozolimskie and ul. ppłk. Mieczysława Sokołowskiego “Grzymały”, and the extension of an existing bicycle path connecting the new station with the city center. u

Images: HB Reavis, Yareal,TDJ Estate, Panattoni

HB Reavis launches West Station II

lokale immobilia / NEWS

l warehouse

l residential

Panattoni expands its parks in Lublin and Bydgoszcz

Griffin expands its presence in dormitory market

panattoni park bydgoszcz

P

anattoni Europe has signed up new tenants and is expanding Panattoni Park Lublin by an additional 19,660 sqm. InterCars will take up over 4,370 sqm, and Rohlig Suus Logistics has leased more than 2,100 sqm. The current stage is set to be completed at the end of Q3 2016. The first building of the complex, featuring 15,476 sqm, has recently been delivered. The developer is planning further expansion in the future, which will result in a complex boasting a total of 72,000 sqm.

The developer has also announced further development within Panattoni Park Bydgoszcz, a 26,000 sqm manufacturing and warehousing project. The park’s tenants are: oponeo.pl, which has leased 12,000 sqm, and Rohlig Suus Logistics, which will take up approximately 3,000 sqm. A 16,000 sqm facility was completed in April, and a further 10,000 sqm is under development.

Panattoni Park Bydgoszcz comprises two buildings totaling 26,000 sqm. The park is situated partly on the grounds of the former chemical plant, Zakłady Chemiczne ZACHEM, in the direct vicinity of the Bydgoszcz Industrial and Technological Park, 9 km from the city center of Bydgoszcz, 4 km from the national road no. 10 and 10 km from the interchange connecting the national road no. 25 and the expressway S10. Panattoni has recently announced it wants to become more involved in brownfield investments, executing projects on a number of industrial and post-industrial sites. u

670,000 sqm is how much retail space is currently under construction across Poland, according to CBRE.

Real estate developer Griffin Group has officially announced its intention to invest in Poland’s dormitory market.

“Ultimately, we want to have 7,000-8,000 units in dormitories in Poland,” stated Przemysław Krych, Griffin Group’s CEO. “International students arrive in Poland, but they do not have any alternatives – the standard of the dormitories currently available is low. And this market is developing quite rapidly. Currently, we are preparing the next 1,000 rooms, which will be ready in October 2016. I am sure Griffin’s share in this sector will be really high,” the CEO added.

At the moment, Griffin Group has a student housing network named Student Depot, which offers rooms for rent in Lublin, Łódź and Poznań. u l warehouse

Neuca to build a logistics center

Polish pharmaceutical retailer Neuca has signed a notarial deed for the acquisition of two plots of land in the city of Toruń in the Kujawsko-Pomorskie voivodship. The total area is 6.5 hectares (65,000 sqm) and will be used for a logistics center. The value of the transaction has not been disclosed.

The project is divided into stages; the completion date of the building works on the first object is scheduled for 2018.

The complex will serve as a central warehouse, employing approximately 400 people.

Grupa Neuca is the largest wholesale distributor of pharmaceuticals in Poland. It has been listed on the WSE since 2004. In 2014, the company increased its revenue by 13 percent to PLN 6.57 billion.u

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lokale immobilia / Warehouse

The rise of speculation b y b e ata s o c h a

As speculative investment soars above 50 percent, economic indicators continue to underwhelm, calling the optimism in the warehouse market into question

A

After two tremendously good years for the warehouse real estate market, developers have reached frenzy mode. A whopping 54 percent of warehouse space currently under development is being developed entirely speculatively, without binding lease agreements, according to JLL. “In comparison, by the end of Q1 2014 this total was a mere 5.5 percent. This clearly confirms investor trust and confidence in the growth potential of the Polish market,” said Tomasz Mika, head of the Industrial Department at Poland’s JLL office.

The enthusiasm is justified by the low countrywide vacancy rate of 6.7 percent at the end of the first quarter. Still, this figure has increased by 0.5 of a percentage point since the end of 2015 and in some areas exceeds 10 percent (the highest vacancies can be found in the Warsaw Suburbs – 11.8 percent).

“Today developers are optimistic, but their optimism is not limitless. You can see that clearly when we examine the speculative projects that are under construction. They are mainly being delivered in the most important markets, with low vacancies and stable, healthy demand,” said Joanna Sinkiewicz, director, head of Key Clients & Tenant Representation, Industrial & Logistics Agency, Cushman & Wakefield.

Image: Shtutterstock

Hiccup or trend?

So far, the market has been quick to absorb whatever amounts of space come out of the pipeline. However, is the speculation

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lokale immobilia / W warehouse

frenzy really backed by hard data, or could we be looking at the peak in the current business cycle about to come crashing down on the overheated market?

Figures seem to paint a less than rosy picture. The April reading of Poland’s PMI recorded the second-biggest monthly drop since 2008. It stood at 51 points, against the market consensus of 53 points. Granted, as long as the PMI indicator remains above 50 points, we are in an expansion phase of industrial activity in Poland. Analysts expect the figure to go up, riding on the back of improving PMI readings in Germany – Poland’s biggest industrial partner.

Yet, there is more bad news: GDP growth fell significantly in the first quarter of the year.

The Central Statistical Office’s (GUS) flash estimate puts it at 3.0 percent, the lowest level since the end of 2013. Meanwhile, market consensus put it at 3.5 percent. The news was particularly disappointing for the Ministry of Development, which expected Poland’s economy to grow at 3.8 percent.

Bleak outlook?

On top of that, there are numerous political and fiscal risks that investors have not been blind to. After Standard and Poor’s downgraded Poland’s rating from A minus to BBB plus in January, Moody’s cut Poland’s outlook from stable to negative, meaning it may well lower the country’s rating in the next 24 months. Granted, markets expected worse: that Moody’s would downgrade Poland’s rating, not only its outlook, which it refrained from doing, but the current outlook means that there could be rain clouds on the horizon.

The most often cited risks include loose fiscal policy (including a costly child subsidy program) and concerns about securing finances for next year’s budget (possibly involving transferring of the remaining assets of private pension funds to the state-run social security system). Investors are also wary about the government making good on their promise to lower the retirement age which would raise age-related costs over time, as well as more immediate risks, like the ambiguity about the conversion of foreign-currency denominated mortgages that could place a substantial burden on banks, and the prolonged stalemate between the government and the country’s Constitutional Tribunal. But first and foremost, what is putting investments on hold is the overall uncertainty caused by the government’s unpredictable policies.

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lokale immobilia / Warehouse

Within reason All that put together could spell trouble for the warehouse industry, so closely linked to both manufacturing – the backbone of the economy, as well as to consumption. “The changes we have been observing regarding the economy will not go amiss with investors. It is very possible that when we sum up 2016, we will see the number of speculative projects drop,” admitted Sinkiewicz. She did, however, state that the current amount of speculative warehouse development did not seem unreasonable.

Krzysztof Kienorow, senior associate, Industrial and Logistics Agency at Colliers International, agreed. “I would say that the investments we see in the market are semi-speculative. It means that after signing a lease for a specific space, developers build an extra 30-40 percent surplus. They do so in regions where warehouse space is scarce and predominantly in strategic locations transport-wise,” he said.

Besides, what sets off as a speculative project often gets leased before the paint has even dried. “The construction process usually takes about six months to complete. Within that time the speculative space is already being offered to the market. In most cases it gets leased before the developer even obtains an occupancy permit,” he concluded.

New markets, big opportunities Apart from the safe, mainstream markets, there are a few “up-and-coming” locations on Poland’s warehouse map that are attracting developers with improving infrastructure and very low, or even zero vacancies, as is the case with Szczecin and the Toruń/Bydgoszcz area. But are they attractive enough to build speculatively?

The northwestern city of Szczecin has been gaining a lot of traction over the past few years. It currently has 158,200 sqm of warehouse space, which is still about a tenth of what the Poznań market has to offer, but it is definitely growing. “We were the first ones to build there and we could say we ‘created’ this location. We’ve built 77,000 sqm there and it is now our flagship location, which is 100 percent leased. This investment has inspired us to launch two more projects in Szczecin,” said Andrzej Rosiński, CEO of Waimea Holding, a developer active predominantly in new and niche markets across Poland.

Szczecin’s location makes it a target for German and Scandinavian firms. “The main reason

The big dozen

Existing warehouse space, space under construction and vacancy rates (Q1 2016) Existing Area (sqm) Vacancy Rate (%) Under Const. (sqm)

Bydgoszcz/Toruń 131,500 0.0% 22,400 Central Poland 1,453,600 5.0% 105,700 Kraków 207,900 1.3% 46,000 Lublin 78,100 4.3% Opole 60,300 0.0% Rzeszów and Podkarpackie 152,900 9.5% Poznań 1,630,000 2.7% 159,500 Szczecin 158,200 0.0% 17,000 Tri-City 329,300 8.6% 40,000 Upper Silesia 1,794,400 5.4% 40,400 Wrocław 1,289,400 6.3% 94,200 Warsaw* 3,085,200 11.5% 114,200 Total 10,370,800 6.7% 639,400 * Suburbs + Inner City Source: JLL, warehousefinder.pl, Q1 2016

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why Western investors are interested in the region is its high competitiveness in the quality of services and cost levels, which is far lower in Poland than in Germany or Scandinavia,” explained Kienorow.

Another “rising star” among warehouse locations that developers are targeting is Bydgoszcz. It has only recently popped up on the warehouse map and offers only

Images: Shtutterstock, Waimea Holding, Cushman & Wakefield

Zone

lokale immobilia / Warehouse

No blind optimism

Joanna Sinkiewicz,

director, head of Key Clients & Tenant Representation, Industrial & Logistics Agency, Cushman & Wakefield

The approach to speculative projects has changed gradually over the past few years. Only a few years ago, developers were adamant about securing pre-leases before launching new investments.

Furthermore, these pre-leases usually covered 100 percent of the space under development. We have seen developers loosen their polices and become more interested in speculative schemes, as they base their decisions on specific indicators and the overall good condition of the warehouse market.

Particularly noteworthy is last year’s record-high demand of nearly 2,470,000 sqm, and a further decrease in vacancy rates which means fewer completed modules ready to be leased, as well as warehouse developers’ very high activity (12 percent more investments in the pipeline compared to 2014).

All this has influenced developers and increased their risk-friendliness. They have become more confident about speculative projects. The effect was further compounded by investors looking to become financially involved in the Polish warehouse market.

It is, however, important to realize that the optimism we see among developers has little to do with speculative building from before 2009. We are now at a completely different stage in the warehouse market development, besides we have the experience of the 2009 downturn.

waimea logistic park korczowa was commissioned for use in May 2016

Today developers are optimistic, but their optimism is not limitless. This can clearly be seen when we examine the speculative projects that are under construction.

They are being delivered mainly in the most important markets, with low vacancies and stable, healthy demand. This also means these projects are the easiest to find financing for, as well as future tenants.

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‘Eastern wall’ Developers are also increasingly open to taking on projects in Poland’s eastern regions. Panattoni has already built warehouses in Rzeszów and Lublin and is still expanding its parks. The Lublin park is set to comprise 72,000 sqm, while the Rzeszów facility – close to 40,000 sqm. The developer has quite a lot of experience in the southeastern region of Podkarpackie, where it previously built industrial facilities for home appliances manufacturer Zelmer and for glass producer Pilkington.

“The ‘eastern wall’ – Rzeszów and Lublin – is attracting tenants that need both warehouse and industrial space. In the case of Lublin, it is luring investors with the availability of qualified employees – Lublin is, after all, a university city with a lot of potential – as well as with lower costs compared to other regions,” said Robert Dobrzycki, CEO Europe at Panattoni Europe.

Tread lightly Developers are well aware of the attractiveness of these new warehouse markets but approach them with much more caution and rarely decide to invest speculatively, according to Sinkiewicz. “New warehouses near Bydgodszcz, Szczecin and Lublin are built almost exclusively after securing pre-leases. Nonetheless, these markets are very interesting, mainly due to the local job market,” she added.

Potential is something that these new rising locations have in spades, but without proper infrastructure they wouldn’t have become viable for any warehouse development, let alone speculative. “Infrastructure development is the natural first step for a warehouse to develop. Without a suitable road network it would be hard to convince retailers, e-commerce firms, or even manufacturers to locate their activity there,” Sinkiewicz explained, and added, “Rzeszów is a good example of the influence that infrastructure investment has on the warehouse market. The first multi-tenant park was constructed after the [east-west

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Top 5 Despite developers’ growing interest in the uncharted territories, it is still the five largest markets that are on top of developers’ lists: Warsaw, Central Poland, Poznań, Wrocław and Upper Silesia. In Q1 2016 Warsaw Suburbs saw another 137,000 sqm of space added to the market, ahead of Upper Silesia (87,000 sqm) and Central Poland (85,000 sqm).

“Currently, there is 640,000 sqm of space under construction, which places the industrial market behind the office segment but ahead of the shopping center sector. The largest volume of warehouse space under development is in Poznań – 160,000 sqm, followed by Warsaw Suburbs – 108,000 sqm and Central Poland – 106,00 sqm,” commented Przemysław Ciupek, senior research analyst at JLL. The top five markets are also where the majority of deals are happening: Warsaw Suburbs saw the highest volume of leased space in the first three months of the year (187,00 sqm), well exceeding the volume of completions, the same as Upper Silesia (142,000 sqm leased).

A4] highway was commissioned [connecting Rzeszów to Germany]. Now, almost at the same time as the A4 is being completed, a new park has been delivered next the Ukrainian border, Waimea Logistic Park Korczowa.”

Although most developers prefer to play it safe and build speculative space only in wellestablished areas, there are some willing to take the endeavor one step further. Panattoni’s Dobrzycki believes there is room for speculative development not only in mainstream locations, but also in smaller regional cities that are in need of modern class-A warehouse space. “That is why Panattoni Park Rzeszów was built practically entirely speculatively. It was an unusual situation, because we still see very few projects that are purely speculative. Most have secured at least some pre-leases.” u

Panattoni Park Rzeszów will feature a total of 40,000 sqm

Images: Panattoni Europe, Waimea

some 131,500 sqm of warehouse space, but developers have big plans. Panattoni alone intends to deliver over 120,000 sqm there within the year. Waimea has plans for a 90,000-sqm park. “The area around Toruń and Bydgoszcz is currently attracting firms to locate their distribution centers as well as manufacturing companies,” commented Kienorow.

interview / Anna Wicha

Filling niches

I n t e r v i e w b y B e ata Soch a

WBJ Observer talks to Andrzej Rosiński, CEO of Waimea Holding S.A., about the firm’s strategy of building modern warehouse and industrial space in emerging and niche locations WBJ Observer: You have just delivered the first stage of the Waimea Logistic Park Korczowa, located close to a border with Ukraine. Why did you decide to build a 50,000-sqm facility so far to the east?

Andrzej Rosiński: We’re building a logistics and cargo hub here, so location is the most important aspect. The biggest advantage of this place is the highway which connects the whole of Europe, from Lisbon to Ukraine. Its final exit is right here in Korczowa. This is also the biggest border crossing to Ukraine. Our plan is to lease this space to companies that want to store and package their goods, or use logistics services within the EU before delivering them to Ukraine or other eastern markets. We are now witnessing an improvement in the political situation in Ukraine. We can see how much Ukrainians want to join Europe.

Finally, this region has one of the highest unemployment rates in the country, so acquiring employees in various specializations will be relatively easy. That’s why we want not only logistics firms here, but also manufacturers.

What kind of manufacturing have you envisioned here? We are close to Aviation Valley – a cluster of aviation component producers.

Yes, we are, but it could be a number of different sectors, from pharmaceutics, to aviation, to wind energy, like our tenants in Szczecin. In Szczecin, 50 percent of our park is leased to logistics firms and 50 percent to manufacturers. In total they employ 1,500 people. In Korczowa we could help create 1,200 jobs if we attract factories. If, however, we lease only to logistics firms, which is

also possible as this is the last exit from the A4 highway and next to the biggest border crossing to Ukraine, then the number of jobs would be between 500 and 600.

You have investments in several locations: in Szczecin, Bydgoszcz, Rzeszów and Korczowa. You seem to be choosing markets that are either emerging locations, or not yet on international investors’ radars. Why not established markets?

In my opinion the “established” locations are reaching saturation. It looks good on a spreadsheet, but these facilities will sooner or later face vacancy issues. We don’t want that.

We build our projects in niches, in areas that need economic development and are passed over by large developers and international corporations.

Besides, Szczecin is a big market, with access to the sea. In fact, we were the first ones to build there and we “created” that location.

We’ve built 77,000 sqm there. It is now our flagship location and it’s 100 percent leased.

This investment has inspired us to launch two more projects in Szczecin. We’ve invested over PLN 500 million in the city.

Bydgoszcz is our second location, which we are starting to promote. It’s a large city in an area which has very little logistics and industrial space. We are now constructing the first facility – Waimea Logistic Park Bydgoszcz – altogether we will build 90,000 sqm.

As soon as we launched the commercialization process of our project, we knew it was a good idea.

Our third location is in the Podkarpackie voivodship, where we have two investments.

The first one in Korczowa, and we have launched construction on Terminal Cargo near the Rzeszów-Jesionka airport.

This shows the scope of our activity: we build logistics/industrial parks, as well as multi-modal facilities: near airports, seaports and railway hubs.

How much of your decision to build this center in Korczowa was due to the A4 highway, which is set to be completed soon?

If it weren’t for the highway, we wouldn’t be here. The A4 is set to be completed shortly, the remaining section between Jarosław and Rzeszów is to be delivered within two months. There will also be the Via Baltica route, with the S19 expressway intersecting the A4 nearby. The same situation was in Szczecin: the A3 highway improved transport tremendously.

Are you building entirely speculatively or do you have some pre-leases?

There are a few pre-leases, but most of the space we build is speculative. We have a method: first we build a smaller unit, and then, once companies start moving in, we continue with larger units. The first unit in Korczowa has 7,200 sqm of space, while the entire complex will feature 50,000 sqm.

What is Waimea’s strategy: do you develop and sell your projects or will you keep them all in your portfolio?

We intend to sell our parks, whereas we plan to keep the multi-modal projects in our portfolio.

Have you already secured a land bank for future projects? Does the new law on arable land affect your business?

It does, because we used to implement a lot of our projects based on a special individual planning permit (in Polish the so-called “W-Z”). Now it’s impossible. We need to wait for the master zoning plan to be adopted and that takes a lot of time. u

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lokale immobilia / retail

b y a d a m z d r o d ow s k i

Time for tailormade solutions The retail property market in Poland is going through a new phase in its development

As

the retail property market in Poland matures and becomes more and more competitive, developers are now increasingly cautious with regard to the size and format of the new projects that they are planning to launch in the country. While there is still room for even very large shopping centers in selected locations, the development of a new regular mall has, in many places, become difficult, with developers now diversifying their offer to better address the needs of the local market.

The retail property market in Poland is currently becoming more and more saturated, with developers, owners and managers increasingly facing challenges, said Agata Czarnecka, associate director, Consultancy and Research, at CBRE. “The development of typical, large-scale shopping centers is less and less possible due to the fierce competition and the lack of available sites,” Czarnecka said. She noted that the situation has led to the emergence of new retail concepts in the market.

Fewer megamalls coming?

While shopping centers continue to account for the largest share of the existing and

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planned volume of retail space in Poland, the growing maturity of the retail property market in the country means there is less and less room for spectacularly large malls.

According to CBRE data, approximately 25 new retail projects were completed in Poland last year, of which 16 had GLA of less than 20,000 sqm. The largest scheme delivered in the country in the period – Zielone Arkady in Bydgoszcz – comprises 47,000 sqm of retail space.

The majority of new, large-scale shopping center developments currently under construction are investments with around 60,000-65,000 sqm of GLA, although several larger projects are also scheduled to be completed within the next few years. The forthcoming Posnania project in Poznań, for one, will deliver 99,000 sqm of retail space.

The largest planned retail schemes include Jupiter in Warsaw and Kolorowe Życie in Góraszka near the Polish capital – both of which will comprise around 100,000 sqm of GLA. “It seems that because of growing market saturation, new investments offering over 100,000 sqm of GLA will be rare,” said Katarzyna Michnikowska, senior analyst,

Images: Shutterstock, Apsys

lokale immobilia / retail

Research and Consultancy, at Colliers International. Admittedly, one can expect several of the existing, popular malls to ultimately comprise around 100,000 sqm of leasable space upon extensions, Michnikowska said.

The Auchan Kołbaskowo facility in Szczecin, for one, is about to grow to 92,000 sqm in the near future.

In the opinion of Edyta Potera, the national director, Retail Agency, at JLL in Poland, judging by the current market saturation, the purchasing power of the residents

and the market trends, there is still room for large-scale shopping centers in Warsaw, the Tri-City and Kraków. The markets respectively feature 448 sqm, 492 sqm and 494 sqm of retail space per 1,000 residents. By comparison, Wrocław and Poznań currently have 646 sqm and 607 sqm of retail area per 1,000 residents respectively, Potera noted.

Third-phase projects

According to Fabrice Paumelle, head of Retail, Poland and CEE, at BNP Paribas

Real Estate, the market is now entering the third, “differentiation” phase of its development, having gone through the “equipment” and the “consolidation” phases in the 1990s and the 2000s. The first phase saw the development of the hypermarketanchored schemes located on the outskirts of city centers.

For its part, the second phase witnessed the development of fashion-anchored megamalls including Arkadia in Warsaw and Manufaktura in Łódź. Those second-phase

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shopping centers delivered up to 100,000 sqm of leasable space and were built in the urbanized areas of large cities. “This second wave confirmed the potential for huge shopping centers with over 60,000 sqm in all the top 15 cities in Poland,” Paumelle said.

By contrast, the third phase of the development of the retail property market in Poland will be defined by the delivery of a whole range of new retail schemes, as well as the remodeling and extension of some of the existing facilities.

Indeed, according to the Polish Council of Shopping Centres (PRCH) data, of the total of more than 605,000 sqm of modern retail space delivered in Poland last year, almost 162,000 sqm was in extension projects, said Radosław Knap, general director at the organization. Most of such schemes were located in the largest agglomerations,

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whereas most new developments completed in 2015 were located in cities with populations of less than 100,000. At the beginning of the year, construction on six extension projects was underway, Knap said.

The delivery of new space in shopping centers will now involve more remodeling and extension than pure creation because the cities are equipped and are looking for differentiated destinations, Paumelle said.

There is demand for the differentiation of the retail offer and retail formats, rather than the provision of “everything under the same roof.” Third-phase projects will thus be tailor-made retail schemes, suited to the requirements of the local market, Paumelle added.

Smaller formats growing

Anna Hofman, a senior negotiator at the Retail department of Cushman & Wake-

field, was of a similar opinion. She argued that one can currently clearly see the trend of repositioning and the specialization of retail projects. Many of the ongoing schemes involve the modernization and repositioning of the existing shopping centers of the first and the second generation so that they can meet modern standards and can still be attractive in the increasingly competitive market, Hofman added.

Meanwhile, the continued development of the smaller retail formats segment has reflected the changes in the retail property market in Poland. A large number of convenience shopping centers and small retail parks have been delivered in Poland in recent years. In the smaller cities across Poland, the average size of new retail projects has diminished of late, said Hofman. Most of the schemes are small shopping centers and retail parks offering between 6,000 sqm

Images: Dekada, Ghelamco

lokale immobilia / retail

lokale immobilia / retail

WBJ OBSERVER • june 2016

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there is almost saturated, Walczak said.

This is because many of the smaller cities can only accommodate one shopping mall project. Asked about new trends in the small retail formats sector, Walczak mentioned the integration of convenience shopping center schemes with bus and railway stations. Dekada, which is one of the most active developers in this sector, already has three developments of this kind in its portfolio – in Myślenice, Nowy Targ and Brodnica. Three other investments – in Ciechanów, Konin and Mińsk Mazowiecki – are in the pipeline.

Dozens of new convenience shopping centers have popped up in Poland in recent years. The development of small retail parks, sized from approximately 2,000 sqm to around 10,000 sqm, is another relatively new trend in the market. According to Michnikowska, cities with populations of between 30,000 and 100,000 now have a total of around 250,000 sqm of space in such projects. “We have also been witnessing the growth of retail on the ground floors of office and residential buildings,” Potera said.

No magic formula

All of this does not mean that smaller retail formats are now going to play a dominant role in the market – with the market currently in the differentiation phase, convenience shopping centers and retail parks are only two of the many answers that developers can come up with. According to Paumelle, “the time of the magic formula with a trendy concept to duplicate is gone.”

As the retail property market in Poland is getting more and more mature and increasingly professional, only tailor-made retail products can prove to be successful.

“A new megamall could still be the answer here, a convenience center to fill a gap there, the extension of a basic 1990s hypermarket into a regional mall again here, and the development of a new high-street complex again there,” Paumelle said. In his opinion, we are now entering exciting times, when investors have started looking at various retail concepts, retailers have started seeking new destinations, and public authorities have finally started thinking about the role that retail and entertainment should play in the downtowns of cities. u

Image: Dekada

to 12,000 sqm of space, she added.

“The prospects for the development of convenience shopping centers in Poland are promising – there is demand from buyers and tenants willing to open stores in facilities of this kind,” argued Jeroen van der Toolen, managing director CEE at Ghelamco. He added that unlike largescale shopping malls, convenience shopping centers are easily accessible, create valuable public space and support the growth of local entrepreneurship. Last year, Ghelamco opened the Plac Vogla convenience shopping center project in Warsaw.

Aleksander Walczak, president of the management board at Dekada, believes that smaller retail formats, including convenience shopping centers, have proved successful in smaller cities, which have been attracting a lot of developer attention in recent years. He pointed out that modern shopping centers already operate, or are currently under construction, in almost all cities in Poland that have a population of between 50,000 and 100,000. Forecasts say that the market

WBJ Observer presents

Young and spirited Interview with Barbara Harrer, head of project for ASTORIA Premium Offices at STRABAG Real Estate GmbH

Do you have further investment plans in Poland?

We are screening the market and looking into possible projects at the moment. We think that Poland is a promising market for STRABAG Real Estate. We are now searching for opportunities not only in Warsaw, but also in Katowice, Poznań and Gdańsk.

What about Warsaw itself? Which segments do you find the most promising?

It’s a big market for hotels, as well as for residential development.

The office segment is currently seeing a lot of development but it’s still a growing market. Only this year there will be more than 400,000 sqm offered to the market, so there will be downward pressure on rents. Tenants are increasingly looking for incentive packages.

Sure, there is currently some oversupply in the market, but looking in the longer term, new modern offices will always be needed. There are also a lot of old buildings in Warsaw in need of refurbishment.

Which hotel sub-markets do you consider the most underdeveloped?

The 3-4 star segment, there are a lot of chains that are planning on coming to Poland and opening hotels in that segment. Also, the luxury segment: many luxury brands are looking to expand, both in Warsaw and in other major cities.

STRABAG is present in many countries across CEE. How is Poland different from other CEE markets?

I can only speak for STRABAG Real Estate, which in turn is only active in Germany, Austria, Poland and Romania. In Poland, modern development started later than in, say, the Czech Republic for example. The Czech Republic started in the 1980s, so it’s more developed.

But Poland is a big country – close to 40 million people. It is a large and spirited market that offers a lot of opportunities.

What kind of space are tenants looking for these days? Is there a stronger pull towards open space or towards traditional individual offices?

There is more to it than just the space itself. From our project development point of view, we also try to achieve a healthy mix of usages in properties. In ASTORIA for example, we are also creating gastronomy and retail spaces, in addition to office space. It’s all about giving tenants a good place they like to come to. This is the key to functioning properties.

Regarding the space itself, it really depends on the industry, as well as individual company preferences and how they want to optimize their office space. An office is not only a place to sit and work, it has to be a comfortable and stimulating place for meetings, it should help increase creativity by also offering some chill-out space, where employees can unwind or freely brainstorm their ideas.

Company preferences change over time. You wouldn’t expect law firms, for example, to want open space. But they do. Naturally, they need private rooms, because of all the confidential cases they handle, but they also increasingly come together to talk, to exchange ideas and views on their cases.

ASTORIA Premium Offices is pre-certified with LEED Gold. How much more energy efficient is the building going to be compared to a traditional building?

We have a lot of cutting-edge technology installed in the building, for example the CCT – Concrete Core Tempering, which is installed during the construction itself. Altogether the building will be 30 percent more energy efficient compared to standard heating and air conditioning systems.

We have also installed systems that optimize water consumption, as well as a dual HVAC control system: there is one automatic system for the entire building and tenants will also have their own panels to control the temperature in their offices.

The building is located right in the heart of the CBD. Which companies are looking at this location?

The location is a particularly strong point of ASTORIA Premium Offices. It’s close to two metro stations – along both lines. There are some 20 bus lines running here. The companies that want premium offices are mainly consulting firms, legal firms, banking and insurance firms. Altogether we are looking to have a healthy and varied mix of industries.

WBJ OBSERVER • june 2016

BROUGHT TO YOU BY STRABAG real estate gmbh

ASTORIA Premium Offices, STRABAG Real Estate’s first property development in Poland, is nearly completed. Why did you decide to launch your own development here?

STRABAG Group has been active in the construction sector in Poland for nearly 30 years. Next year we will be celebrating the 30th anniversary of our presence in the market. In the late 1980s STRABAG built the LIM-Centre in a joint venture. At the time it was the group’s entry to the Polish construction market. Since then, STRABAG has become one of the leading construction groups in Poland. The group has also implemented administrative structures in the country. This was an immense benefit for us at STRABAG Real Estate, as all structures for the realization of projects were already in place, and we did not have to establish them on our own.

So, when we had the opportunity to develop ASTORIA, we could take that chance.

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Low rents, high expectations

i n t e r v i e w b y b e ata s o c h a WBJ Observer: The warehouse market is growing at an incredible speed. In the first quarter of the year alone an additional 400,000 sqm of new space was delivered, putting the entire stock over the 10 million sqm threshold. Do you think the market will continue to expand at this rate?

Paweł Sapek: Indeed, the market has been growing rapidly over the past two years.

However, Poland still has a lot of potential for growth compared to its Western European neighbors. The current growth rate is dictated by high activity of investment funds that are buying industrial properties in Poland. Western European properties have simply become too expensive for them at their current yield levels, compared to Poland. However, the future pipeline of industrial real estate could be limited because of the scarcity of investment land. Still, we expect the market to continue to grow, even if less rapidly than over the past two years.

Most industrial development is currently taking place in Silesia and near Warsaw (altogether almost half of the new supply delivered in Q1 2016). Which markets do you consider the most promising?

Silesia’s large share in new warehouse space was mainly due to two big-scale projects on new investment plots. Unfortunately, the increase in supply in Silesia has also brought extreme rent cuts – they have reached a historic low in the region.

We consider Warsaw to be the most

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promising market right now, particularly close to the newly completed S8 expressway, as well as Poznań and Łódź. These will be our key markets in the near future.

Demand for warehouse space stood at 683,000 sqm and was 10 percent higher than in the same period of 2015, according to AXI Immo. Yet, despite demand exceeding new supply, rents remain low. Analysts from Colliers International say we can expect rents to inch up this year. Do you agree with this forecast?

There is something of a paradox in the Polish market. On the one hand we have a very low vacancy rate, but on the other – historically low rent rates. The Polish economy is growing steadily and is outperforming other European economies. Economic growth is clearly fueling the development of the logistics industry. In a mature market with such low vacancies and limited supply, rents should go up. Unfortunately, it is not happening in Poland yet. We do expect rents to increase slightly next year, though.

Since May of this year, a new law on land trading has been in place. Analysts say it could make acquiring land for investment difficult. Many developers have long been purchasing land for future projects. Has Prologis secured its own land bank?

The new law will not influence decisions for plots that are covered by a local zoning plan. Companies with foreign capital have

always faced stringent restrictions when acquiring land. I hope that the new law will urge local authorities to adopt zoning plans more efficiently. The new law may have a negative impact on smaller projects that used to be built without a zoning plan, but based only on an individual planning permit.

Prologis has a land bank in key locations, together with all the required building permits, which will allow us to expand over the next five years.

Lately, developers have become increasingly confident about building speculatively. Do you think it may lead to higher vacancies this year?

It’s true that developers have been aggressively taking up speculative projects in some areas, which may result in an overall increase in vacancies in these regions.

Prologis is highly selective when it comes to speculative development. We plan and build our speculative projects only in areas where vacancies are pushed down by high demand and limited supply. This way we can count on finding tenants quickly and at stable rents. Currently, Poznań, Łódź and Szczecin offer such opportunities.

In 2015 we delivered two speculative buildings – one in Szczecin and one in Wrocław. Our third investment, launched in 2014, is an SBU building in Chorzów.

Nonetheless, all these projects were 40 percent pre-leased. Building without any pre-leases whatsoever, regardless of the region, is a very risky endeavor.

Logistics firms and retailers have been the dominant forces in the market for years now (together these two sectors are responsible for a third of the entire demand).

How long will these industries continue to fuel demand?

Domestic consumption is one of the main growth factors in the Polish economy, and that’s why retailers will continue to increase their share among the biggest warehouse tenants – that also includes e-commerce. As far as the logistics sector is

Image: Prologis

The warehouse market has seen remarkable growth over the past two years, but despite growing demand, rents have hit an all-time low. WBJ Observer talked to Paweł Sapek, senior vice president & country manager Prologis for Poland, about the high demand – low rents paradox, about the most prospective markets, industries driving up demand for warehouse space, as well as the growing expectations of warehouse tenants

lokale immobilia / interview

concerned, it is important which industries the logistics firms service. Right now it is mainly automotive and household appliance sectors that will continue to develop and look for new and bigger warehouse space.

The e-commerce sector you mentioned has been growing at double-digit pace over the past years. How much of this growth has translated into demand for warehouse space?

Undoubtedly, the e-commerce boom is generating demand for warehouse space.

According to a report “Destination: Poland.

Blazing a trail for e-commerce Logistics,” which we prepared together with JLL, new leases with e-commerce companies could reach as much as 700,000 sqm by 2020.

The availability of workforce and attractive labor costs, as well as relatively low leasing costs, make Poland very attractive to new e-commerce players. Companies already present in Poland will also continue to grow organically.

What sets e-commerce apart is the need for fast deliveries, the wide range of products they carry, a multitude of delivery points (it’s a B2C rather than a B2B market) as well as seasonal peaks in sales. This forces warehouse developers to deliver facilities in locations that are convenient for e-commerce and otherwise adjusted to the needs of the sector. As far as the location is concerned, the availability of workforce, suitable road infrastructure and the proximity to the end consumer are of great importance. The seasonal nature of the business means tenants need to lease more space, or use their space more efficiently, e.g. on mezzanines. Apart from that, e-commerce companies put emphasis on security, additional social areas, more power and more efficient HVAC systems, as well as plenty of parking for their employees.

Put simply, the ecommerce business will have a significant impact on the supply chain and

on the logistics property market. It will also continue to generate a lot of demand for modern warehouse space.

Apart from e-commerce and its particular needs, how are tenant expectations changing and influencing the warehouse market?

Today, warehouse buildings are judged by the same set of criteria as the retail or office segment. They are no longer simple constructions where goods are stored, but modern, functional facilities that should also be aesthetically pleasing. We make sure the landscape around our facilities is well

designed and maintained: well-kept green areas are a major advantage not only for office and retail schemes, but also for warehouse facilities. They increase their market value. Besides, logistics parks are increasingly used as companies’ headquarters, and pleasant surroundings improve employee morale. A growing number of our clients want the finishing standard of their offices to be even higher, so we employ interior designers to implement interesting technological and aesthetic solutions.

We make client service our top priority by also lowering their utility costs. Last year, Prologis created a purchasing group for all the group’s companies in the region, which allows us to secure the best possible unit prices for our clients in terms of electricity and gas supplies.

The warehouse industry still lags behind the office sector as far as green solutions are concerned. Do you think green certificates will become the standard for the sector?

The green trend, including BREEAM certificates, started with the office property sector, but retail and warehouse markets followed quickly in its footsteps. Tenants have realized what advantages eco-friendly solutions give them and today they are asking for them, proving that sustainable development is not a fad, it’s a simple market calculation.

Prologis has been submitting all its newly built warehouses for BREEAM certification since 2008.

Each of our new buildings is certified. Implementing green solutions and technologies at the design and building stage incurs an additional cost of approx.

3 percent compared to traditional buildings.

The difference is more than made up for with lower maintenance costs. We strive to offer our clients green solutions that are efficient in economic terms. That’s why Prologis is frequently ranked as one of the leading developers promoting energy efficient solutions. u

WBJ OBSERVER • june 2016

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lokale immobilia / reit

b y b e ata s o c h a

Real estate – a life line for the stock exchange?

With pension funds on their way out as stock exchange players, could REITs be used to stimulate the seriously crippled stock market?

What’s standing in the way?

C

ome July, the government is set to start talking about the 2017 budget. One of the questions that it will have to answer is how to finance its generous social policies. Market analysts bet on private pension funds (OFEs) as the most likely source of capital. The previous government has already created a precedence of taking money from pension funds. In

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2013, then-ruling Civic Platform took out most of their assets (including all their bond holdings) in order to balance the 2014 budget. Though controversial, the move has been sanctioned by the Constitutional Tribunal as legal.

OFEs have henceforth been forbidden from investing in bonds, in order to channel their remaining assets to the stock market. This “incentive” did little to soft-

en the blow to the stock market that was suddenly robbed of over PLN 1 billion as OFEs had to sell shares en mass to free up cash for the transfer. Several scenarios are considered for this year’s budget planning: from a moderate transfer to the utter annihilation of OFEs. Even in the more favorable scenario, many believe that OFEs, as an investor in the stock market, might soon cease to matter, which poses a serious question that the leaders of the stock exchange have been racking their brains trying to answer: Is there another player that could replace them and pump money into the stock exchange?

Big money

Enter REITs. Long has the Polish financial and real estate industry discussed why REITs would be a great instrument

lokale immobilia / reit

Images: Shutterstock, Mediadem Consulting, REINO Partners, Capital Park

tablished its dominance by taking care of the “everyman,” not by cutting corporate taxes. Introducing REITs that would be free from corporate income tax (only individual investors would pay tax on their income from REITs) could garner the government some unfavorable PR. The fear is highly unsubstantiated, Świątkowski stressed. “We are not talking about tax exemption, but about single taxation, which is absolutely necessary for the REIT market to develop,” he said.

Besides, as Poles pay tax on capital gains, the higher the gains, the more tax will go straight into state coffers.

“It’s incredible that a country that has such a big real estate market has no structures that allow its citizens to make money on it. Instead, foreign investors and foreign pensioners make money on

in Poland. “It’s an ideal instrument for pensioners. It’s safe, transparent and longterm,” said Radosław Świątkowski, president of the board at REINO Partners. The ben­efits would be two-fold: REITs could help provide for the 25 million Poles that will soon reach retirement age, as well as filling the void that the departure of OFEs from the stock exchange has left.

“Polish small and medium-sized investors would be given the opportunity to invest in safe Polish commercial real estate, which would allow them to move some of their funds from bank deposits for example,” said Szymon Renkiewicz, senior associate at Linklaters.

Market makers are well aware of the huge and untapped potential in the deposits owned by households. “The value of the Polish real estate market is some PLN 200 billion, whereas bank depos-

its are now at PLN 680 billion,” stressed Świątkowski. “Even if a mere 1 percent of those funds were redirected to the real estate market, it would be a reason to rejoice,” added Włodzimierz Kocon, deputy president of state-controlled lender BGK. Tax myths

What’s standing in the way of REITs coming to Poland is legislation, or the lack thereof. “The biggest obstacle, it seems, which is preventing REITs from being introduced into Poland’s legal system is the fear of lowering the state’s tax revenue, as well as the current unpopularity around introducing new tax breaks for large companies (including those controlled by foreign entities or with their significant financial involvement),” said Renkiewicz.

The ruling Law and Justice party has es-

“A REIT is a business model which, regardless of its legal structure, allows investors, mainly individuals, access to income-generating real estate investments at a scale that is inaccessible to them on their own. That’s why I believe that the residential market is not what we should focus on. Any ‘Kowalski’ can buy an apartment on his own, but a REIT would allow him to invest in an office building,” Radosław Świątkowski, REINO Partners

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l o k a l e i m m o b i l iia a / reit

Polish property. The money is not taxed here. From the point of view of the state budget, it’s pure profit,” he added.

Simple calculation

On the right track Capital Park has already established a fund that is akin to a REIT. What prompted you to create it?

Our first fund was created in the summer of 2013. It’s called Real Estate Income Assets and as the name suggests, it is primarily based on income-generating assets. We decided not to repeat the mistakes that other funds made in the past: raise money for a non-too-specific goal to be achieved sometime “in the future.” We presented a portfolio of 39 assets in 26 cities, with 90 leases generating a steady and stable income. The fact that investors knew exactly what they were investing in set us apart from the offer available on the market at that time.

It has been working for almost two years now. How big is the dividend?

The fund has been generating a dividend of 7 percent annually, paid out every six months.

Your first fund is purely comprised of retail assets. Now you are working on two more vehicles. What is the composition of the second one?

This one contains a mix of retail and office assets from several cities, including Warsaw. The work on this fund is close to being completed.

What about the two office schemes that Capital Park has developed in Warsaw: Eurocentrum and Royal Wilanów?

We are analyzing investor interest at the moment. We could use these two properties as a seed for another fund. Then we could purchase a few more assets available on the market that are similar in profile to our own.

What legal form have you chosen for your funds?

The first one is a FIZ (a closed-end investment fund). We are still considering the legal framework for the second fund. The third one will likely be in the form of a joint-stock company, but we are open to other forms as well, including foreign ones. We will hold a minority stake in the fund, as we did with our first one. We are not a developer that builds a scheme, sells it and forgets about it. We like to stick to our projects.

What kind of investors are you looking at?

It is rather difficult to raise major sums from Polish individual investors, while Polish institutions are not yet ready to invest in such funds. If we are talking about a larger scale, we still need to look outside. And that’s what we are doing right now.

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Risk perception

However, even if the legislation was already in place, who’s to say it would immediately lead to a surge in real estate investment levels? “The law on reverse mortgages has been in force for 18 months and there is still no coherent product,” pointed out Bolesław Meluch, board advisor at the Polish Banks Association.

The popularity and success of REITs in the Polish market is largely a question of how Poles perceive risk involved

Images: Mediadem Consulting, Capital Park

Marcin Juszczyk, head of investment and board member at Capital Park

According to estimates by the stock exchange, as much as PLN 1 billion is lost in taxes, as they are paid outside Poland due to tax optimization schemes.

The projections also posit that Polish REITs could potentially draw as much as 25 percent of the total profits from the Polish real estate market. If, in turn, individual investors’ holdings amounted to 30 percent of all the REITs’ holdings, that could produce an extra PLN 25-50 million in taxes that would go directly to state coffers. That’s far better than what the state gets from capital gains tax on bank deposits. After all, “REIT dividend is significantly higher than the interest paid on bank deposits. It’s a simple calculation,” commented Świątkowski.

So, once the myths about tax avoidance are debunked, REITs, as a way for Poles to invest in Polish real estate, should be perfectly aligned with the policies of the current government and Deputy PM Morawiecki’s development plan to increase the involvement of domestic capital in Polish investments.

lokale immobilia / reit

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lokale immobilia / reit

Residential too?

Experts’ opinions differ when it comes to whether or not REITs should be able to invest in residential properties. “The exclusion of residential property is a mistake. It’s an asset just like any other,” said Michał Koślacz, board member at developer Capital Park. Świątkowski disagrees. “A REIT is a business model which, regardless of its legal structure, allows investors, mainly individuals, access to income-generating real estate investments at a scale that is inaccessible to them on their own. That’s why I believe that the residential market is not what we should focus on. Any ‘Kowalski’ can buy an apartment on his own, but a REIT would allow him to invest in an office building,” he said.

REIT-alike

Even if REITs are a song of the future, developers, asset managers and other market players are making do with the existing regulations, creating REIT-alike vehicles. REINO Partners operates two FIZs (closed-end investment funds) and one joint-stock company that will have its IPO by the end 2016. The first FIZ, REINO Dywidenda FIZ, has already paid their investors a dividend of 6 percent a year for the first two years of its operations. The funds are as close as it gets to being “Polish REITs,” without

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“A REIT is not a separate legal form, it’s a way that real estate investors are treated tax-wise.

Currently there is no legal framework in the Polish market that would enable investors to take advantage of the possibilities offered

by REITs,” explained Szymon Renkiewicz from Linklaters.

What they could become, however, is subject to debate.

Some of the guidelines for the legal framework are listed below: - Legal status: joint-stock company, traded on the WSE - HQ and management based in Poland - Minimum share capital: PLN 60 million - At least 70 percent of assets in real estate - At least 70 percent of its profits should come from rents - At least 80 percent of profits paid out to investors - Tax exempt (tax paid only on dividends).

the legal framework: their investors are individual Poles who own Polish office schemes: Kapelanka 42 in Kraków (purchased from Skanska in 2014), Malta in Poznań and Alchemia I in the Tri-City.

Recently, the most talked-about REIT in the Polish market is Griffin’s, which was formed in partnership with South African REIT Redefine, although it is difficult to call it Polish. Redefine (in conjunction with some of its clients) took over 75 percent of the fund, while Griffin kept the remaining 25 percent.

Still, it showcases the potential of the Polish market.

Meanwhile, Capital Park, a Polish developer and investor, is also becoming increasingly active, having delivered one fund and working on two more. Its first fund has been generating a dividend of 7 percent annually.

Whether or not more companies will decide to join the REIT club is now up to the legislators. Poland seems to be on the right track. “In 2006, in South Africa, it was estimated that the legislative process of introducing REITs could take 3-6 years. The draft bill was announced by the South African Finance Minister in February 2012 and came into force in May 2013,” explained Renkiewicz. He also added that given the growing interest in the subject of REITs in Poland and the WSE’s involvement, we could expect the legislation within the current term of the government. u

Image: Echo Investment

in real estate. After getting burned in the 2008 crash and given their brief affair with investing, Poles have become highly cautious about investing. When a typical “Kowalski” hears “alternative asset classes,” he or she immediately sees a red blinking warning light. It doesn’t help that “alternative” encompasses almost anything other than stocks and bonds, from stable income-generating real property, through highly volatile resource markets, to the currency market, which many would classify as gambling rather than investment. In order to understand the real estate market, Poles will need a lot of education and time.

However, there are signs of slow improvement in investors’ perception of risk. Some instruments related to the real estate market have been extremely popular lately. “Developers’ corporate bonds are sold out within 3-4 days,” said Dorota Latkowska-Diniejko, managing director at REINO Partners.

news

/ economy

WBJ OBSERVER • april 2015

77

lokale immobilia / interview

Bound to succeed Refurbishing old office buildings is not an easy task, particularly in high-profile central locations, like Cedet in Warsaw, and neither is tackling projects that many have already tried and failed to complete, like the Granary Island in Gdańsk. WBJ Observer sat down with Bartłomiej Hofman, president of the board of Immobel Poland, to talk about the developer’s strategy and its bold undertakings i n t e r v i e w b y b e ata s o c h a

WBJ Observer: Immobel is known for its outside-of-the-box projects, like the Okrąglak and Kwadraciak schemes in Poznań – two iconic office buildings, gems of Polish “Modernism.” After refurbishing them, you successfully sold them to Benson Elliot earlier this year.

Were the schemes intended for sale from the get-go?

Bartłomiej Hofman: In our business strategy we tend to focus on the sale of finished and leased properties. We focus on the areas where we have expertise and that bring the biggest added value, that is development and leasing. This strategy should not change in the foreseeable future.

You are now in the process of refurbishing another iconic scheme from the Modernist era – Cedet in Warsaw. Was the experience gained from Poznań helpful with this complex project?

We would not have taken on such an ambitious challenge if we did not have the experience from Poznań. The renovation of Okrąglak, a landmark building with a rich tradition and history, was quite a challenge but we believe that we passed that test quite well. The reconstruction of Cedet is somehow similar in terms of the challenges that we are facing. Once again we are working on a unique building with extraordinary architecture.

In order to refurbish Cedet you had to demolish almost the entire building.

What has been the hardest part so far?

The works on the slurry wall and reinforcing the underground structure have been completed. At the moment we

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are working on the slabs of the underground levels. At the beginning of 2017 we should start the works on the facade, while the end of the construction works and obtaining an occupancy permit is scheduled for September 2017.

I have to admit that up to the moment when we started construction works, we had not expected the structure of the building to be in such a poor condition.

We were forced to remove a significant part of the structure in order to reinforce it and make sure it would be safe for future users and compliant with current construction legislation.

Are you already in talks with prospective tenants?

Interest from potential tenants is quite significant. We hope to finalize a couple of lease agreements for the office space by the end of the year and we are in quite advanced negotiations. We have already leased over 80 percent of the retail space in the building and there are only a couple of small units still available.

Another of Immobel’s Warsaw projects – CBD One – is located right next to the Świętokrzyska subway station. Just like your other office schemes, it is in the very heart of the city. Location seems to be the top criterion for your projects.

The three most important qualities of good real estate are location, location and location. For a potential tenant, such a unique location could be a great bargaining chip in attracting talent to the company. Being located in the heart of the city center not only allows excellent access to the building, but it also offers a whole variety of services,

shops and leisure amenities. The location of CBD One is truly unique. There is no other place in Warsaw that can boast such a central location and accessibility.

Aren’t you afraid of the competition from office projects currently under construction and at the planning stage in Warsaw’s Wola district? Rents are significantly lower there than in the CBD proper, despite the relative proximity to the city center.

Although we can see a lot of construction activity, we do not see it necessarily as our direct competition as we are targeting different market segments. The quality of the environment and range of the services offered in the neighborhood are simply incomparable.

We are confident that our tenants will be able to assess this on their own and make a sound choice for their future office location.

CBD One will be developed in a unique spot – at the intersection of Warsaw’s two thoroughfares – ul. Świętokrzyska and ul.

Marszałkowska, and at the same time at the junction of two subway lines, which will guarantee excellent access from every point in the city.

What kind of tenants are you targeting?

Our goal, similarly to the case of Cedet, is to attract companies which consider great location to be of the essence. Companies that are aware that the highest-quality office in a central location will help them attract and retain staff and clients by offering the full variety of amenities available in the city center. Taking into consideration the planned developments in the area, it is the only chance to secure an office in such a location.

Image: Immobel Poland

lokale immobilia / interview

You are also in the process of revitalizing the Granary Island (Wyspa Spichrzów) in Gdańsk, right next to the city’s Old Town area. Several developers have tried and failed in this endeavor. What made you take on this project?

As you can see we are not afraid of such complicated projects. The northern part of the Granary Island is a place with tremendous potential which has remained untapped since the end of the Second World War. We believe that projects in city centers are bound to succeed and that’s why we decided to restore the island’s functionality. We are in the process of developing the northern cape of the island. We’re working in a consortium with Multibud W. Ciurzyński and within a public-private partnership with the City of Gdańsk.

The project, called “Granaria,” will include building a hotel and a residential/retail mixed-use complex, as well as improving the island’s infrastructure by building a pedestrian bridge connecting the island with ul. Długie Pobrzeże and redeveloping the Stągiewny Bridge and ul.

Chmielna, ul. Pożarnicza, ul. Motławska and ul. Długie Pobrzeże. It’s a major challenge that, once completed, will result in

the creation of a completely new neighborhood in the city.

How is the public-private partnership model working out in practice?

Although this is a new experience for us, it is very beneficial for all the parties involved. Through the mechanisms included in the PPP agreement referring to the transfer of the property, the city can be confident that the investment will be completed and at the same time it can have a say on the final design of the buildings. The city’s infrastructure will also be significantly improved in line with the construction of the commercial properties. Last but not least, the image of the city will definitely improve, as we are developing an area that is directly linked to Gdańsk’s Old Town.

When is the project due to be completed?

The project has been underway since the end of March 2015 and will be developed by 2023. It is divided into four phases. The first stage, which is due to commence in 2016, includes the construction of a hotel, apartments, retail units and a parking area. We believe that the project will breathe new life into the

heart of Gdańsk, making this area attractive not only for residents, but also for tourists visiting the Tri-City.

Do you expect apartment prices in the area to go up once the construction is completed? After all, it is next door to the Old Town and the current price level for apartments on the island is PLN 8,0009,000 per sqm, which is relatively low.

The improving image of the Granary Island will cause prices to increase. The infrastructure, which will be developed together with subsequent stages, will also add to this. The island’s accessibility, the range of amenities and the general appearance of the area will improve significantly.

Do you think that the market will be able to absorb so many projects offering hotel services in one place? There are currently several aparthotel investments being developed on the island.

Based on market research, we believe it will. The number of tourists visiting Gdańsk is definitely on the rise and the proximity to the Old Town makes it a natural location for such services. We can see it by observing the strong demand from hotel operators. u

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observer ranking

OBSERVER TOP 10

Green retail projects Ranked by GLA

1Arkadia GLA:

114,600

Ownerr: Unibail-Rodamco Certificate: BREEAM In-Use Building Management Level: Outstanding

2 Manufaktura GLA:

110,000

Owner: Union Investment Certificate: BREEAM In-Use Building Management Level: Excellent

GLA:

75,000

Owner: Atrium European Real Estate Certificate: BREEAM Level: Pass

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Images: Shutterstock, Wikimedia

3 Atrium Felicity

observer ranking

4 CH Riviera

8 Blue City

GLA:

GLA:

70,500

63,400

Owner: Union Investment Certificate: BREEAM In-Use Level: Excellent

Owner: Blue City Certificate: BREEAM In-Use Level: Very Good

5 Galeria Mokotรณw

9CH Janki

GLA:

GLA:

68,300

60,900

6 Europa Centralna

10Galeria

Owner: Unibail-Rodamco Certificate: BREEAM In-Use Building Management Level: Outstanding

GLA:

67,000

Owner: Standard Life Investments Certificate: BREEAM Level: Good

7Galeria Echo

25

Owner: CH Janki Certificate: BREEAM In-Use Level: Very Good

Bronowice

GLA:

60,000

Owner: Auchan Polska Certificate: BREEAM Level: Good

GLA:

65,800

Owner: Echo Investment Certificate: BREEAM In-Use Level: Very Good

Research for the list was conducted in January 2016.

WBJ OBSERVER โ ข June 2016

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events / c i nh feomri s h a yr e F 2o 0r1u6 m tr

Infoshare 2016 The Infoshare Conference is the largest conference on technology and new media in Central and Eastern Europe. It is organized in Gdańsk and every year more and more participants join this event. This year nearly 5,000 people took part. It clearly shows that such projects are needed

Natalia Hatalska, blogger and specialist in communication; and Piotr Konieczny from niebezpiecznik.pl attracted hundreds of listeners. It was difficult to find a free seat.

This year, the stage was graced by many fascinating speakers including: David Allen, author of the business bible “Getting Things Done;” Kevin Goldmith from Spotify; Anthony le Roux from Uber; Peter Sunde Kolmisoppi from The Pirate Bay; Jon von Tetzchner, founder of the web browsers Opera and Vivaldi; and Linnar Viik, lecturer and digitalization consultant for the government of Estonia.

The international jury included members such as: Jon von Tetzchner; Joerg Rheinboldt, CEO of the German Axel Springer accelerator Plug and Play; and Luis Maier from the German Tech Entrepreneurship Center. “Nexbio has an innovative and experienced team that can provide them with success on a global scale,” said Małgorzata Jasnoch, CEO of Starter Gdansk Business Incubator.

Preparations for the next edition of Infoshare have already started and the organizers extend a warm invitation to everyone on May 17-19, 2017 in Gdańsk. u

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Images: Executive Club

Speeches by Marcin Iwiński, “The Witcher” creator; Michał Szafrański, blogger and expert on saving money;

An important part of the Infoshare conference was the competition for start-ups organized in cooperation with Starter Gdańsk Business Incubator. The main prize was €20,000. The first stage of the competition included 170 companies from 13 countries, such as Ukraine, Russia, the UK and Singapore. Seven teams made it into the semi-finals - Reality Games, Sup4Nav, Nexbio, vBionic, Deckard, Footsteps and SaaS Manager.

The big winner was Nexbio, which deals with the improvement of methods to analyze DNA code for science and business.

Images: Infoshare, PTWP

The

three days of the conference were full of meetings, lectures, workshops and networking. There were more than 100 speakers, 10 stages, and numerous accompanying events – there was a lot to choose from.

Everything on offer attracts the most interesting names in the industry – speakers, investors, managers of large companies, and representatives of startups and universities. During the event, new friendships, companies, ideas and projects are created.

“I am happy that our conference provides high quality knowledge, but I am even more happy with the fact that our event is now also a place for business networking,” said Grzegorz Borowski, President of the Infoshare Foundation which organizes the conference.

Events / European Economic Congress

The 8th European Economic Congress in Katowice – “the economy is our priority.”

“Our ambition is to build a strong Polish economy, a driving force for the development of our country, and to become a major player in the international and global arena. It is an opportunity that we need to seize. We certainly have enough courage and optimism,” emphasized Beata Szydło, the Prime Minister of Poland, in her speech opening the 8th European Economic Congress (EEC) in Katowice.

For the eighth year running, and for three days in a row, Katowice has been the venue for heated debates between experts, entrepreneurs, politicians and guests representing the world of business and academia.

During her opening speech at the EEC Beata Szydło also said: “We are open to cooperation. Our goal is to build the Polish brand. This goal is both daring and ambitious. The economy is a priority for my government. We welcome all investors who want to invest in Poland, employ our citizens and pay taxes here.”

The 8th European Economic Congress in Katowice was attended by nearly 8,000 guests, including: Valdis Dom-

brovskis, Deputy President of the European Commission and former Prime Minister of Latvia; Günther H. Oettinger, European Commissioner for Digital Economy and Society; four Polish ministers: Jarosław Gowin, Deputy Prime Minister and Minister of Science and Higher Education; Mateusz Morawiecki, Deputy Prime Minister and Minister of Development; Paweł Szałamacha, Minister of Finance; and Krzysztof Tchórzewski, Minister of Energy. Many Polish deputy ministers, ministers and deputy ministers in

foreign governments, presidents and deputy presidents of the largest companies, enterprises, and institutions from all over the world, plus practitioners and decision makers who have a real impact on social and economic life were also in attendance.

Key themes discussed at more than 120 debates, with the participation of more than 700 panelists, included: energy, industry, the digitisation of the economy, global expansion and startups. Besides the debates dedicated to specific sectors of the economy and industry, the organizers planned discussions on the development of cities and regions, social policy, healthcare systems, the labor market and trade.

The EEC was complemented by a two-day meeting of Polish start-ups and representatives of established large businesses – European Start-up Days, a new dynamic event with an innovative formula held at Katowice’s Spodek arena, which attracted 2,000 participants - visionaries, forerunners of trailblazing solutions and successful entrepreneurs from various sectors. u

WBJ OBSERVER • June 2016

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Gadgets Technology to make your life easier

>>

We live in an age of gadgets: some are useful, but most are just a waste of time and money. We sift through the latest available tech to pick those that we believe will help you live your life more comfortably and confidently.

The Alcoho-Lock

>>

Kisha umbrella

Breathalyzer locks for drivers are not a fad, they’re being used in some countries to prevent drunk drivers. No wonder someone has thought of such a device for cyclists. The Alcoho-Lock is designed for bikes, and works in a similar way to other such devices, although there is a twist. Whenever the sensor detects alcohol on your breath, the dedicated application sends a message to a designated number informing that the owner has been drinking and it’s up to the riders’ partner whether to unlock the mechanism or not.

It’s a double edge sword, because on one hand, letting your loved ones know that you’ve been drinking, and still want to ride your bike could be embarrassing. On the other hand, you’ll be probably be subject to numerous late night drunken phone calls, begging you to open the lock.

Price: $240

Alcoholock.com

The Micoach smart ball

If someone can make a smart umbrella, why not make a smart ball. While it’s too late to improve your skills before EURO 2016, you can already start practicing for the next tournament in 2020. The Micoach smart ball is standard in size and weight, but inside it’s packed with sensors that can detect anything from speed to trajectory. It comes with an app which analyses the data and gives you tips on how to improve your skills, as well as training games and challenges. You can even share your results with others.

Price: $200

Adidas.com

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>>

The smart Kisha umbrella doesn’t unfold itself when it starts raining, and has the same features as regular ones, although, according to the producers, it can withstand winds of up to 193 km/h. What makes it smart is the app that comes with it. It can check the weather and notify you before you leave whether you need to take the umbrella with you. It can also track the device in case you lose it, which, as we all know, is the main reason anyone buys an umbrella, to replace the one you’ve lost.

Price: $100

Getkisha.com

The Pavlok

This is probably the most controversial gadget that we’ve covered so far. The Pavlok is a wristband that shocks you whenever you do, or are about to do, something that you want to quit. It can be anything from smoking to watching TV. If you want to quit biting your nails, you just have to press one button and it shocks you (with up to 450 volts) which, according to the producers, will make you associate that action with pain and make it undesirable to you. It also has an automation mode for some habits (it can zap you if you spend too much time online for example) and more and more apps for different habits are being released.

So, if you have a habit that you want to quit and don’t mind treating yourself like a pet, this might be just the thing for you.

Price: $200

Pavlok.com

>> The SCiO molecular sensor

While the technology behind it has been around for years, it has never been so compact and handy. The SCiO molecular sensor is the size of a key chain and scans products in a non-intrusive way. It gives you information on nutritional content, molecular makeup, the well-being of plants (no more squeezing tomatoes to see if they’re ripe) and it can even identify what’s in your medication.

The producers have promised to release more apps and databases on a regular basis for specific foods and other products, so the analysis can become more detailed.

Price: $250

consumerphysics.com/myscio

Images: Adidas, Kisha, Alkolock, Waterfi, Pavlok, Consumer physics

>> Waterfi iPod Shuffle

Even though there are a number of waterproof smart phones and mp3 players, old habits die hard. If you’re so used to your iPod and can’t imagine using anything else, even underwater, the Waterfi iPod Shuffle is the perfect solution. The device is protected from water by one layer and from corrosion by a second. It works at a depth of up to 30 meters and you can control it as you swim, as it doesn’t have an inconvenient waterproof case like other such devices. If you pay $15 extra you get waterproof headphones as well.

Price: $140

Waterfi.com

>> WBJ OBSERVER • june 2016

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Soups, curries and stir fries

Gold Elephant

I have to say that I was first introduced to Gold Elephant through roomservice.pl (not the best way to get to know a restaurant), but even then I was impressed with the options and array of food that were on offer. Gold Elephant takes classic Thai dishes and adds a light twist so as to enhance the traditional flavors –well worth the prices. ul.Walbrzyska 40

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Thai Thai

Especially popular during the pre and posthours of Warsaw’s theater scene, Thai Thai is probably most accessible during the day, or with a reservation at night. At Thai Thai, the service is excellent, a positive outlined in numerous Trip Advisor reviews. Thai Thai is a little more on the pricy side, so if you’re looking for something a little closer to fine dining, this could be the place to choose. Good food, good service, good ambiance – the perfect spot for a business lunch, date, or evening dinner. pl. Teatralny 3

Images: Shutterstock, Vedika Luthra

Thai cuisine has become a global phenomenon – in the 2011 CNN ranking of the world’s 50 most delicious foods, seven Thai dishes made the list. More than any other country. Poland has been no stranger to this cuisine for many years now, and it shows with the number of higher-end Thai places popping up left and right. Here we present you with the cream of the crop. At least when it comes to Warsaw

lifestyle / thai restaurants

Thaisty

Finding seats without a reservation on weekends is almost impossible at this Thai restaurant, one of Warsaw’s favorites. But this is expected when the quality of dining is so consistently good every time. Award-winning head chef Chanunkan Duangkumma creates an appealing menu with unique and creative, yet authentic, Thai dishes. While the menu includes vegetarian meals, I’d have to recommend the Ped Pad Ka Prao, a crispy duck breast served with a tangy oyster sauce and vegetables. Of course, I’m a fan of the Pad Thai and red curry as well. If you pay a visit to Thaisty at the weekend, make sure to reserve a table in advance. pl. Bankowy 4

Suparom Thai

ul. Marszałkowska 45/49 al. Wilanowska 309

Silk&Spicy

If you’re looking for something slightly more refined and tasteful, Silk&Spicy is at the top of the list of places to visit. Not only does this spot serve one of the best Phos I’ve had in Warsaw, but there are also Sushi options to choose from (obviously this deviates from the Thai theme), for which the restaurant is well known. The owners of Silk&Spicy also run Thai Wok, a popular chain that can be found in most malls, though Silk&Spicy caters for a more refined audience. ul. Żurawia 16/20

Tuk Tuk

Situated on the periphery of Plac Zbawiciela, aka Hipsterville of Warsaw, Tuk Tuk is particularly popular amongst Warsaw’s youth. The restaurant is small, lending a cozy ambiance. During the summer, it’s always nice to find a table outside, though that might be slightly difficult as the restaurant is particularly busy during that time. If you’re looking for something spicy, their Green Curry does the job. While Tuk Tuk does serve up a decent plate of Thai food, it most likely wouldn’t be my first choice for a sit-down dinner with the family. ul. Mokotowska 17

WBJ OBSERVER • june 2016

Images: Dos Tacos, Yeye, El Caribe

When it’s a no-fuss, classic Thai menu you crave, Suparom Thai is the place to go. All your favorites are most likely to be found at this restaurant.

Two branches of Suparom Thai can be found in Warsaw, making it all the more accessible. If you’re looking for a reasonably priced, tasty meal, particularly during the lunch hour, Suparom Thai serves up an unbeatable special. While you’re at it, both branches provide Thai massages as well.

What’s not to like?

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b y v e d i k a Lu t h r a

The

travelling environmental art installation, Cool Globes, has made its way to the banks of the Vistula in the hopes of raising environmental awareness and brightening up the riverside.

Public art is largely dependent upon initiative. The initiative to organize, the initiative to set up and, in this case, the initiative to take action.

“Cool Globes: Hot Ideas for a Cooler Planet” has literally travelled across the globe to reach Warsaw.

A Chicago-based exhibit, the Cool Globes installation was originally concocted by Wendy Abrams, a mother who wanted to promote environmental awareness to ensure a sustainable future for her children.

The display consists of a series of large-scale globes made by a range of different artists, each with a separate message outlining methods to combat Global Warming – naturally, the aim of the display is to promote environmental awareness. 120 globes were originally provided for Abrams’ initiative. Many were auctioned off, the proceeds donated to foster educational

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campaigns regarding environmental awareness. The rest travel from city to city (host cities include Amsterdam, Jerusalem and Geneva), captivating individuals and motivating them to take action.

“Public art is inspiring aesthetically and culturally,” says Janice Rzycki, the environmental activist who brought the installation to Warsaw. “It hits all ages, it’s very interactive and [this particular exhibition] poses the question, ‘what can I do to solve climate change?’ as opposed to solely conveying that ‘there is climate change.’”

In Warsaw, you can find the globes lined up alongside the banks of the Vistula, a fitting location that attracts hundreds of cyclists and walkers (especially around this time of year) and should hopefully reach a broad audience.

While most of the artists contributing to the Cool Globes exhibit are American, the Polish artist Marek Sułek has contributed to the effort by creating a globe that represents the environmental efforts of our local community. Sułek specializes in

sculpture and has dedicated much time and effort to the exhibition, creating a globe that represents an apple tree, to symbolize the efforts Warsaw has taken as a city to become more “green”- the apples represent the importance of consuming local produce.

Though the exhibit ends in September of this year, Rzycki (who also works with local hospitals) hopes that the locally created globes make their way to one such center. “When you enter a hospital and there’s a colorful, magical tree, that also happens to be a globe, for one second, you forget about all the illnesses and pain and think of something happy.”

The exhibition in Warsaw has already garnered much attention from local press, and obviously for good reason. “I would like to think that this exhibit inspires people in multiple ways – not only in terms of global warming, but about how to get involved the in community,” says Rzycki.

And while the globes do promote sustainability, they’re also intriguing works of art, definitely worth a trip down to the Vistula. u

Images: Vedika Luthra

Cool Globes: Hot Ideas for a Cooler Planet in Warsaw

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