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Fprop Snapshot
Q3 2015
 
 
 
 
Fprop Investment Property Markets
 
 
 
POLAND:
 
 
GDP growth - 2015 (E) = 3.5%, 2016 (E) = 4%;
 

 
Domestic demand - improving rapidly, underpinned  by improving labour market, low interest rates and robust real wage growth;
 

 
FX - PLN 4.18/ EUR 1. Temporarily strengthened in April/May to PLN 4: EUR 1 but now back to 2 year average;
 

 
Commercial property yields for good secondary property still HIGH – c200-300bp higher than comparable property in UK / Western Europe;
 


 
Investor demand spreading into regions; only 25% of 1H 2015 volume (of €0.8bn) was generated by transactions of Warsaw properties;
 

 
Sectors:
 


 
Offices - record take up in Q2 in Warsaw of 221,000m2, tempered by development pipeline – vacancy rate now at 14.1% and rising; rents expected to continue to soften into 2016. Prime rents in CBD at €24.5m2 per month, secondary at €15.5m2 per month. Prime yields at 6% in Warsaw;
 


 
Retail - 2015 development pipeline set to surpass previous 5 years, focused on medium and large schemes in large cities. Prime yields in to 5.75%;
 


 
Industrial - Leasing activity up 20% y-on-y, vacancy rate at 5.5%. Increased developer interest in Eastern Poland. Prime yields at 7%;
 

 
Politics - General Election on October 25. Possibility / concern that incumbent Civic Platform Party (PO) may be ousted by less market oriented Law and Justice Party (PiS), as happened in May’s Presidential election;
 

 
CONCERNS - development pipeline / general election, MITIGATED by strong economy and low prices of good secondary property (broadly unchanged since falls of credit crunch).
 

 
 

 
UNITED KINGDOM:
 
 

GDP - improving pay growth and consumer confidence led BoE to upgrade its growth forecast for 2015 from 2.5% to 2.8%;

 
 

Base Rates - consensus re first rise since Mar-2009 (from 0.5% pa) shifted from Q4-2015 to 1H-2016;

 
 

Inflation - still near zero;

 
 

Commercial property investor market (data from IPD All property index to 30 Jun-2015)

 

 

Total Return Q1 – 2.9% (of which 1.2% was attributable to income returns);

 

 

Total Return Q2 - 3.5% (of which 1.2% was attributable to income returns);

 

 

Annualised Total Return - 15.6% (of which 5.2% was attributable to income returns);

 

 

Net Initial Yield Q1 – 5.3%;

 

 

Net Initial Yield Q2 – 5.0%;

 
 

Yields continue to tighten but backed up by increasing occupancy levels / mild weakening of tenant negotiating power at rent reviews and lease renewals;

 
 

Office to residential PDR - still waiting for result of government consultation of summer 2014. The policy is controversial. Announcement expected in 2H given expiry of current legislation in May-2016;


 
CONCERNS - yield tightening / interest rate rises.
 
 
 
 
 
Fprop in Poland
 
  …has been earning ROE >20% pa. for past several years;
 
 
…is ranked No. 1 vs IPD CEE universe for the annualised periods from the commencement of its operations in Poland in 2005 to the end of each of the years between Dec-2008 and Dec-2014;
 
 
…is in process of establishing a new club of investors, targeting a minimum ROE of 15% pa.
 
 
 

 
Fprop in UK:
 
 
…has delivered a dividend yield to its fund investors from ungeared good "secondary" commercial property >6% pa since 2010;
 
 
…has earned a return on equity of 53% and IRR of 98% pa for investors in its development fund, established Oct 2013;
 
 
…is currently investing a £125 million fund on behalf of Shipbuilding Industries Pension Scheme (SIPS).
 
 
 
 
 
 
Fprop Investment Strategies
 
 
 
POLAND:
 
 
Investment - targeting higher yielding commercial property to generate a minimum IRR & ROE of 15% p.a. (geared).
 
 
 

 
UNITED KINGDOM:
 
 
Investment - targeting all property classes to generate a total return of 7% p.a. (ungeared);
 
 
Development - targeting vacant/short lease offices for conversion to residential use.
 
 
 
 
 
 
Fprop Property Requirements
 
 
 
POLAND:
 
 
All sectors considered but focus on offices, retail and mixed-use;
 
 
Lot sizes of €3m+ with no ceiling;
 
 
Minimum 7.5%+ net initial yields - unless partially vacant, in which case lower;
 
 
Fully or partially let with or without asset management angles;
 
 
Cities with catchments of 50,000+.
 
 
 

 
UNITED KINGDOM:
 
 
All sectors considered - including offices, retail, leisure, industrial, logistics, residential, student accommodation, properties suited for development and redevelopment;
 
 
Lot sizes £2m - £25m;
 
 
Minimum 6% net initial yields - unless partially vacant, in which case lower;
 
 
Fully or partially let with or without asset management angles.
 
 
 
 
 
 
 
Fprop Diary
 
 
 
 
 
 
 
 
 
Contact Fprop:
 

 

Jeremy Barkes
Director, Business Development
 
+44(0)20 7340 0270
http://www.fprop.com


 
1000 Companies to inspire Britain in 2015  
     
 
IPD  
FPAM funds have ranked No.1 versus the Investment Property Databank (IPD) Central & Eastern European (CEE) universe for the annualised periods from the commencement of its operations in Poland in 2005 to the end of each of the years between 31 December 2008 to 31 December 2014.
 
 
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