Poland offers attractive investment possibilities post-Covid.
We have now undergone a year and half of unprecedented interference in all aspects of our lives including, of course, in business. In an attempt to combat the serious consequences of such mammoth disruption, governments have engaged in the largest spending spree in history.
The results of such a gargantuan experiment cannot possibly yet be known. The interventions are continuing, with no sign of them ceasing any time soon. Neither can anyone predict the results. There is simply no historic precedent by which to forecast outcomes.
At some point, lockdowns have to stop, as does the spending. Only then will the depth of the scars on commerce become known. Such heightened uncertainty makes investment challenging, to put it mildly. But opportunities exist in every cycle and I have no doubt that fortunes will be made and lost in this next cycle, as they have been in all previous ones.
With that in mind you could do worse than to focus on commercial property investment in Poland. The Polish economy has been one of the fastest-growing ones in Europe for at least the past two decades and, given its structural competitive advantages, it should be able to sustain a relatively high future growth rate. This faster growth rate has been and is likely to continue to be boosted by the ‘carry trade’, whereby excess liquidity created in wealthier nations finds its way ever further afield in its hunt for yield. Poland is a direct beneficiary of this. And with the extraordinary levels of new money created during Covid, this tailwind has just got stronger.
Poland’s key competitive advantages are a lower cost base, and a highly educated and motivated work force, together with proximity to many of its end markets. Its lower cost base is not just limited to lower business input costs, such as labour and property, but also lower government overheads, with government debt at around 50% of GDP (compared to more than 100% of GDP for more developed nations). In addition, Poland’s workforce is well educated, with numeracy and literacy rates generally higher than in the UK, and a corresponding hard-work ethic, as many readers will have experienced first hand in the UK. Fluent English is spoken widely. It is not surprising that growing numbers of international corporations choose to invest in Poland.
I can only see this trend accelerating.
“Poland’s workforce is well educated, with numeracy and literacy rates generally higher than in the UK”
An obvious way to participate in this economic growth should be by investment in property, the value of which generally keeps pace with or exceeds economic growth over time. But fast-growing markets can be difficult to navigate and a two-tier market for commercial property exists in Poland. Most of the weight of money is focused on large lot sizes with long leases, where yields are tight. As lease lengths shorten, the capital value of such property deteriorates. We tend to avoid this segment of the market, focusing instead on property where we can add value by buying at lower prices off lower rents, and extending leases and refurbishing where necessary. When leverage is added, double digit per annum returns are easily achievable from rental income alone, with the potential of a further boost from capital gain, though we do not rely on this (nor do we need to given double digit per annum income returns). This formula has worked very well for us since we first invested in Poland in 2005 and I see no sign of it changing any time soon.
