United Kingdom real estate funds are the third most active investors in the Polish real estate market, following only funds from the U.S. and Germany. The new (and unexpected) reality of Brexit is a prime concern for industry participants at various levels:
- Presuming a complete withdrawal from the EU and the absence of negotiated EEA arrangements, UK purchasers of Polish real estate would face a two- to four-month governmental approval process that is highly discretionary. As a practical matter, we believe reactivated or new bilateral investment treaties between the UK and Poland should alleviate this particular issue and associated uncertainties.
- A more practical problem may be reduced activity by UK participants in the Polish real estate market resulting from a weak pound and a slowdown in the UK economy. Participants throughout the EU may adopt a wait-and-see posture until there is more certainty as to how (and whether) Brexit will be effected.
- Brexit may also influence the strengthening of the Swiss franc. Many Polish residential real estate housing loans are denominated in Swiss francs and any such strengthening of the Swiss franc will make an already bad (and politically sensitive) situation worse.
- Some companies based in the UK will consider transferring part or all of their operations to the continent. Frankfurt, Paris and Vienna will no doubt see the bulk of such transfers, but such Polish cities as Warsaw, Krakow, and Lodz can be expected to benefit as well.
The current situation of commercial real estate in Poland is quite good. According to an official report of Knight Frank with regard to Warsaw, in Q1 2016 there were 707,000m2 GLA under construction and the vacancy rate was at 14.1%. There is no doubt that a new level of anxiety has arisen because of Brexit. However, we believe the first real, long-term consequences of Brexit will not begin to have an impact any earlier than end of 2017.