M&A on the Polish housing market

News of the sales of several large, well-known development companies has recently been of much discussion in the Polish housing market, and according to JLL experts, this trend looks set to continue. In the next few years, the Polish development market will see a wave of consolidation and acquisitions, both from large Polish development companies looking for growth opportunities, as well international capital drawn to the potential and attractiveness of the country’s housing, and rental markets.

The land banks of many developers have shrunk in recent years, and the limited availability of land for development does not allow for a rapid increase in the number of investments. Another issue is that the country’s development market is fragmented with the list of developers changing from region to region. In fact of the over 640 development companies active on the six largest Polish residential markets, only a small number operate in more than one city.

“Taking over a local development company could be a way to solve two key problems connected with entering a new market. The first issue is related to the takeover of the land portfolio and, equally importantly, local competences allowing experienced local developers to acquire construction plots more effectively. The second hurdle concerns obtaining administrative decisions necessary for the implementation of housing investments. However, local developers are experienced in their contact with architecture departments regarding administrative processes. So, acquisitions are rational from an investment commercialization perspective as experience shows that  a well-known local developer, strengthened by a national brand, has more potential than  the company attempting to organically build a local presence”, says Paweł Sztejter, Head of JLL Residential Department.

All this means that Dom Development’s transactions with Euro Styl in the Tri-City and SENTO in Kraków, as well as the purchase of Archicom by Echo Investment, and Wrocławskie Przedsiębiorstwo Budowlane by Robyg are just the beginning of a consolidation process on the development market.

It is not only larger nationwide developers, however, that are responsible for the takeovers of real estate development companies. Deals involving international capital came to the fore including last year’s acquisition of Murapol by the ARES investment fund, the purchase of ECHO Investment by the Hungarian real estate company WING, and the acquisition of Budimex Nieruchomości by Czech real estate developer and investor Crestyl, together with investment management firm Cornerstone Partners.

The European Living Investor Survey, conducted earlier this year by JLL in cooperation with the Aberdeen Standard, showed that 63% of global investors plan to expand geographically in 2021, with nearly 60% planning to increase their investments in the Living sector, an increase of over 55% on 2019.

“Investors are interested in Poland due to the enormous potential of our housing market, opportunities for further development and the profitability of the development industry. It is worth remembering that the average profitability of companies listed on the Warsaw Stock Exchange was over 25% in 2020", comments Paweł Sztejter, expert at JLL.

Interest in the living sector is growing worldwide and is already the second largest asset class - both in Europe and globally. The main limitation of rapid growth in Poland’s PRS segment is the lack of real estate portfolios ready for purchase in this sector. Difficulties with launching new housing projects, in turn, explain the low propensity of developers to deal with funds, especially in the face of strong demand from individual buyers. In this situation, having a development company is a launching pad for building a platform for investing in flats for rent, and this type of investment is one of the priorities of international funds.

“Investment funds are so interested in investing in Poland’s rental market that they are ready to buy development companies with a view to transforming them - at least partially - into companies that would build and manage a portfolio of flats for rent. An example of such a transaction is the takeover of Wrocław's VANTAGE Development by the German TAG Immobilien”, explains Paweł Sztejter, expert at JLL.

There is one more factor that is influencing the growing number of acquisitions on the development market, the march of time.

“Many attractive development companies are still private companies, established in the late 1990s by entrepreneurs who were then 30-40 years old, and who now are mostly in their seventies. For many of them, the sale of the company may become the only rational scenario that allows them to monetize the effort they put into running a development company for decades”, adds Paweł Sztejter, Head of JLL Residential Department.