poland today business review+ no. 048-49

No. 048-49 / 25th August 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

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MANUFACTURING & PROCESSING

Bus maker Solaris to boost production capacity at Bolechowo page 2

July sees continued weakness in industrial production, pro-ducer deflation deepens page 3

ENERGY & RESOURCES

Poland hoping to renegotiate gas deals with Russia as new import routes open up page 5 Polish power group Tauron and steel giant ArcelorMittal create energy joint venture page 5

PROPERTY & CONSTRUCTION

BBI tears down Sezam to make space for 13,000 sq.m Centrum Marszałkowska page 6

Robyg acquires site for huge new residential project in Mokotów page 7

Ground is broken on first riverfront office building in Warsaw page 8

TRANSPORT & LOGISTICS

Top automotive parts distributor to expand into outsourcing page 8 JLL confirms massive upturn in warehouse sector page 9 Goodman to double Polish portfolio this year page 10 New low cost airline to launch this autumn page 11

RETAIL PROPERTIES

Brama Mazur shopping mall opens in Ełk page 12

POLITICS & ECONOMY

Flash estimate sees Q2 GDP growth at 3.2% page 13 Russian embargo may hit Poland harder than initially expected page 13 Poland sees its first ever deflation page 14

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

Kraków is one of Europe's top destinations for advanced business services. Photo: CBRE

BBH to add 400 jobs at Kraków centerBBH to add 400 jobs at Kraków centerBBH to add 400 jobs at Kraków centerBBH to add 400 jobs at Kraków center Having onboarded 600 professionals in merely two years, the Kraków unit of US financial services firm Brown Brothers Har-riman is now planning to boost its headcount in excess of 1,000. "The growth we have experienced since opening has definitely surpassed our expectations," Michael McDonald, Managing Di-rector at BBH Poland, tells BR+. "This achievement is a reflec-tion of the deep talent pool available here in Kraków." page 3

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MANUFACTURING & PROCESSING

Bus maker Solaris to Bus maker Solaris to Bus maker Solaris to Bus maker Solaris to boostboostboostboost production production production production capacitycapacitycapacitycapacity at Bolechowoat Bolechowoat Bolechowoat Bolechowo

Poland's top bus producer Solaris Bus & Coach is embarking on a PLN 45m extension of their factory in Bolechowo near Poznań. The project, which involves redevelopment of existing shop space as well as con-struction of a brand new 7,500 sq.m assembly hall and 5,000 sq.m of offices, has been partly financed by the European Union's regional development fund. "This investment is meant to boost our production ca-pacity and improve the effectiveness of certain pro-cesses. In the newly developed production building we will manufacture a brand new generation of light-weight city buses that will premiere at this year's IAA fair in Hanover," Mateusz Figaszewski, deputy PR di-rector at Solaris tells Poland Today. "Last year the Bolechowo plant made 1,300 vehicles and this year we are expecting to hit 1,400, which is our limit with the existing infrastructure. Since our goal is to continue growing in the coming years, we have to expand our facilities and introduce a number improvements. We are expecting the capacity boost to translate into addi-tional jobs, but it's too early to speak of numbers." Established in 1996 by Solange and Krzysztof Olszewski, the family-owned Solaris has produced more than 11,000 buses to-date, which are in use in nearly 600 cities across 28 countries. The company employs 2,300 people in Poland and 500 abroad. Be-sides buses and coaches, Solaris makes trams and trol-leybuses. Last year Solaris produced 1,302 vehicles, in-cluding 75 trolleybuses, and turned over approximate-ly PLN 1.5bn. It has two factories in Środa Śląska, mak-

ing bus and tram bodies, and two plants in the Poznań area, where the final assembly of buses and trams takes place.

The next generation of Solaris' bestselling city bus range will be unveiled at this year's IAA fair. Image: Solaris

With skilled labor at a fraction of the Western Europe-an costs, Poland has emerged as one of Europe's key bus exporters over the past decade, thanks to investors from Germany (MAN) and Sweden (Volvo & Scania), as well as the domestic player Solaris Bus & Coach. In 2001 Polish factories exported merely 373 buses, but in little more than a decade the figure grew nearly tenfold, making Poland number three in Europe after Germany and Sweden.

Polish bus production up 4% in 2013 Leading makers & bus output figures

Maker 2013 2012 2011

Units Share Units Share Units Units

MAN 1,512 40.7% 1,343 37.7% 1,566 33.8%

Solaris 1,229 33.1% 942 26.5% 1,140 24.6%

Volvo 699 18.8% 699 19.6% 922 19.9%

Scania 96 2.6% 341 9.6% 500 10.8%

Other 179 4.8% 235 6.6% 504 10.9%

TOTAL 3,715 100.0% 3,560 100.0% 4,632 100.0%

Source: JMK Analizy Rynku Autobusow

After reaching its lowest level in more than five years in 2012 (3,560 units), Poland's bust production re-bounded last year and topped 3,715 vehicles (+4.3% y/y), of which 3,303 were exported, mainly to Germa-ny, Sweden, and Norway according to market re-searcher JMK Analizy Rynku Transportowego. The two key categories were city buses (3,025 units; +10.6% y/y) and long-distance buses (543; +10.6% y/y). With 1,512 vehicles completed last year Germany's MAN remains the leading bus producer and exporter in Poland, followed by Polish Solaris (1,229), Volvo (699), and Scania (96). In addition to complete buses, Polish factories made 700 chassis and 250 bus bodies as well as 75 trolleybuses.

Shrinking domestic bus sales Buses made in Poland: domestic sales vs. exports

0

1,000

2,000

3,000

4,000

5,000

2007 2008 2009 2010 2011 2012 2013

Exports Domestic sales

Source: JMK Analizy Rynku Autobusow

Domestic carriers purchased 1,389 buses last year, marking an 8.6% improvement over 2012. The number one seller in Poland was Mercedes Benz with 542 vehicles registered in 2013 (including bodies from oth-er manufacturers mounted on Mercedes chassis), marking a 19.6% increase against 2012. Polish Solaris came second with 318 units (+23.7%), followed by MAN (63) and Autosan (62). The latter, one of Po-land's oldest companies, has been in receivership since October last year.


POLITICS & ECONOMY

July seeJuly seeJuly seeJuly sees continued s continued s continued s continued weakness in weakness in weakness in weakness in iiiindustrial ndustrial ndustrial ndustrial productionproductionproductionproduction, producer , producer , producer , producer deflation deepensdeflation deepensdeflation deepensdeflation deepens

Poland's industrial output increased by 2.3% y/y in Ju-ly vs. 1.9% y/y growth expected in the consensus sur-vey by PAP Polish news agency, and rose by 2.0% from the prior month, the Central Statistical Office (GUS) said. The seasonally adjusted industrial output growth in July stood at 2.2% y/y and 1.1% m/m. "After two months of disappointments, industrial out-put for July was roughly in line with median market forecast. It confirms weaker growth of industrial sec-tor at the turn of Q2 and Q3 and the outlook for the following months is not bright given external factors," commented BZ WBK analysts. "What is more, output in construction sector in July was a very negative sur-prise. Our forecast and market consensus pointed to increase by above 5%, while it was at merely 1.1% y/y. It looks like GDP growth slowdown to ca. 3% was not only a temporary phenomenon observed in Q2, but is continued also in Q3 and may persist in the next few quarters." The slowdown of industrial output is being driven mainly by poor performance of the manufacturing sec-tor as well as weaker readings in mining and energy. According to economists, the situation is likely to de-teriorate in August on the back of seasonal factors, be-fore rebounding slightly in September, likewise due to statistical effects.

"All in all, given the external situation, with crisis in the East and signs of slowdown in the West, industrial output may continue to grow at a pace close to July's in the following months," BZ WBK's Maciej Reluga said. Producer prices dropped 2% y/y and remained flat from the previous month.

Industrial output & producer prices

-12%

-8%

-4%

0%

4%

8%

Nov12

Jan13

Mar13

May13

Jul13

Sep13

Nov13

Jan14

Mar14

May14

Jul14

Industry output, y/y change

Producer Price Index, y/y change

Source: GUS, the central statistical office

"Prices in manufacturing have declined each month so far this year and the 12-month deflation is already at 2.4%. Interestingly, this is happening even despite the roughly stable zloty exchange rate. Obviously, there has been no sign of a price pressure on Polish produc-ers already for some time," BZ WBK experts com-mented, adding that the weak industrial output data combined with no inflation give Poland's monetary policy council considerable room for maneuver.

BANKING & FINANCE

US Brown Brothers US Brown Brothers US Brown Brothers US Brown Brothers Harriman creates 600 Harriman creates 600 Harriman creates 600 Harriman creates 600 jobs in Kraków, more jobs in Kraków, more jobs in Kraków, more jobs in Kraków, more placements to comeplacements to comeplacements to comeplacements to come

Global financial services firm, Brown Brothers Harri-man (BBH), is expanding its Kraków business centre. The office, which opened merely two years ago, is ex-pected to reach a headcount of 700 staff by the end of this year. The company has signed a lease for more than 2,000 sq.m of additional office space in Kraków's Orange Office Park, bringing its total floor space up to 6,800 sq.m. Back in the summer of 2012, when we last spoke to Michael McDonald, Managing Director of BBH's Kraków office, the company sought to recruit 250-350 professionals in the initial two years of operation and gradually increase that number to reach more than 500. Two years later, as of mid-2014, BBH already has 600 staff in Poland and an appetite for more. A privately held financial services firm founded in 1818, BBH employs 4,700 people across seventeen global offices and three business lines: investor ser-vices, private banking, and investment management. Investor Services, BBH's largest business line, com-prises global custody, fund accounting, fund admin-istration and other services related to asset servicing. With approximately USD 3.8 trillion in assets under custody and administration, BBH ranks among the world's leading global custodians, asset administra-tors, foreign exchange and securities lending provid-ers.


The Kraków business centre, one of five European BBH offices, is an important part of BBH’s Service De-livery business line providing accounting, administra-tion, global custody operations and client service for asset managers and financial institutions. In addition, the firm has built out a Technology division focused on development initiatives closely aligned with its business in Europe. The office is a wholly owned sub-sidiary of BBH & Co, and an integral part of the overall BBH organization.

Poland Today talks to: Michael McDonald, Managing Director of Brown Brothers Harriman Polska

• PT: When we spoke in 2012 your target was to onboard some 200-300 employees in Kraków over the first two years. Exactly two years later your head-count is 600. How did that happen? Michael McDonald: Despite the thorough research that led to us choosing Kraków as the ideal location of our new office, the growth we have experienced since opening has definitely surpassed our expectations. We began recruiting around mid-2012, so it's been just over two years and indeed we already have 600 em-ployees onboard and plan for more. This achievement is a reflection of the deep talent pool available here in Kraków, both among university graduates and in gen-eral across the talented workforce in the Kraków mar-ket. The Kraków office has proven to be an excellent

complement to our global service model, both in terms of servicing our external clients as well as supporting other parts of the BBH organization. • PT: Which services or processes have fuelled this growth to the largest extent? MMD: Our growth in Poland to-date has largely been the result of increased alignment of our operating and servicing models, with the needs of our clients. This meant bringing components of our technology, opera-tions and client services together in a central Europe-an location. In doing so, we created a new platform for innovation and collaboration which has helped us fur-ther enhance our client service levels globally. We will soon have close to 600 staff in Kraków focusing on Service Delivery and technology. The impressive ex-pansion of our Kraków office is also testament to how quickly it was able to align with BBH’s global organi-zation and take on critical functions. The key benefit of this office has been its ability to grow effectively and support our business and clients around the world. Looking back at our analysis of sites for the new office, I can now say confidently that we chose the right loca-tion for BBH. • PT: Can you tells us more about your plans for the coming years? MMD: Our future growth will stem from the organic growth of our clients’ businesses, as well as new busi-ness in Europe brought onboard thanks to the im-proved service model and increased servicing capacity we can now deliver directly from Kraków. We opened this office with the expectations we would have the ability to grow our resource base rapidly if and when needed. We are capitalizing on that flexibility now - our long-term staffing target is around 1,000 people. We are in the process of relocating from three differ-ent sites in Kraków to our fantastic new offices at Or-ange Business Park where we should have some 800-900 seats available by the end of the year..

Orange Office Park will provide, when completed, 29,000 sq.m of retail and office space and 550 park-ing places. Phase one of the development was com-pleted in July 2014. The complex is located in Kraków's Zabłocie district on the newly constructed two-level junction of Nowohucka and Klimeckiego streets. The developer behind Orange Office Park is East-West Development Office sp. z o.o. – a compa-ny controlled by the Luxembourg-based property holding Chateau Thei SA, which is active in the real estate development industry in the Netherlands, Bel-gium, Germany, Austria and Poland. CFE Polska is the general contractor. Image: C&W

• PT: One hears a lot about the Kraków market get-ting saturated, with growing numbers of BPO/SSC firms looking at other Polish cities in search of com-petitively-priced candidates. Has this been your ex-perience as well?. MMD: Since our Kraków office is a business centre fully integrated within the global BBH platform as op-posed to BPO/SSC, we require a variety of different skill sets. Our recruitment efforts have therefore not been affected by any perceived saturation in the mar-ket. Surely, wages have been on the rise but they re-main competitive from our point of view and cost was definitely not our reason for opening an office in Kraków. I am comfortable with the Kraków market and thanks to its strong demographics I am confident we can achieve our goals. With a hiring strategy that


targets a high percentage of new university graduates, I don’t see that talent pool drying out in the foreseea-ble future. • PT: Have there been any challenges at all then? MMD: There is room for further development in Po-land’s Investment Funds sector which can pose chal-lenges in terms of recruiting highly relevant staff ex-perience in the local market. We have been able to draw on BBH’s global expertise to provide knowledge transfer and development initiatives for our local staff. But importantly, we are committed to professional de-velopment programs and promoting internal mobility within this office, so we are seeing employees ramp up their knowledge levels quite quickly. As the sector grows so will the number of experienced candidates, as well as the understanding of how we can grow col-lectively as a market.

ENERGY & RESOURCES

Poland hoping to Poland hoping to Poland hoping to Poland hoping to renegotiate gas deals renegotiate gas deals renegotiate gas deals renegotiate gas deals with Russia as with Russia as with Russia as with Russia as new new new new import routes open upimport routes open upimport routes open upimport routes open up

Despite rising tensions between Moscow and the West, Poland's natural gas monopolist PGNiG will at-tempt to negotiate both price and volumes in its con-tract with Russia's Gazprom once the negotiation window opens in November, CEO Mariusz Zawisza told a news conference. To date, the contract included a "take or pay" clause with Poland paying much higher prices for Russian gas than its Western European peers.

"We are conducting studies to get ready for renegotia-tion," Zawisza said. "Gas prices no longer follow crude oil prices and therefore we want to talk first about a greater correlation with market prices, then about a greater elasticity in volumes purchased," he added.

According to the investor Polskie LNG and govern-

ment ministers, the construction of the new LNG terminal in Świnoujście was 90% complete as of mid-2014 (see BR+ No. 041 for more details on the pro-ject). Photo: Polskie LNG

In mid-June Russia suspended direct deliveries of gas to Ukraine, but transit shipments to EU customers via Ukraine have so far continued. However, as hostilities in eastern Ukraine continue, and Russian economy be-gins to feel the pain of Western sanctions, there are growing concerns about the future of this import route. More pipelines, more security Poland consumes an estimated 15 bn. cb.m of natural gas per annum, of which 11bn cb.m is imported, mainly from Russia. Following recent investments in cross-border transmission infrastructure, Poland can now theoretically import up to 70% of its gas from the West, and the much awaited launch of the new LNG

terminal in Świnoujście next year will boost that fig-ure beyond 100%. PGNiG is currently "in advanced talks" with Qatargas concerning LNG supplies to the new terminal, CEO Zawisza said last week, adding that PGNiG is "on a positive negotiation path." Poland was supposed to ac-cept first shipments in January 2015, but construction of the LNG terminal still has not finished and the facil-ity is expected to become fully operational mid-2015. Lately Poland has built a brand new interconnector to the Czech Republic, expanded an existing pipeline to Germany as well as enabled reverse flow of gas via the Yamal-Europe pipe, which until recently had been used only to pump Russian gas westbound. Further cross-border connections are to be developed to Slo-vakia and Lithuania. In the unlikely case of Moscow cutting gas deliveries to Poland, the country can receive up to 7bn cb.m per annum from Germany (of which 5.5bn cb.m via the Yamal pipeline) and a further 0.5bn cb.m from the Czech Republic, which together represent some 70% of the country's gas import needs. Poland extracts ap-proximately a third of its gas domestically.

ENERGY & RESOURCES

PPPPolish polish polish polish power group ower group ower group ower group Tauron Tauron Tauron Tauron and steel giant and steel giant and steel giant and steel giant ArcelorMittal create ArcelorMittal create ArcelorMittal create ArcelorMittal create energy joint ventureenergy joint ventureenergy joint ventureenergy joint venture

Power group Tauron has inked a partnership agree-ment with units of Europe's top steel producer ArcelorMittal under which the two companies are to


establish a 50/50 owned industrial energy joint ven-ture. The new entity, Tameh Holding, will be in charge of operating and modernizing a number of en-ergy assets currently held by both groups. The part-nership agreement covers a period of 15 years with a possibility of extension. Tameh's (i.e. Tauron ArcelorMittal Energy Holding) generation assets will include ZW Nowa heat and power plant in Dąbrowa Górnicza, Blachownia power plant, southern Poland, both to be spun off from Tauron group, as well as heat and power plan EC Kraków and heat and power plant in Ostrava, the Czech Republic, to be taken over from ArcelorMittal subsidiaries, the statement reads. The main business objective of the planned venture is long-term, cross-border cooperation of the two com-panies. Plans also include the development of energy assets by Tauron and supply of utilities (i.a. electric energy, heat, blast furnace wind and compressed air) to ArcelorMittal units. The financial goal of the project is to generate funds for investments planned within the joint venture. "Extending our competencies in the field of industrial energy is in line with the groups diversification strate-gy," commented Tauron's CEO Dariusz Lubera. "It al-so opens up new perspectives for the two companies and offers an opportunity to lower their operational costs. Moreover, as a result of this undertaking, the working life o f both Elektrownia Blachownia and ZW Nowa will be prolonged." ArcelorMittal Poland is the country's largest steel pro-ducer, employing more than 11,000 people (14,000 in-cluding its subsidiaries). Its Polish business includes five plants located in Kraków and the Katowice area (Dąbrowa Górnicza, Sosnowiec, Świętochłowice, Chorzów), which represent some 70% of the total production capacity of Poland's steel industry. Their

product range encompasses long products such as sec-tions (including sheet piles), rails and railway accesso-ries, and mining supports used respectively in con-struction, railway transport and mining industry, as well as flat products for the automotive, appliance and construction industries. Last year ArcelorMittal Polska produced 4.3m tons of crude steel. The compa-ny also owns the largest coke plant in Europe: ZK Zdzieszowice (30km south of Opole). Tauron is the second largest energy producer in Po-land as well as the largest distributor of electricity. In 2013, the company made several investments includ-ing a modern power unit using cogeneration at its plant in Bielsko-Biała and two wind parks in Wicko and Marszewo with a combined power output of 122 MW. A 450 MW power unit is also currently being constructed in Stalowa Wola as well as a 413 MW unit in Łagisza. The latter is a PLN 1.5bn investment, of which up to PLN 750m may be contributed by Polskie Inwestycje Rozwojowe (PIR), a state investment vehi-cle (see BR+ No. 027 page 6). In recent months Tauron broke ground on a PLN 618m heat & power project in Tychy (see BR+ No. 029 page 4), and signed a long-awaited PLN 4.4bn contract with the consortium of engineering firm Rafako and builder Mostostal Warszawa for the construction of a 910 MW power block at the Jaworzno power plant (see BR+ No. 032-33 page 8). With a total capex of PLN 5.4bn, the new coal-fired unit will replace older, much less efficient facilities at Jaworzno, bringing the site up to date with stricter EU emissions limits. Despite its ambitions investment pipeline, Tauron re-ported an 11% drop in net profit in 2013, with expecta-tions of even weaker results in 2014 due to the state-controlled utility's struggle with falling energy prices and weak demand caused by the sluggish Polish econ-omy. The group posted a PLN 1.3bn profit on PLN 19.1bn turnover last year. In H1 2014 the respective

figures totaled PLN 9.23bn (-5% y/y) and PLN 734m (-18% y/y).


BBI teaBBI teaBBI teaBBI tears down Sezam rs down Sezam rs down Sezam rs down Sezam to make space for to make space for to make space for to make space for 13,000 sq.m 13,000 sq.m 13,000 sq.m 13,000 sq.m Centrum Centrum Centrum Centrum MarszałkowskaMarszałkowskaMarszałkowskaMarszałkowska

Polish property firm BBI Development has began demolition work on the communist-era department store Sezam, located at one of Warsaw's busiest cross-roads, at the corner of Marszałkowska and Świętokrzyska streets. The investor seeks to develop a new office & retail project Centrum Marszałkowska with 13,000 sq.m of GLA at the site, which also hap-pens to sit on top of a subway junction, linking the city's existing north-south and the future east-west lines, the second one of which is to launch later this year. One of the subway exits will pass through the basement of the new building, making it Poland's only commercial building integrated with a subway station. Sezam belongs to Warsaw grocery cooperative WSS Społem, which more than half a decade ago struck a deal with a property developer Juvenes to demolish the building and build a brand new project at its 2,920 sq.m site. Juvenes later became part of BBI Develop-ment, which was hoping to break ground on the pro-ject in 2011. In the end, the developer has decided to wait for the east-west metro line to reach completion before embarking on the construction of Centrum Marszałkowska. The investor is hoping to complete the demolition of Sezam and begin construction in early 2015, with plans


to finalize the project two years later. Floors -1 and 1 of the new will be home to WSS Spolem's retail units and Warsaw's oldest McDonald's restaurant, which occupied parts of the old Sezam. The overground sec-tion of the planned building will be ten stories high, to match the surroundings. The lowest underground lev-el will house a parking lot with 106 spaces.

BBI is hoping to complete Centrum Marszałkowska (pictured in the middle) by the end of 2017. Image: BBI

According to earlier plans, the project were to cost some PLN 100m. BBI Development will hold a third of shares in the project, the rest belonging to WSS Społem. The two companies cooperated on another project, Plac Unii, which BBI Delivered a few months ago at a site that had been previously occupied by a WSS Społem flagship store. Plac Unii City Shopping opened in October 2013 just off the Plac Unii Lubelskiej roundabout in the city cen-tre. Developed by Belgium's Liebrecht & wooD (ma-jority investor with a 60% share) and BBI Develop-

ment, the 15,500 sq.m shopping center is part of PLN 600m mixed use development Plac Unii that compris-es three buildings with a total GLA of 56,800 sq.m, and includes also 41,300 sq.m of class A+ office. The two partners are currently seeking buyers for the property. BBI and Liebrecht &wooD last year struck a deal on another major office & retail project in Warsaw, the Koneser project in the Praga district. Located on a 5ha site between Ząbkowska, Nieporęcka, Białostocka and Markowska streets, the project will comprise over 300 housing units, 22,500 sq.m of retail and service space and 22,000 sq.m of offices. Liebrecht & wooD joined forces with BBI Development to develop the retail & office section of Koneser, which constitutes around 59% of the total space at the complex. The investment value is set at PLN 450m, and the completion of the project is planned for 2017. The Flemish investor has acquired close to a 50% share in the commercial sec-tion of Koneser. BBI's other major future undertakings will be a 180-metre class A office skyscraper in the very centre of Warsaw, at the corner of Emilii Plater and Nowogrodzka streets. In the residential segment, BBI is developing luxury condos as part of its Rezydencja Foksal project near Warsaw's high street Nowy Świat.


Robyg acquires site for Robyg acquires site for Robyg acquires site for Robyg acquires site for huge new residential huge new residential huge new residential huge new residential project inproject inproject inproject in MokotMokotMokotMokotóóóówwww

Property developer Robyg has acquired an 8.5ha site in Warsaw's Mokotów district for PLN 68.5m . The Warsaw-listed firm plans to develop approximately

1,000 apartments and 6,000 sq.m on the newly-acquired plot over the coming years. The acquisition is part of Robyg's expansion strategy, communicated last year, under which the developer seeks to spend up to PLN 150m on acquisition of investment sites in War-saw over the 2014-2016 period. The company has re-cently bought a 5,500 sq.m site in the Żoliborz district for PLN 10m. "It's one of three largest deals in the Polish land mar-ket this year," says Emil Domeracki from Colliers which represented the seller, Landia. Colliers repre-sentatives told Poland Today the site bought by Robyg is located somewhere between Puławska St. and Sikorskiego Ave. in what is being seen as the Polish capital's next residential development hotspot.

Polish company Nasze Miasteczko Development was one of the first to invest in this part of Mokotów with its upscale residential complex Potoki Residence. Image: Nasze Miasteczko Development

Two years ago Robyg's competitor Ronson acquired a 12ha site in the same area (Jaśminowa St.) for PLN 65.6m where it plans to develop approximately 700 apartments. Phase one of the project, with 116 units, is to be put up for sale by the end of this year. Jaśminowa St. will be also home to the second Warsaw investment by Skanska Residential Development Poland.


The Swedes acquired some 7ha of land from a group of private owners with plans to build close to 800 apart-ments. Phase one, with 61 units, will be available for purchase on the coming weeks. Interestingly, thanks to a quite restrictive zoning plan for the area, only low-rise buildings (no more than three stories high) can be built in this part of Warsaw, which combined with the relatively attractive location and abundance of greenery make all developments in the area rather pricey. Housing units at Potoki Resi-dence, a project currently under construction nearby, are being listed at PLN 9,800-12,800 per sq.m, which is steep for Warsaw standards. "This area of Mokotów, alongside the Jana Kazimierza neighborhood in Wola and Miasteczko Wilanów will see the highest concentration of residential projects in the coming years," concluded residential market ana-lyst Katarzyna Kuniewicz from the property consul-tancy REAS at a recent press briefing. As for Robyg, the company has projects under con-struction in Warsaw's Wilanów, Żoliborz and Bemowo districts. In the first half of the year the company sold over 1,000 units in Warsaw and Gdańsk, marking a 50% improvement y/y, while its full year target is 2,000, and medium-term annual target - 2,500 units.


Ground is broken on Ground is broken on Ground is broken on Ground is broken on ffffirst riverfront office irst riverfront office irst riverfront office irst riverfront office building in Warsawbuilding in Warsawbuilding in Warsawbuilding in Warsaw

The Warsaw Rowing Association (WTW) has broken ground on the first riverfront office building in the Polish capital. Dubbed "The Tides," the project will be

developed at site of WTW's current headquarters on Wioślarska St., on the left bank of the Vistula river at the estimated cost of PLN 100m. WTW's partner in the project is a private investor Villa Natura Por De-velop.

The Tides, pictured in the center, will occupy a unique location right on the left bank of the Vistula river. Image: WTW

The entire project will comprise of two buildings: the new head office of WTW as well as a six-story office and hotel building with 12,500 sq.m of office space and 112 parking spaces, including 75 in an underground garage. An additional 500 sq.m has been earmarked for a river view restaurant. The Tides, which is to reach completion by early 2016, will include also a small ex-tended stay hotel with 12 suites. Designed by APA Kuryłowicz & Associates, the Tides will apply for BREEAM sustainable building certificate with a 'Very Good' grade. The project does not offer office units smaller than 1,000 sq.m as the investor has decided that all tenants should be able to enjoy a view over the river, which seems to be the project's unique selling point, besides its own marina.


Top automotive parts Top automotive parts Top automotive parts Top automotive parts distributor to expand distributor to expand distributor to expand distributor to expand into outsourcinginto outsourcinginto outsourcinginto outsourcing

Poland's leading car parts distributor Inter Cars seeks to expand into outsourcing with plans for a large in-vestment in Zakroczym, near the Warsaw-Modlin air-port, just north of the Polish capital. Inter Cars' sub-sidiary ILS is to develop a logistics project and shared services centre at the site that a few weeks ago became part of the Warmińsko-Mazurska special economic zone. According to initial plans, the project will create 200 jobs and cost PLN 155m to reach completion. "All I can say at this point is that we remain committed to meeting the investment targets we presented to the special economic zone," Inter Cars spokesperson Zeonon Kosicki tells Poland Today. "We are currently in the process of selecting a general contractor for the project and we should be able to disclose more details once this has been finalized," he adds. According to earlier reports, the facility is to provide logistics, bookkeeping, IT, contact center and R&D services for Inter Cars as well as external clients. The highly automated site is to significantly boost Inter Cars' position on the European market and enable the company to compete for logistics outsourcing con-tracts from the likes of Amazon, which is reportedly seeking a partner in the region to handle its entire au-tomotive orders division. The investment is of significant importance for the northern part of the Mazowsze region, which remains seriously underdeveloped, despite its proximity to Warsaw. It could also boost cargo operations at the


Modlin airport, whose existence currently depends entirely on the Irish low-cost Ryanair.

Inter Cars Group's key financials

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008 2009 2010 2011 2012 2013

0

25

50

75

100

125

150

175

Revenues in PLNbn, left axis

Net result in PLNm, right axis

Source: Inter Cars

Established in the early 1990s and listed on the War-saw Stock Exchange at the end of 2004, Inter Cars is currently Europe's 5th largest automotive parts dis-tributor and number 10 globally. With a staff of more than 5,800 the company turned over PLN 3.5bn in 2013, of which more than a third was generated by its foreign units. Its net earnings totaled PLN 148m, up from PLN 100m in 2012.


JLL confirms massive JLL confirms massive JLL confirms massive JLL confirms massive upturn in Poland's upturn in Poland's upturn in Poland's upturn in Poland's industrial property industrial property industrial property industrial property sector with 0.8 sq.m sector with 0.8 sq.m sector with 0.8 sq.m sector with 0.8 sq.m under construction under construction under construction under construction

Although recent macroeconomic updates from Poland have been rather disappointing, with slower than ex-pected growth and weak demand, a brand new report

on the country's industrial property market by real es-tate consultancy JLL proves that investor confidence in the sector remains very strong. With 811,000 sq.m of warehouse space under construction in Poland as of mid-2014, the market is showing its best performance since 2008. "After a successful 2013, when gross demand for in-dustrial facilities across Poland totaled 1.89m sq.m, the market has not displayed any signs of deceleration in 2014. In the first half of 2014, gross take-up stood at 912,000 sq.m, of which 526,000 sq.m was in new con-tracts. Assuming that the next two quarters will not experience any major slowdown, a total of 1m sq.m will be leased to new tenants in 2014. Once again the market has been primarily driven by logistics opera-tors. In addition, we also see an increasing share of space being designated for the growing e-commerce sector," says Tomasz Olszewski, Head of Industrial CEE, JLL.

Largest warehouse owners in Poland As of 1H 2014, in % of total stock

Other

44%

Panattoni5%

Blackstone12%

Prologis26%

SEGRO13%

Source: JLL

With 245,000 sq.m of leased space, the Warsaw Sub-urbs accounted for 28% of gross demand, followed by Upper Silesia with 18%. JLL points out that the two

markets are driven mainly by lease renewals, with Poznań and Wrocław taking the lead in terms of new demand with the respective 103,000 sq.m and 87,000 sq.m in new leases. Once again, the highest demand came from logistics operators, whose new leases to-taled more than 254,000 sq.m, which is 48% of entire net demand. However, the largest single transaction involved a retail chain for which Goodman will de-liver a 40,000 sq m project near Konin. The average transaction in H1 2014 was for 4,700 sq.m. According to JLL's warehousefinder.pl, since the end of 2011, the vacancy rate registered on the Polish mar-ket has ranged between 10% and 12%. At the end of H1 2014, it stood at 10.5% (817,000 sq m). Among the five largest markets, the highest vacancy rate continues to be found in Central Poland (17.2% - 203,000 sq m). In the Piotrków Trybunalski area alone tenants can choose from 102,000 sq m of empty industrial space. The lowest availability of warehouse space is to be found in Western Poland. Both in Poznań and Wrocław vacancies are slightly over 50,000 sq.m (4.7% and 6.2%, respectively). Moreover, since this floor space is divided between a number of parks, ten-ants seeking larger areas often need to consider work-ing with a developer on the delivery of a brand new scheme. During the first half of 2014, developers delivered 298,000 sq.m of new supply, marking an 85% increase on 1H 2013. The largest completions so far in 2014 have involved a BTS for Castorama in Stryków (50,000 sq.m), the extension of Prologis Park Wrocław V (35,000 sq.m), and a BTS project for Polaris completed in Opole. Panattoni was the most active of all develop-ers in the first half of 2014, delivering 108,000 sq.m of space (36% share of total completed stock), and was followed by MLP with 43,000 sq.m (14%), and Prologis (35,000 sq.m - 12%).


"During the last 12 months, construction activity has increased rapidly. At the end of H1 2013, nearly 250,000 sq.m was under construction. Today, devel-opers are in the process of delivering as much as 811,000 sq.m of new market stock. This is the largest amount seen on the market since the beginning of the financial crisis in 2008. The vast majority of space un-der development will be delivered this year, meaning that the entire supply onto Poland’s industrial market is expected to be more than 8.6m sq.m. Furthermore, another sign of the market's buoyancy is that the num-ber of speculative projects is on the increase. Almost 80,000 sq.m is now being delivered without any bind-ing lease agreement, the highest volume since the end of 2009," Tomasz Olszewski added.

EEEEffective rents remain stable in 1Hffective rents remain stable in 1Hffective rents remain stable in 1Hffective rents remain stable in 1H Key industrial market indicators as of Q2 2014

Region

*Effective

rents EUR

/sq.m/month

Vacancy

rate

Supply in sq.m

Q

Warsaw inner city 3.5-5.0 15.6% 587,000

Warsaw suburbs 2.1-2.8 11.6% 2,064,500

Upper Silesia 2.4-3.3 9.4% 1,452,500

Poznań 2.25-3.3 4.7% 1,086,000

Central Poland 2.1-2.8 17.2% 1,180,500

Wrocław 2.5-3.1 6.2% 815,000

Tri-City 2.5-2.9 9.5% 205,000

Szczecin 2.7-3.4 3.2% 61,500

Kraków 3.3-4.0 0% 99,000

Source: JLL *) refers to Big Box units except Warsaw inner city with

Small Business Units

The largest project underway in Poland is the Ama-zon BTS in Wrocław and Poznań, comprising three buildings with a total floor space of 324,000 sq.m. Other noteworthy projects include an 82,000 sq m warehouse for ITM by Goodman near Poznań ,and the previously mentioned building near Konin, which is being developed by Goodman for a tenant from the re-

tail sector. Panattoni and Goodman have the largest amounts of construction activity among all developers (315,000 sq m and 282,000 sq.m, respectively). SEGRO is ranked third, with almost 77,000 sq m now at the development stage. In terms of the ownership structure of the Polish in-dustrial market, more than half of existing floor space is in the hands of the three largest market players and their partners. The largest share of stock is owned by Prologis (26%), followed by SEGRO (13%) and Blackstone (12%). Despite being the most active on the development front, Panattoni owns merely 5% of the existing stock, as the company's strategy is to dis-pose completed projects.


Goodman to double Goodman to double Goodman to double Goodman to double Polish warehouse Polish warehouse Polish warehouse Polish warehouse portfolio this year portfolio this year portfolio this year portfolio this year

With 282,000 sq.m of warehouse space under con-struction, Australian-owned industrial property de-veloper Goodman is soon about to double its Polish portfolio, which currently stands at 271,000 sq.m. Po-land remains a key growth market for the company, Goodman confirmed in comments to their financial report for the fiscal year ended June 30, 2014. "The last financial year was a very successful one for us. We signed a record number of contracts with glob-al leaders in their respective markets as well as medi-um sized Polish and European customers. This has significantly increased our operating scale in Poland," said Błażej Ciesielczak, Regional Director Goodman Central and Eastern Europe. "We expect the good

fundamentals of the Polish warehousing market to continue over the next 12 months, which should allow us to continue growing across all of Poland’s key logis-tics hubs, in which we already have an established presence." Asked about the disappointing macroeconomic read-ings from the pest months and their impact on Po-land's booming warehouse market, Mr. Ciesielczak replies: "Although the economic recovery has indeed slowed in the past months, it is still much higher than last year. An annual growth rate of 3% is sufficient for companies to think of expansion and new investments. The situation on the warehouse market is a testament to that. One can expect most new demand to be gener-ated by logistics operators, which in Poland still have room to grow, as well as retailers, including e-commerce."

At the end of the last year, Goodman signed a deal with supermarket operator The Mousquetaires Group to develop and acquire a total of 127,885 sq.m of warehouse and office space in Poznań. Image: Goodman

During the last financial year Goodman inked pre-lease agreements for close to 300,000 sq.m of new space, most of which was covered by two huge trans-actions with Amazon and The Mosquietaires Group. For the US e-commerce giant, Goodman is


constructing a distribution centre in Bielany Wrocławskie, near Wrocław. This 123,500 sq.m ware-house, which is to be ready by the end of September, will be one of the largest logistics facilities in Central and Eastern Europe. At the end of the last year, Goodman signed a deal with supermarket operator The Mousquetaires Group to develop and acquire a to-tal of 127,885 sq.m of warehouse and office space in Poznań. Similar to other key warehouse developers, the upturn on Poland's industrial property market has prompted Goodman to embark on speculative developments, in addition to built-to-suit projects. "We own sites in all of Poland's key logistics hubs," Błażej Ciesielczak, Regional Director CEE at Good-man, tells Poland Today. "We want to continue ex-panding our main projects: Kraków Airport Logistics Centre, where in June we began a 11,000 sq.m specula-tive project as well as Pomeranian Logistics Centre where the construction of a new 14,000 sq.m ware-house will be launched in the second half of the year. Poznań and Wrocław remain particularly popular with tenants, due to their proximity to Western Euro-pean markets and well-developed infrastructure. We have high hopes for our projects in these cities." With total assets under management of EUR 18.4bn and over 400 properties under management, Good-man is the largest industrial listed property group on the Australian Securities Exchange, and one of the largest listed specialist fund managers globally. The company employs more than more than 1,000 staff in 16 countries, which in Europe include Germany, the Netherlands, Belgium, Luxembourg, France, Spain, It-aly, Poland, Czech Republic, Hungary, Slovakia and the UK. In the financial year ended June 30, 2014, Goodman posted an operating profit of EUR 414m, marking a 10% improvement on the prior year, while its net earnings came to EUR 452m. At the moment

the company is building 76 projects worth EUR 1.8bn across the globe.


New low cost airline to New low cost airline to New low cost airline to New low cost airline to launch this autumnlaunch this autumnlaunch this autumnlaunch this autumn

A new Polish low-cost carrier 4You Airlines, set up by Alfa Star travel bureau founders Sylwester and Izabela Strzylak in cooperation with entrepreneur Michał Mikołajczak, seeks to launch regular opera-tions this winter season, the company announced. Alt-hough the airline is yet to obtain a proper aviation li-cense, it has already launched ticket sales, planning to operate in the initial period as a tour operator. The first batch of 7,000 promotional tickets, priced at PLN 47 one-way, was put up for sale in mid-August.

The 4You Airlines fleet currently includes two Airbus A320 airplanes. Image: 4You Airlines

4You Airlines, which has so far operated as a charter carrier, flying Alfa Star customers to overseas holiday destinations, will start its regular schedule operations from November with connections from Łódź and

Rzeszów to Barcelona, Paris, London, Milan, Dort-mund, Brussels, Rome and Tel-Aviv. "Our goal as an airline is to bring our passengers closer to the world in a safe and competitive way. We are do-ing our utmost to make our offer appeal to the broad-est group of travelers and we are currently working on our spring/summer 2015 timetable that will include even more destinations," says Michał Mikołajczak, deputy CEO of 4You Airlines.

Low costs control 54% of the market Passengers on routes to and from Poland incl. domestic, in million

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

KLM

Air France

SAS

Norwegian

EasyJet

Lufthansa

WizzAir

LOT*

Ryanair

2013

2012

Source: ULC *) including Eurolot

So far every attempt to create a functioning Polish low-cost airline has ended in a spectacular flop, with


the 2012 bankruptcy of OLT Express being a prime example. The number one player in Poland's aviation sector is Ireland's Ryanair, which last year beat flag-ship Polish carrier LOT on routes to and from Poland. According to data provided by the aviation watchdog ULC, Ryanair carried 6.585m passengers in 2013, near-ly 2m more than in 2012, which translates into a 30% share in flights to and from Poland. Its main competi-tor LOT welcomed aboard only 5.858 passengers, some 317,000 fewer than in the prior year, even though the market expanded by 763,000 passengers, reaching nearly 22m. LOT's market share dropped be-low 27% last year from over 29% in 2012. Hungary's WizzAir ranked as number three in 2013, with 4.06m passengers, which represents a decline by 127,000, and a market share of 18.5%. WizzAir has tak-en the place of Germany's Lufthansa, which came 4th with 1.5m passengers and a 6.9% share in flights to and from Poland. Of remaining airlines only EasyJet had more than a 2% share in the Polish passenger aviation market. Overall, low cost carriers had a 54.1% market share last year, up from 47.5% in 2012.

RETAIL PROPERTIES

Brama Mazur Brama Mazur Brama Mazur Brama Mazur shopping shopping shopping shopping mall mall mall mall opens opens opens opens in Ełk with in Ełk with in Ełk with in Ełk with 17,000 sq.m of GLA17,000 sq.m of GLA17,000 sq.m of GLA17,000 sq.m of GLA

Property company Master Management Group (MMG) has launched its newest shopping and enter-tainment centre in Poland – Brama Mazur. Located in Ełk, a city of 60,000 residents situated some 90km to the north-west of Białystok, Brama Mazur is to wel-come its first customers on 13 August. A week before the centre's official launch, as much as 96% of its GLA was occupied.

"The success of Brama Mazur has exceeded our ex-pectations. In a marketplace where a growing number of commercial properties are being built in medium-sized towns, this has been a huge achievement," says Paul Kusmierz, CEO of MMG. With a total floor area of 43,000 sq.m (ca. 17,000 sq.m of GLA), Brama Mazur includes 65 retail and service units and 500 parking spaces. Key tenants include MarcPol supermarket, RTV Euro AGD electronics store, SMYK kids goods retailer, Hebe drugstore, JYSK home goods shop, and a number of fashion & footwear outlets, including a full portfolio of LPP Group brands, as well as H&M, Deichmann, Carry, CCC, and Orsay. A separate building houses the re-gion's only multiplex movie theater, operated by Plan-et Cinema. An area of 6,000 sq.m surrounding the cen-tre has been transformed into a public park where var-ious cultural events can be held.

Brama Mazur is the largest shopping centre in the northeastern corner of Poland. Image: MMG

Founded in 2006 by property investor Paul Kusmierz, MMG is a retail investment, development, and man-agement company focusing on real estate projects and partnerships throughout Poland. MMG acted as a partner in the acquisition and disposal of the 14 Eagle

Portfolio properties from Europa Capital to Bal-main Asset Management, the first institutional re-tail property investment transaction in Poland focused on secondary and tertiary locations. The sale of this portfolio valued at EUR 65m put MMG on the map as a partner for international investors seeking to source investment opportunities in this new market. From 2008-2012, MMG was responsible for Marcol Group's EREI Portfolio of 7 retail projects in Poland. In 2009, MMG delivered its first project as a develop-er, the 15,000 sq.m Galeria Niwa shopping center in Oświęcim, serving over 75,000 nearby residents. Next year, it was involved as a joint-venture partner in the development of Galeria Victoria located in Wałbrzych for a private equity investor. This 43,000 sq.m GLA regional shopping, hotel, and entertainment center was managed by MMG from opening through 2012. In 2011, MMG was mandated by the global private eq-uity giant Blackstone to source, acquire, and manage their Polish retail property portfolio, King's Street Re-tail. The portfolio comprises 7 retail centers in Poland totaling 250,000 sq.m GLA, with Magnolia Park, Wrocław, currently undergoing expansion by 20,000 sq.m GLA. Since January 1, 2014, MMG has been re-sponsible for the management of CPI's Polish office portfolio, including Orco Tower and Prosta 69. "The King's Street Retail portfolio had been under our management until May 1, 2014. This portfolio is being financed by Blackstone, who's also the asset manager. Brama Mazur, on the other hand, is our own project, with MMG acting as an investor, developer and exclu-sive property manager," Paulina Szymczukiewicz, marketing Manager at Master Management Group tells Poland Today.


POLITICS & ECONOMY

Flash estimate sees Q2 Flash estimate sees Q2 Flash estimate sees Q2 Flash estimate sees Q2 GDP growth at 3.2%GDP growth at 3.2%GDP growth at 3.2%GDP growth at 3.2%

Poland's GDP grew by 3.2% in annual terms in Q2 2014 and by 0.6% from the previous quarter in seasonally adjusted terms, according to a flash estimate by the Central Statistics Office (GUS).The result was in line with average projections. GUS will publish a full set of Q2 GDP figures, with a detailed breakdown of growth components, on August 29. The Q2 reading "confirms earlier assessments - we are faced with a stable, although slightly weaker economic growth," commented deputy head of GUS Halina Dmochowska told a press conference. "The growth rate decline was caused mainly by June results of manufacturing and construction," she said, adding that at the same time, the contribution of manufacturing and construction sectors to economic growth was like-ly positive, although slightly weaker than in Q1.

GDP growth in Poland (y/y)

0%

1%

2%

3%

4%

5%

6%

7%

2005

2006

2007

2008

2009

2010

2011

2012

2013

*2014

*2015

Source: GUS, EC *) European Commission projections

"We also recorded good results in trade and transport: their contribution was the same as last quarter," Dmochowska said. "We assess that slightly positive contribution came from the sector of financial and in-surance institutions." The impact of the government sector institutions was neutral, as was the case for households, the official added. Poland's Finance Ministry saw the key drivers of Q2 growth in consumption and investments plus invento-ries, the ministry said in a statement. Net exports, in turn, had a neutral or slightly negative contribution to GDP growth in Q2, the ministry statement reads. The Polish economy is set to double its pace of growth, according to the European Commission, which pre-dicts GDP will rise 3.2% in 2014 and 3.4% in 2015 after last year’s 1.6% expansion. Poland was expected to outperform the European Union’s largest post-communist members this year and in 2015, but the projections do not yet take into account the impact of the Ukraine crisis and weak recover in the West on the Polish economy.

POLITICS & ECONOMY

Russian embargo may Russian embargo may Russian embargo may Russian embargo may hit Poland harder than hit Poland harder than hit Poland harder than hit Poland harder than initially expected; initially expected; initially expected; initially expected; Warsaw Warsaw Warsaw Warsaw asks EU anasks EU anasks EU anasks EU and d d d WTO to interveneWTO to interveneWTO to interveneWTO to intervene

Poland is likely to be more severely affected by the Russian imports ban than other CEE economies, argue Morgan Stanley analysts in a recent report. According to the bank, the country's economic growth may be

lower by as much as 0.5 percentage points this year, if government projections regarding the embargo's im-pact on exports prove correct. Economy ministry offi-cials said Polish exports to Ukraine and Russia is likely to drop by the respective 40% and 20% this year. Prior to the ban, Morgan Stanley had estimated Poland's 2014 GDP growth at 3.6% - a figure that seems increas-ingly unlikely in the view of the recent string of disap-pointing macroeconomic updates from the country. In the case of Hungary and the Czech Republic, even though their economies have less direct exposure to the Russian market, exports overall represents a larger share of GDP than in Poland, which makes them also vulnerable to the Russian sanctions. However, while the chances of interest rate cuts as reaction to the slowing economy are increasing in Poland, their likeli-hood in Hungary and the Czech Republic is lower.

Key importers of Polish food As % of 2013 food exports

Other64%

Russia6%

Germany23%

UK7%

Source: Ministry of Agriculture

Russia imposed a 1-year imports ban on fruit, vegeta-bles, meat, fish and dairy products from the EU, US, Canada, Norway and Australia on 7 August. The ban was imposed in response to Western economic sanc-tions against Russia, over its annexation of Crimea from Ukraine, and a pro-Russian rebellion in eastern


Ukraine, which Western capitals accuse Moscow of fomenting. Last year Poland's exported EUR 1.3bn worth of food and agricultural products to Russia, of which EUR 840m were products covered by the new embargo. As the world's biggest apple exporter, Po-land is now stuck with some 700,000 tons of the fruit it usually sells to Russia. Poland has asked the European Commission to send a formal complaint to the World Trade Organization (WTO) over the Russian ban on imported EU food products that has hit Poland particularly hard, the Polish Economy Ministry said last week. After a meet-ing European Trade Commissioner Karel De Gucht, who represents EU members in all WTO cases, Po-land's Agriculture Minister Marek Sawicki said that first decisions on the lawsuit could be made as soon as September 12. The WTO, should it rule in favor of any Commission complaint, could fine Russia for violating regulations on open markets. On April 8, the European Commission opened a WTO dispute against the Rus-sian embargo on EU pork imposed earlier this year. The EU has earmarked EUR 125m worth of compensa-tion funds for European fruit and vegetable sector. Brussels will use the money to withdraw a certain amount of produce from the markets in order to keep prices from plunging. These extraordinary measures will be in force until the end of November. Polish producers are well aware, however, that EU emergency handouts are hardly a solution to their troubles. The Polish agriculture ministry estimates that some 15% of the surplus generated by the Russian ban can be redirected to other markets in the Europe-an Union and beyond. Polish producers are counting particularly on Arab countries as wells as the US and Belarus. Finding new customers is bound to be an up-hill struggle, however, as Polish exporters will be competing with companies from other countries af-fected by the Russian embargo.

According to a quarterly report by the country's Econ-omy Ministry, Polish exports and imports are ex-pected to increase by the respective 9% and 8% this year, resulting in a trade deficit of just EUR 0.6bn, down by EUR 1.4bn from the 2013 level. Nominally, exports are to reach EUR 168..9bn and imports – EUR 169.5bn in 2014. However, the forecast may require adjustment for the effects of the UE-Russia trade dis-pute, officials said. Poland's exports in H1 rose 5.4% y/y to EUR 80bn, while imports increased 4.5% to EUR 80.2bn, preliminary data from the Central Statis-tics Office (GUS) showed.

POLITICS & ECONOMY

Poland sees Poland sees Poland sees Poland sees its first its first its first its first ever ever ever ever deflatiodeflatiodeflatiodeflation n n n as as as as result result result result of of of of Russian sanctionsRussian sanctionsRussian sanctionsRussian sanctions

Polish consumer price inflation plunged into negative territory in July for the first time in 32 years, since the country's central statistical office started collecting the data. Thanks to lower cost of food, clothing and fuel, Poland’s consumer-price index edged down to -0.2% y/y in July, reversing its 0.3% annual increase in June, in line with average projections. "This result almost entirely due to positive supply shocks," commented BZ WBK economist Maciej Reluga. "Because of recent sanctions, oversupply of food on the domestic market will be observed also in the upcoming months, prolonging the period of nega-tive CPI to several months. Lower inflation path and the risk of economic slowdown increase the probabil-ity of interest rates cuts," he added.

Food prices declined 1.7% in July compared with a year earlier, fuel prices were 1.0% lower and clothing prices dropped 4.9%. "As far as changes of other goods and services are con-cerned, there were no surprises apart from communi-cation, where prices grew for the second consecutive month, reflecting the introduction of new mobile tar-iffs. Evidently, the price war between cellular net-works has ended," Reluga commented. According to the Economy Ministry, the food embargo introduced by Russia creates a threat that deflation in y/y terms will hold for a longer time than was previ-ously assumed. The deepest price cuts concern fruit and vegetables as they represented more than 50% of the total food ex-ports to Russia. Fruit and vegetable prices are likely to decline even by 10% year on year and by even 20% in the case of apples, Credit Agricole economist Jakub Borowski said. "In August 2014, the price decline should deepen and reach 0.3%, mostly on account of a further decline in food prices," Economy Ministry analysts said. After as-sessing the situation, the ministry may adjust budget plan for 2015 budget bill, the ministry said. Economists argue that the deflation should strengthen the case for a rate cut in coming months as Poland’s central bank has kept its interest rate on hold at 2.50% since July 2013.

IN BRIEF: Poland's average corporate gross wage stood at PLN

3,964.9 in July, an increase of 3.5% y/y or 0.6% from

the prior month, the Central Statistics Office (GUS) said.

Poland's corporate employment measured 5.531m per-

sons in July, up by 0.8% y/y and up by 0.1% m/m.


KEY STATISTICS

Consumer PriceConsumer PriceConsumer PriceConsumer Pricessss

Data in (%) Apr '14 May '14 Jun '14 Jul '14

Sector y/y m/m y/y m/m y/y m/m y/y m/m

Food & bev +0.3 -0.5 -0.8 -0.4 -0.9 -0.3 -1.7 -1.1

Alcohol, tobacco +3.9 +0.3 +3.9 +0.2 +4.0 +0.1 +4.0 0.0

Clothing, shoes -4.4 +2.8 -4.6 -0.1 -4.7 -0.8 -4.9 -2.8

Housing +1.7 0.0 +1.6 0.0 +1.6 -0.1 +0.6 0.0

Transport -2.1 -0.1 -0.1 -0.4 -0.6 -0.2 -1.0 +0.8

Communications -1.7 -1.5 -1.1 -0.1 +1.3 +2.4 +2.6 +1.2

Gross CPI +0.3 0.0 +0.2 -0.1 +0.3 0.0 -0.2 -0.2

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

Jul 12

Sep 12

Nov 12

Jan 13

Mar 13

May 13

Jul 13

Sep 13

Nov 13

Jan 14

Mar 14

May 14

Jul 14

y/y m/m

Retail Retail Retail Retail TurnoverTurnoverTurnoverTurnover

Month Feb '14 Mar '14 Apr '14 May '14 Jun '14

m/m (%) -0.6 +12.5 +2.3 -2.7 -1.1

y/y (%) +7.0 +3.1 +8.4 +3.8 +1.2

Year 2009 2010 2011 2012 2013

Turnover in PLNbn 582.8 593.0 646.1 676.0 n/a

y/y (%) +4.3 +5.5 +11.6 +5.6 +2.3

Residential ConstructionResidential ConstructionResidential ConstructionResidential Construction

Dwellings

(in '000 units)

2009 2010 2011 2012 2013 Jan-Jul

2014

y/y

(%)

Permits 178.8 174.9 184.1 165.1 138.7 92.2 +18.9

Commenced 142.9 158.1 162.2 141.8 127.4 85.5 +18.9

U. construction 670.3 692.7 723.0 713.1 694.0 700.9 -0.4

Completed 160.0 135.7 131.7 152.5 146.1 78.8 -2.7

Source: Central Statistical Office (GUS)

GGGGross Domestic Productross Domestic Productross Domestic Productross Domestic Product

Period Growth y/y unadjusted

GDP in PLN bn current prices

Current account def. in % of GDP

Q22014 +3.2% n/a n/a

Q1 2014 +3.4% 397,429 -1.1%

Q4 2013 +2.7% 455,528 -1.3%

Q3 2013 +2.0% 405,554 -1.9%

2013 +1.6% 1,635,746 -1.3%

2012 +1.9% 1,596,379 -3.7%

2011 +4.5% 1,528,127 -5.0%

2010 +3.9% 1,416,585 -5.1%

Key Economic Data & ProjectionsKey Economic Data & ProjectionsKey Economic Data & ProjectionsKey Economic Data & Projections

Indicator 2010 2011 2012 2013 *2014

GDP change +3.9% +4.5% +1.9% +1.6% +3.5%

Consumer inflation +2.6% +4.3% +3.7% +0.9% +0.3%

Producer inflation +2.1% +7.6% +3.4% -1.3% -1.4%

CA balance, % of GDP -5.1% -5.0% -3.7% -1.3% -0.6%

Nominal gross wage +3.9% +5.2% +3.7% +3.4% +4.3%

Unemployment** 12.4% 12.5% 13.4% 13.4% 12.2%

EUR/PLN 3.99 4.12 4.19 4.20 4.12

Sources: NBP, BZ WBK, PKO BP, GUS *) projections **) year-end

GGGGross Wagesross Wagesross Wagesross Wages A: avg monthly wages in PLN B: indexed avg wages, 100=2005

Sector Q2 2013 Q3 2013 Q4 2013 Q1 2014

A B A B A B A B

Coal mining 6,290 143 6,061 138 8,615 196 6,333 144

Manufacturing 3,560 155 3,625 158 3,690 161 3,663 160

Energy 5,828 177 6,021 183 6,736 205 6,358 193

Construction 3,693 157 3,766 160 3,895 166 3,706 158

Retail & repairs 3,421 146 3,408 145 3,456 147 3,544 151

Transportation 3,547 125 3,589 127 3,913 138 3,666 130

IT, telecoms 6,707 174 6,654 173 6,695 174 6,986 181

Financial sector 6,702 151 6,109 137 6,602 148 6,749 152

National average 3,613 144 3,652 145 3,823 152 3,895 155


Construction OutputConstruction OutputConstruction OutputConstruction Output

Month Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14 Jul '14

m/m (%) -64.0 +18.7 +24.2 +3.2 +14.0 +16.9 +0.9

y/y (%) -3.9 +14.4 +17.4 +12.2 +10.0 +8.0 +1.1

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +15.5 +12.1 +5.1 +4.6 +11.8 -0.6 -12.0

Source: The Central Statistical Office of Poland, GUS

Sentiment IndicatorsSentiment IndicatorsSentiment IndicatorsSentiment Indicators

Economic sentiment and consumer confidence indicators

-40

-20

0

20

Oct 11

Jan 12

Apr 12

Jul 12

Oct 12

Jan 13

Apr 13

Jul 13

Oct 13

Jan 14

Apr 14

Jul 14

60

80

100

120 Co nsumer confidence (left axis)

Economic sentiment (right axis)

The economic sentiment (1990-2010 average = 100) is a composite made up of 5 sectoral confidence indicators, which are arithmetic means of seasonally adjusted balances of answers to a selection of questions closely related to the reference variable. Source: Eurostat

Producer PriceProducer PriceProducer PriceProducer Pricessss

Month Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14

m/m (%) 0.0 -0.1 -0.2 -0.2 -0.2 -0.1 0.0

y/y (%) -1.0 -1.4 -1.3 -0.7 -1.0 -1.8 -2.0

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +2.0 +2.2 +3.4 +2.1 +7.6 +3.3 -1.3

Construction PriceConstruction PriceConstruction PriceConstruction Pricessss

Month Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14

m/m (%) -0.2 -0.2 -0.1 -0.1 0.0 0.0 0.0

y/y (%) -1.7 -1.6 -1.5 -1.5 -1.4 -1.3 -1.2

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +7.4 +4.8 +0.2 -0.1 +1.0 +0.2 -1.8

Industrial OutputIndustrial OutputIndustrial OutputIndustrial Output

Month Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14 Jul '14

m/m (%) +2.9 -1.8 +9.4 -2.3 -1.7 -0.1 +2.0

y/y (%) +4.1 +5.3 +5.4 +5.4 +4.4 +1.7 +2.3

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +10.7 +3.6 -3.5 +9.8 +7.7 +1.0 +2.2


TTTTraderaderaderade

Poland exports and imports according to commodity groups, according to SITC classification

EXPORTS in PLN bn IMPORTS in PLN bn

Jan-May

2014 y/y (%)

share (%)

2013 share (%)

Jan-May 2014

y/y (%)

share (%)

2013 share (%)

Food and live animals 30,403 +10.6 10.9 69,304 10.9 20,794 +5.7 7.5 47,906 7.4

Beverages and tobacco 3,667 +10.9 1.3 8,624 1.4 1,612 +1.0 0.6 4,150 0.6

Crude materials except fuels 7,057 +3.4 2.5 15,744 2.5 9,065 -1.0 3.3 21,585 3.3

Fuels etc 11,896 -2.0 4.3 30,013 4.7 31,333 +6.0 11.2 75,539 11.7

Animal and vegetable oils 811 +33.7 0.3 1,864 0.2 1,071 +1.0 0.4 2,646 0.4

Chemical products 25,517 +5.5 9.1 59,103 9.3 41,641 +8.2 15.1 92,917 14.3

Manufactured goods by material 55,193 +3.5 19.8 129,915 20.3 49,473 +8.4 17.7 112,392 17.3

Machinery, transport equip. 107,483 +10.9 38.5 239,434 37.5 91,562 +5.1 32.8 216,608 33.4

Other manufactured articles 36,803 +13.3 13.2 82,816 13.0 26,343 +15.3 9.5 58,210 9.0

Not classified 320 n/a 0.1 1,782 0.2 5,977 n/a 1.9 16,242 2.6

TOTAL 279,150 +8.3 100 638,599 100 278,871 +6.1 100 648,195 100

Poland's ten largest trading partners, ranked according to 2013

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan-Jun

2014 share 2013 share No Country

Jan-Jun 2014

share 2013 share

1 Germany 86,686 25.9% 162,548 25.1% 1 Germany 72,536 21.6% 142,161 21.7%

2 UK 20,918 6.2% 42,138 6.5% 2 Russia 38,637 11.5% 79,578 12.1%

3 Czech Rep. 20,265 6.1% 40,110 6.2% 3 China 32,589 9.7% 61,127 9.3%

4 France 19,152 5.7% 36,367 5.6% 4 Italy 17,731 5.3% 34,940 5.3%

5 Russia 14,707 4.4% 34,069 5.3% 5 Netherlands 12,512 3.7% 25,409 3.9%

6 Italy 15,552 4.6% 27,958 4.3% 6 France 13,152 3.9% 25,041 3.8%

7 Netherlands 13,366 4.0% 25,707 4.0% 7 Czech Rep. 11,451 3.4% 24,054 3.7%

8 Ukraine 6,174 1.8% 18,020 2.8% 8 USA 8,142 2.4% 17,431 2.7%

9 Sweden 9,661 2.9% 17,581 2.7% 9 UK 8,746 2.6% 17,184 2.6%

10 Slovakia 8,371 2.5% 17,099 2.6% 10 Belgium 8,319 2.5% 15,137 2.3%


CurrencyCurrencyCurrencyCurrency

Central Bank average rates

as of 22 August 2014

100 USD 315.20 ↑

100 EUR 418.74 ↓

100 GBP 523.00 ↓

100 CHF 346.02 ↓

100 DKK 56.16 ↓

100 SEK 45.77 ↑

100 NOK 51.36 ↑

10,000 JPY 303.86 ↓

100 CZK 15.06 ↓

10,000 HUF 133.40 ↓

100 USD/EUR against PLN

300

350

400

450

6 Sep 13

15 N

ov 13

28 Jan 14

4 A

pr 14

13 Jun 14

22 A

ug 14

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m Mar '14 Apr '14 May '14 Jun '14

Monetary base 173,213 168,511 162,246 173,096

M1 558,954 548,394 557,651 572,376

- Currency outside banks 116,657 119,261 119,649 120,828

M2 964,624 969,754 975,001 980,090

- Time deposits 422,990 439,137 435,386 426,351

M3 980,377 986,142 991,120 996,171

- Net foreign assets 132,849 126,943 142,260 144,033 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

CCCCreditreditreditredit

The financial sector's net lending in PLN bn,

loan stock at the end of period

Type of loan Mar' 14 Apr' 14 May' 14 Jun' 14

Loans to customers 923,709 928,450 930,652 940,703

- to private companies 267,553 270,886 273,360 276,709

- to households 569,334 573,332 574,800 578,639

Total assets of banks 1,628,519 1,639,359 1,660,583 1,667,783

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14

PLN (up to 1 year) 4.2% 4.5% 4.5% 4.4% 4.4% 4.5%

PLN (up to 5 y ) 4.9% 4.8% 4.9% 4.8% 4.8% 4.8%

PLN (over 5 y) 4.8% 4.7% 4.7% 4.7% 4.7% 4.7%

PLN (total) 4.8% 4.7% 4.7% 4.7% 4.7% 4.7%

EUR (up to 1m EUR) 2.0% 2.0% 1.9% 2.0% 2.0% 1.9%

EUR (over 1m EUR) 3.6% 3.4% 3.3% 3.0% 2.7% 3.4%

Warsaw Inter Bank Offered Rate (WIBOR) as of 22 August 2014

Overnight 1 week 1 month 3 months 6 months

2.63% 2.60% 2.60% 2.64% 2.65%

Central Bank (NBP) Base Rates

Reference Lombard NBP deposit Rediscount

2.59% 4.00% 1.00% 2.75%

Stock ExchangeStock ExchangeStock ExchangeStock Exchange

Warsaw Stock Exchange, rates in PLN

WIG-20 stocks in alphabetical

order

Price 22 Aug

'14

Change 8 Aug

'14

Change end of

'13

↓ Alior Bank 78 +1% -4%

↑ Asseco Pol. 43.3 +5% -6%

↑ Bogdanka 114.55 +3% -9%

↑ BZ WBK 364.25 +3% -6%

↓ Eurocash 34.8 -4% -27%

↓ Grupa Lotos 29.55 -16% -17%

↓ JSW 31.9 -11% -40%

→ Kernel 27.52 0% -28%

↑ KGHM 135.2 +6% +15%

↑ LPP 8,250 +12% -8%

↑ mBank 452 +1% -10%

↑ Orange Pol. 10.89 +9% +11%

↑ Pekao 183.9 +9% +2%

↑ PGE 22.3 +7% +37%

↑ PGNiG 4.89 +3% -5%

↑ PKN Orlen 39.35 +5% -4%

↑ PKO BP 38.8 +5% -2%

↑ PZU 470.5 +6% 5%

↑ Synthos 4.7 +3% -14%

↑ Tauron 5.23 +2% +20%

Source: Warsaw Stock Exchange

Key indices

as of 22 August 2014

WIG Total index

52525252,,,,143143143143....10101010 Change 2 weeks +7% ↑

Change end of '13 +2% ↑

WIG-20 blue chip index

2,2,2,2,439439439439....03030303 Change 2 weeks +5% ↑

Change end of '13 +2% ↑

WIG Total closing index

last three months

49,000

50,000

51,000

52,000

53,000

54,000

22 M

ay 14

13 Jun 14

8 Jul 14

30 Jul 14

22 A

ug 14


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New Business Consultant

Tomasz Andryszczyk

RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Jun 2014 *

Monthly wages (PLN)

Jan-Jun 2014**

Unemploy-ment

Jun 2014

New dwellings Jan-Jun 2014

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 101.5 117.2 4,379 4,173 134.5 11.7 6,561 81.1

Kujawsko-Pomorskie (Bydgoszcz) 106.6 120.7 3,432 3,239 132.1 16.2 2,956 91.3

Lubelskie (Lublin) 105.0 83.8 3,734 3,035 118.8 13.0 2,350 81.1

Lubuskie (Zielona Góra) 115.8 110.0 3,454 3,055 50.5 13.5 1,415 90.9

Łódzkie (Łódź) 100.3 119.1 3,702 3,267 137.3 12.8 3,054 102.6

Małopolskie (Kraków) 99.4 107.8 3,822 3,345 145.4 10.4 7,591 94.6

Mazowieckie (Warszawa) 103.5 112.0 4,628 5,084 261.7 10.2 14,266 109.3

Opolskie (Opole) 106.7 127.4 3,635 3,496 45.3 12.7 896 120.8

Podkarpackie (Rzeszów) 105.5 116.6 3,421 3,086 136.6 14.7 2,943 99.8

Podlaskie (Białystok) 106.6 120.0 3,310 3,768 62.9 13.6 1,950 133.5

Pomorskie (Gdańsk-Gdynia) 110.5 123.6 4,021 3,427 100.3 11.8 4,592 86.4

Śląskie (Katowice) 101.1 110.8 4,588 3,533 189.0 10.2 5,199 100.0

Świętokrzyskie (Kielce) 112.0 104.1 3,414 3,264 79.5 14.8 1,355 119.3

Warmińsko-Mazurskie (Olsztyn) 105.3 104.2 3,292 3,101 98.7 19.0 1,976 92.9

Wielkopolskie (Poznań) 106.9 111.9 3,765 3,662 124.5 8.3 6,709 102.7

Zachodniopomorskie (Szczecin) 102.2 100.5 3,533 3,423 95.2 15.7 2,514 93.9

National average 104.3 112.1 4,009 3,795 1,912.6 12.0 66,327 97.6

*) Index 100 = same period of the previous year. ** without social taxes

Sources: Central Statistical Office GUS, NBP, C&W

Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)

Quarter Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

in Poland 2,886 175 -3,020 1,885 -2,899 2,771

Polish DI -1,203 957 2,588 -1,449 1,575 562

Year 2008 2009 2010 2011 2012 2013

in Poland 10,128 9,343 10,507 14,896 4,763 -4,574

Polish DI -3,072 -3,335 5,484 -5,935 -607 3,684

Current Account (EUR m)Current Account (EUR m)Current Account (EUR m)Current Account (EUR m)

Period 2011 2012 2013 Q3 '13 Q4 '13 Q1 '14

Trade balance -10,059 -5,175 2,309 1,094 151 1,159

Services, net 4,048 4,642 5,249 1,032 1,257 1,245

CA balance -18,519 -14,191 -4,984 -2,086 -1,415 -766

CA balance vs GDP -5.0% -3.7% -1.3% -1.9% -1.3% -1.1%

Source: NBP, BZ WBK, PKO BP

UUUUnemploymentnemploymentnemploymentnemployment

Registered unemployed, in ‘000 and

% of population in working age

1,800

2,000

2,200

2,400

2,600

Q2 11

Q4 11

Q2 12

Q4 12

Q2 13

Q4 13

Q2 14

6

9

12

15 number (left axis) % (right axis)

Source: Central Statistical Office GUS

IndustrIndustrIndustrIndustrial ial ial ial PropertiesPropertiesPropertiesProperties

by region, Q4 2013

Existing stock, sq.m

Under const ruction, sq.m

Va-cancy ratio

Effective rents EUR/ sq.m/mth

Warsaw central 563,000 17,000

22.3% 3.6–5.1

Warsaw suburbs 2,063,000 12.5% 2.1–2.8

Central Poland 1,021,000 80,000 15.2% 2.1–3.3

Poznań 1,023,000 215,000 4.4% 2.5–3.15

Upper Silesia 1,431,000 37,000 9.3% 2.4–3.3

Wrocław 780,000 259,000 11.7% 2.6–3.1

Tri-city 184,000 46,000 9.2% 2.8–3.3

Kraków 141,000 0 4.0% 3.3-4.0

CommercialCommercialCommercialCommercial PropertiesPropertiesPropertiesProperties

City

New apartments* Offices 2H'13 Retail rents**2H'13

Q1 '14

PLN/sq.m

Change

y/y

Headline

rents**

Vacancy

ratio

Retail

centres

High

streets

Warsaw 8,005 -0.1% 11.5-25.5 11.75% 80-90 85

Kraków 6,419 +1.8% 13-15 4.90% 35-45 78

Katowice 5,531 0.0% 13-14 7.30% 35-45 56

Poznań 6,666 +4.0% 14-16 14.20% 35-45 55

Łódź 4,808 -1.8% 12-14 14.40% 35-45 25

Wrocław 5,928 -0.2% 13-15.5 11.75% 35-45 40

Gdańsk 6,031 -5.7% 13-15 11.20% 35-45 31

*avg, offer-based ** EUR/sq.m/month; Retail units 100-150 sq.m

Country Credit RatingsCountry Credit RatingsCountry Credit RatingsCountry Credit Ratings

Agency rating outlook

Fitch Ratings A- stable

Standard & Poor's A- stable

Moody's A2 stable

Source: Rating agencies

Real EarningsReal EarningsReal EarningsReal Earnings

Average gross wage vs inflation.

100

120

140

160

180

Jul10

Mar11

Nov11

Jul12

Mar13

Nov13

Jul14

Wage CPI

Index 100 = Jan 2005. Source: GUS

poland today business review+ no. 048-49

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