The pandemic has hardly influenced the institutional rental. Interview to Rzeczpospolita.

June 2021

“During the pandemic, we continued to rent out our long-term apartments, and almost none of our tenants terminated their lease. In the Czech Republic, we have now returned to an occupancy rate of nearly 95 percent. The same is true in newly launched projects, such as Barrandov in Prague’ – says Peter Noack, CEO of Zeitgeist Asset Management. Interview by Michał Roguski.

Zeitgeist Asset Management is one of the pioneers building the living market in Poland. How has the pandemic affected rental housing and dormitories in the countries where you already have operating portfolios?

We experienced slightly lower occupancy during the lockdown, which was due to fewer people viewing our long-term apartments. However, even during this period we continued to lease them and almost none of our tenants terminated their lease. In the Czech Republic, we have now returned to an occupancy rate of nearly 95 percent. The same is true in newly launched projects, such as Barrandov in Prague, where we are seeing a lot of interest and quick lease signings.

In the dormitories, on the other hand, we had an increase in vacancy, of course, as many foreign students left for home, but overall we maintained a 70 percent occupancy rate, which is a great result if we compare it to hotels, which mostly recorded around 0 percent. From the point of view of business assumptions, we can safely say that the year of the economic freeze did not significantly affect the financial side of the implementation of our plans. We assumed short-term fluctuations and did not go below these assumptions during the pandemic period. An additional plus for us is that covid has changed a lot in the minds of customers, who recognize the advantage of renting over buying property - especially in a situation of increasing requirements of banks, which make it difficult to obtain a loan to purchase their own property.

Before the pandemic you had accumulated a substantial land bank in Poland by purchasing existing, often historic properties. At what stage are your projects? Let's start with an office building in Solec, which is being converted into a dormitory. How is the work progressing and when do you plan to open?

We have recently completed the design of the Solec 22 office building purchased three years ago and we have permission to start construction work there. The general contractor, a Polish company FBI Tasbud, is already working on the property. The building will be ready at the turn of September and October 2022. Later this year we will enable students to conclude lease agreements for the academic year 2022/2023 using our modern online platform In the building, students will have 214 beds at their disposal, in 149 rooms, some at a premium standard.

At the same time, we are actively preparing apartment complexes for rent. The first project, which we will put into use already in a few months, will be an investment in Gdansk Oliwa. 210 comfortable apartments are already at the final stage of finishing works. In the following year, we will launch a boarding house (a dormitory of very high standard) in a revitalized historic building at 44 Dluga Street in Warsaw. In the following years we are going to put into use residential buildings in Wrzesińska Street and Św. Barbary Street in Warsaw - in both locations also of historic character.

How do you assess the prospects of this market, are there any more student houses planned in Poland?

Yes, this is also part of our strategy. Soon we will announce the next dormitory, which we are launching in Krakow. Next in line will be Poznań, Wrocław and Tricity. All student residences will be managed by Zeitraum, our subsidiary company. Zeitraum Student Housing is currently the second largest professional operator of student housing in the Czech Republic. It has been operating on the market for five years and manages 460 beds in student residences and 156 beds in 53 serviced apartments.

You bought a complex on Nowogrodzka Street in Warsaw from Orange, which includes the former headquarters of the Telecommunications and Telegraph Office. What are the plans to use this property and what is the schedule?

We gave ourselves plenty of time to create a good project. Until Orange moves out of the building, which will be in 2026, the facility will generate rental income. Right now, the smallest part of the complex - the building on the St. Barbara Street side - is covered by a redevelopment permit, under which we will renovate the residential building, restoring its historic appearance. Apartments in this project will be available for customers at the turn of 2022/2023. As for the other parts of this complex - we do not exclude any option, but at the moment we are refining the ideas.

What is happening with the Warsaw tenements at Dluga Street and Wrzesinska Street?

Revitalization works of the building at the intersection of Wrzesińska and Kępna Streets are in progress: a parallel process of revitalization of the old, over a hundred-year-old building, and construction of a new one is underway - so that after completion it will be one residential complex. It will contain apartments for rent, and the first floor will be occupied by commercial premises. We already have a building permit, which covers both the renovation of the existing building (while maintaining its current shape) and the construction of a new building. Ultimately, there will be 107 apartments at the disposal of tenants. Just like in Prague, we intend to restore the unique atmosphere of this place. The building will be commissioned in 2023.

At 44-50 Dluga Street in Warsaw we own a plot with a complex of buildings with a leasable area of nearly 9,000 sqm. This facility, which is under the care of the conservator, is located in the surroundings of the beautiful Krasińskich Park and the historic buildings of the Old Town. We are carrying out works here in two directions. We are renovating a 10-storey skyscraper, accessible directly from the road, to be used as a student dormitory of premium standard. We want to put it into use in 2022. And for the rest of the historic buildings we are trying to get permission to create residential apartments here.

In autumn last year you ordered 210 apartments from a developer in Gdańsk. Are you considering further investments of this type?

The purchase from the Gdańsk developer of the entire estate took place back in 2018, in the forward purchase formula. It was part of our strategy to enter the Polish PRS market by creating an offer of apartments for rent and student houses. We continue to build our property portfolio and pursue acquisitions. In the next two years we are also planning greenfield investments. We are currently operating in urban centers such as Gdańsk, Kraków and Warsaw, and are looking at opportunities in Łódź, Katowice, Wrocław and Poznań. An important role is played by the commitment and determination of our institutional investors who provide project financing. This, plus the knowledge and experience we have gained in the Czech Republic, allows us to grow successfully.

What scale do you want to achieve in terms of PRS in Poland? Two years ago you spoke of 800 units. More funds are entering our market, and their ambition is to build portfolios of thousands of apartments.

Taking into account the existing projects, the Zeitgeist portfolio will offer, after redevelopment, more than 800 apartments. We currently have five more projects in exclusive negotiations, which will bring our portfolio closer to 1,500 units if all goes according to plan.

We are not aiming for huge investments, we want to focus on properties with a maximum of 400 units. However, our overriding goal is to maintain the assets over the long term, in the best possible quality of service. At this stage, the market is large enough to accommodate these players without any problem. Their presence encourages the formation of different segments of this market - which should be seen as a positive trend.

As for the segments, for us the main task now is to promote the Home By Zeitgeist brand, which includes long-term rental apartments. The brand is already recognizable in the Czech Republic, and in Poland the first housing estate on offer will comprise 210 apartments in Gdansk.

What about real estate in Krakow, including the former Main Post Office?

We bought the historic post office building from Orange in a sell & lease back formula, with the target use as a hotel - mainly due to its ideal location for tourist and business traffic. We are currently in the process of planning the building's utility formula. What is important for Cracovians, the post office will operate without any changes, regardless of our investments. It is still in the same building, but has been moved slightly within it. The premises are newly renovated.

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