In theory nothing has physically changed – at least not yet anyway. The biggest change is psychological in relation to the uncertainty caused by the vote. Change can be a wonderful catalyst for good, creating new opportunities, challenging conventional thinking and allowing for innovation to result from the existing status-quo. But markets and money generally do not like change. The substantial drop in the pound has probably been the strongest and most visible manifestation of this fear to date.
For UK investors looking to deploy capital to Kraków the ‘psychological’ impact on the pound has already dented their expected returns before a penny has been spent making any immediate investment look less attractive in the context of the past 12 months.
Therefore, perhaps it is an uphill struggle to suggest that Brits should continue considering Kraków and indeed Poland as an attractive investment destination, especially when the drop has been this sharp and this recent. And in the meantime time waits for no investor with the likelihood that indigenous capital has already and will continue to substitute the anticipated short-fall in funds coming from across the English Channel. Likewise, French, German, Irish and other eurozone capital is likely to see opportunity in a less competitive investment environment in addition to funds from the East mainly from the Ukraine seeking securer pastures. This will only add further consternation amongst once-dominant Brits who once had a secure foothold in the city while they ponder this uncertain hiatus.
Yes, the pound has dropped since the heady days of November 2015 when it peaked at 6.09 zł. However, to compare it to a peak only seen at one other time over the past ten years (in early 2007 pre-financial meltdown) is to exaggerate the scope of the impact Brexit has had to date. As of writing this article the ‘Trump effect’ has helped rally the pound a little to around 5.20 zł however even if you take the mean point between the ten-year peak high of 6 złotys, and the peak low of 4 złotys in early 2008, the current valuation suggests a reasonable average over the past decade. Against this backdrop the impact of Brexit does not seem so bad on people’s investment plans in Kraków and Poland.
Hamilton May, the Kraków based real estate company I joined only a matter of weeks ago, set up shop in Krakow in 2004 and can provide some context. Coming into the market as it did at the historic height of the pound vis-à-vis the złoty when it reached 7.30zł it witnessed an unprecedented amount of foreign direct investment, chiefly from the UK and Ireland which we were at the forefront of involvement in. The period until 2007 was one of euphoria and arguably, in hindsight, one of unsustainable and inflated prices. One could describe the following years as a stabilising correction on 2004-2007 pricing that has seen prices settle in a more mature market that is less prone to the bubble of 2007-2009.
During this time Hamilton May positioned itself as a company that has continued in its attempts to give sensible, experienced and professional perspective to those interested in investing in Kraków. Whether the driver is capital values, long-term yield returns, diversification across asset classes or whether someone is looking to ‘come home’ amongst former émigrés, or those who wish to make a home for the first time like myself, Hamilton May can assist with this the first steps to the last knowing that markets move all the time irrespective of macro and micro economic factors.
Progress upon progress
Kraków, and indeed Poland still has some way to go to catch up after two devastating world wars and 45 years of stagnating and oppressive communism. But the increases in tech companies, the blossoming of BPO and shared services, the innovation behind residential, office and shopping centres and the increasing investment in infrastructure suggests that foreign and domestic investment sees the untapped potential in Kraków. A young, hard-working and ever more worldly generation of Poles is knocking on the door and eager to attain benefits that were not necessarily available to their predecessors.
Poland in general and Kraków in particular has made almighty strides over the past 12 years since joining the EU in 2004, strides equal to if not greater than the intervening years since 1989. There are still significant challenges ahead. But the Poles are nothing if not resourceful. An often-said remark to be taken tongue in cheek is that Polak potrafi, ‘a Pole can [do anything they set their mind to]’. It seems to ring true in this instance.
Kraków has almost recovered its pre-financial crisis value in real estate, although it took longer than maybe some expected, but this should be seen as a reflection of the size of the post-2004 hype that inflated the market. Having disproportionately felt the impact of the recession on property prices there seems to be a genuine desire to learn from past mistakes given that this was the first ‘bust’ of the boom/bust cycle Western Europe and North America have been experiencing for decades. In time it is likely that such cycles become more commonplace, but for now Kraków and Poland appears to moving forwards with a modest and respectful glance over the shoulder that is rarely seen in the UK and other parts of Europe where memories appear to be shorter. Indeed, I would expect the current concerns around the value of the pound to normalise and for painful memories to fade allowing for business as usual to return, at least until the next obstacle in the road that may be thrown up by the consequences of physically leaving the EU, but for this we will need to wait and see.