Figuring Poland’s Fortune

After a year of a wait-and-see attitude, Poland’s economy seems poised to pick up steam later in 2010, with signs that Krakow may see improvement as well.

The only European Union economy officially to not slip into recession during the global economic downturn, Poland posted a 1.7 percent GDP growth rate in 2009. The outlook for 2010 is guarded, but optimistic. Analysts at investment firm Morgan Stanley are predicting a 2.5 percent growth rate in 2010, mostly as a result of Poland picking up business as the larger Western European economies improve.

Certainly, the global “crisis” that peaked in early 2009 hit personal pocketbooks in Poland as elsewhere, with job losses pushing the national unemployment back to double digits at 12.8 percent, from a pre-crisis low of about seven percent.

The unemployment rate is likely to be tempered by at least temporary local job creation as well as announcements early last month that the foods giant Kraft plans to relocate part of its newly-acquired Cadbury division to Poland. In January, MGPA, a company backed by the Australian giant Macquarie Group, put up more than €230 million for three Polish shopping centres.

Before those moves, though, investment in real estate development, the driver of economic growth worldwide in the past decade, practically dried up as investors tightened belts and banks tightened credit. The past year has been tough.

“It was worse than slow,” says Szymon Duda, partner at Krakow–based development company GD&K. “It was non-existent.”

The company had to get “back to basics,” Duda said, focusing on its core businesses, shedding unnecessary spending and securing private investment until the outlook improved. Now though, Duda says he sees signs of a recovery in the Krakow real estate market, primarily in commercial property coming later in 2010, as companies resume outsourcing work to Poland.

One other thing has changed as well, and not just in commercial real estate. During the boom in the early 2000s, through to the maturing of the market in about 2007, commercial real estate was generally one-sided to the property owner or developer, as people and businesses competed for adequate space.

Now “it’s a tenant market,” Duda observed.

But GD&K is finally seeing enough demand that it plans to begin work in 2010 on the Avia project, a new tech office building near the Polish Aviation Museum in Krakow. Duda wouldn’t disclose tenants yet as contracts are in “advanced talks,” but said they include several IT firms as well as a research-and-development company and a business process outsourcing (BPO) company.

BPOs and small tech firms are seen as major drivers of Krakow’s economy for 2010 as companies in the United States, UK and Western Europe look for skilled but lower-cost labour markets. Paul Klipp, president of Lunar Logic Polska, a Krakow “agile software” company, cites the city’s growing reputation as an offshore site for tech and research and development.

“The global downturn has been good for business,” Klipp said. “We offer a lower cost, higher efficiency way of making visions reality.”

Klipp said his company, which specializes in working with companies to develop usable systems for the Web or elsewhere as needed, has seen slow, but steady growth over the past year.

“There’s been a surprising degree of stability,” he said.

And that is exactly what Krakow and Poland are counting on to benefit from a global recovery in 2010.