Poland is at the heart of Central and Eastern Europe’s (CEE) legal market with an offering that has largely been built upon the country’s strong real estate sector, which is heavily focused on commercial properties such as warehouses, offices and shopping centres.
Poland has attracted international businesses wanting to set up shop in a country with low costs and low interest rates. International investment companies have also seen the value in Poland’s market, which has led to some of the CEE’s biggest real estate deals happening in the region over the last 12 months.
The popularity of Poland as an investment opportunity has not gone unnoticed by international law firms with the likes of Dentons, Greenberg Traurig, Hogan Lovells and Linklaters frequently cited as the biggest legal players in the Polish real estate market.
The domestic market is dominated by the ‘four eagles’: Kochański Zieba & Partners, Domanski Zakrzewski Palinka, Soltysinski Kawecki & Szlezak, and Wardynski & Partners. But with international firms continuing to strategically increase their presence in the domestic market can they continue to hold their place in the market?
The political landscape
In October Poland held its general elections and voted in the conservative Law and Justice party. The party made history by gaining a majority vote, meaning that for the first time since 1989 there is no left-wing party in Poland’s Parliament.
Due to the Law and Justice party’s Eurosceptic perception many people believed that the change in government would deter foreign investors from entering the country. At the same time many people expected a renewed focus on domestic businesses to come about. According to Greenberg Traurig real estate partner Radomił Charzyński these changes never manifested.
“The business community can be very sensitive. There were concerns that the rate of investments would slow down, but fortunately this didn’t happen,” says Charzyński.
“The real estate market has remained very stable over recent years”
“The business community does not perceive the political situation as critical and in terms of business activity nothing has changed significantly. We’re still worried about what will happen in the future but I am quite confident that Poland will continue to be a strong real estate market.”
The reason for this is that although the government has made a number of significant changes during its initial seven months in power, the real estate market has remained relatively untouched.
“The government has changed some policy concerning other industries,” says Kochański Zięba & Partners head of international and strategy Adam Piwakowski.
“For example in the energy sector, the government is looking at the renewable sector in terms of wind energy and now they are looking at coal. But the real estate market has remained very stable over recent years.”
Although many people believed that the Eurosceptic Government would help to promote the growth of domestic businesses, international investors were not deterred by the elections. Part of the reason for this is because many foreign businesses look at Poland not only as a jurisdiction in its own right but also as a gateway into the rest of the CEE.
International interest
Traditionally investment in Poland has hailed from Western countries such as Germany, the UK and the US but the scope of jurisdictions interested in Poland and CEE has increased.
“We’re seeing a lot of movement from new economies, such as South Africa,” says Piwakowski. “I’ve just been to Hong Kong to talk to potential Chinese investors and we’ve heard that Dubai and the Middle East are looking at the Polish market as well.”
This interest from foreign investors culminated in Poland’s biggest-ever real estate transaction, which saw South African-based Redefine Properties acquire Dutch property vehicle Echo Properties BV for €1.2bn (£944.6m) in 2016.
The vehicle contained a significant portfolio of prime Polish real estate assets, including the Galeria Echo shopping centre in Kielce. The deal was also the single biggest transaction of income generating real estate assets in CEE. As the parties involved hailed from a variety of different jurisdictions the deal obviously attracted the attention of a number of international firms.
“International Polish companies will go to international law firms: this is already the case”
Pinsent Masons advised Redefine on the deal with a team led by client partner William Oliver and head of corporate real estate Robert Moir. In South Africa Redefine was advised by Cliffe Dekker Hofmeyr while Casper Haket provided advice in the Netherlands. Weil Gotshal & Manges advised Echo Investment.
Despite the many international elements of the deal Redefine still turned to local firm Kochański Zięba & Partners for advice on the Polish elements of the deal. The team included senior managing partner Rafal Zieba, head of real estate Kamil Osinski and head of international and strategy Adam Piwakowski.
The involvement of Kochański in the deal highlights the important role that domestic Polish firms still play in the market due to their close links with local businesses.
A changing legal market?
According to Piwakowski these relationships with local businesses will continue to develop as Polish companies themselves expand. Piwakowski expects this will allow domestic firms the chance to grow and increase their share of the market while international law firms will reduce their presence in Poland.
“Because we’re a relatively new legal market I don’t think it has completely settled down yet,” says Piwakowski. “Other jurisdictions have a magic circle and the big four and they’ve developed over the years. We haven’t reached that level yet but it’s coming to that point.
“When it does, you will see some of the international players moving away or reducing in size.”
Piwakowski’s prediction that international firms will become less active in the Polish market is based on the way he believes Polish clients will behave.
“Up until now it’s been a market that’s been very much based on international players but now Polish domestic companies and funds are getting stronger and much more westernised. They’re going outside of Poland and naturally their first choice will be Polish law firms. I think this balance will change in the near feature.”
From Piwakowski’s viewpoint the change in the market is already beginning to happen. Historically, between 70 and 80 per cent of Kochański’s clients were international companies but last year this changed with Polish businesses now making up 50 per cent of the firm’s client base as a result of these clients growing and the firm becoming more international.
Foreign firms
Despite claiming that the four eagles will become more prominent players in the real estate market, when asked to name the biggest players in the real estate sector Piwakowski still cites Dentons, Greenberg Traurig, Linklaters and Weil Gotshal. He does of course mention Kochański but describes it as the biggest of the Polish law firms.
This view is echoed by Charzyński who cites Dentons, Hogan Lovells and Linklaters as Greenberg’s main competitors.
“I wouldn’t mention domestic Polish firms: without being arrogant, we’re in a different league,” says Charzyński. “International players seldom go to Polish law firms but it may change.
“Right now I’m selling an office building, a transaction worth almost €200m, and on the other side is a Polish law firm but I wouldn’t say that they are our competition. Of course they advise on smaller deals and smaller transactions but they’re not our competition.”
Charzyński argues that the idea that the Polish legal market will undergo a rebalance with traditionally domestic firms carrying out more international work is mistaken. Instead he believes that as Polish businesses expand and engage in more cross-border work they will move to international law firms.
“International Polish companies will go to international law firms: this is already the case,” he adds. “We have Polish international players as our clients.
“We are of course a Polish law firm, we are Polish lawyers and we have Polish clients, even in the real estate sector. I don’t think that it will change tremendously in the next few years.”
Reducing costs
Although the real estate market is still dominated by international firms, Kochański is attempting to increase its offering to clients through the opening of a low-cost centre in Krakow. The office will carry out due diligence work across the firm’s real estate, infrastructure, construction and new technologies practices. Following the office move the aim is to grow the office to be home to around 100 lawyers.
“The intention will be to have partners and senior associates in Warsaw,” says Piwakowski, “and the junior associates in Krakow doing the daily tasks and the labour-intensive tasks so that we can pass on the savings to the client.”
The low-cost centre is admittedly based on the UK model, which has been carried out by firms such as Addleshaw Goddard, Berwin Leighton Paisner and Freshfields Bruckhaus Deringer in Manchester.
A similar strategy has also been carried out by Dentons in Warsaw. In November the firm announced that it was opening a back office centre in Warsaw as part of a wider plan to enable 24/7 support across its business. The office launched through a pilot scheme which saw Dentons transfer some of its administrative finance, HR, marketing and IT processed from Germany to the Warsaw office.
Kochański’s attempt to reduce costs in a similar fashion implemented by a growing number of UK firms could make it a more attractive offer for international businesses looking for Polish law firms with enhanced capabilities.
Law firm networks
As might be expected from a national law firm in Poland, Kochański relies on a network of best-friend firms for much of its international work. The firm recently adopted a strategy that saw it focus on nine key sectors and this in turn helped it decide which firms to align itself with.
As a result the firm now works with Nabarro for real estate work, Pinsent Masons for technology and construction work, and Slaughter and May for financial services work. Kochański also partners with Paul Hastings, Ropes & Gray and Mayer Brown for dealings with US clients.
The need for best-friend relationships is also a concern for international firms such as Greenberg that wish to increase the amount of work they do in CEE as a whole. Although Greenberg is happy to take advantage of Poland’s strong real estate market through its own office in Warsaw it does not want to set up shop in any other CEE country. Instead, the firm is attempting to establish a strategic alliance to enable it to tap into the local market in a way international firms cannot afford to do. One potential target is Kinstellar.
“Getting Polish firms to a place where they can dominate Poland’s all-important real estate market seems a long way off”
When Linklaters changed its CEE strategy the magic circle firm decided to pull out of the CEE market everywhere except Poland. The partners affected by the new strategy formed Kinstellar.
“Kinstellar is present in the entire CEE market except for Poland, so actually it would fit together very well,” says Charzyński. “But they also have an alliance with Linklaters so this is quite difficult for us. We need to start with some sort of presence in these markets but we will not go there ourselves as Greenberg.”
In this regard it does not look like international firms are expecting to decrease their presence at all. Instead Warsaw is increasingly becoming a hub for firms wishing to cash in on opportunities both within Poland and elsewhere in the CEE.
Striking the balance
Getting Polish firms to a place where they can truly dominate Poland’s all-important real estate market seems a long way off. Piwakowski’s belief that as Polish companies become international they will turn to their domestic law firms may be true but it is difficult to understand why moving to one of the many international law firms would not be the better option.
On the other hand international firms such as Greenberg have no intention of reducing their operations in Warsaw. The thriving real estate market and the close links to other CEE countries is too tempting to leave. If anything, rumours that Osborne Clarke is looking to open its doors in Poland means that the four eagles will have a fight to retain their existing big ticket clients in a heavily lawyered market.