Commercial Real Estate Market – Summary of 2023 and Forecasts for 2024

Kamil Kowa, a member of the Savills board in Poland
Kamil Kowa, a member of the Savills board in Poland

The consulting firm Savills has provisionally summarized the year 2023 and outlined forecasts for the most important trends. In the near future, the commercial real estate industry in Poland will face the challenge of returning to high investment, development, and rental market activity, amidst ongoing global instability and the climate crisis.

According to Savills experts, geopolitical, economic factors and uncertainty in the financial markets continue to significantly influence the real estate market landscape and will also shape it in the immediate future.

“The pandemic and the geopolitical situation in recent years have caused significant turbulence in the global economy, resulting in strong inflation. To counteract the devaluation of money, central banks have systematically raised interest rates, which have become the leading factor inhibiting investment and development activity in the commercial real estate market. As financing costs fall, we expect a decrease in the polarization between the price expectations of buyers and sellers and a gradual increase in the volume of investment,” comments Kamil Kowa, a member of the Savills board in Poland.

As Savills points out, the lower liquidity in the market was exacerbated by the specifics of the Polish real estate market, characterized by the dominance of foreign capital. Investments in Poland from January to September 2023 were about 65% lower than during the same period in the previous year. Foreign capital is waiting for economic stabilization, which would reduce transactional risk.

In the first half of 2024, investors will focus on properties valued below EUR 100 million, with a long capital investment horizon and value-add properties, i.e., those with potential to increase value through active management in both the rental and modernization, redevelopment, exploiting development potential or changing the function of the property.

Investors will continue to be interested in modern and well-connected large-scale logistics facilities and urban warehouses. In addition, interest in purchasing assets from alternative sectors such as institutional rentals (also known as PRS) and private dormitories will continue. If demand in the traditional residential market remains high and developers are not interested in selling projects to PRS operators, investors in this sector will begin to focus on more affordable land and commercial properties, where collective housing facilities can be created.

According to Savills’ preliminary estimates, the total office resources in Poland will increase to over 12.8 million square meters by the end of the year. The year 2023 will be remembered as the lowest in terms of new supply in the market in Warsaw (about 67 000 m sq., a decrease of about 70% compared to the whole of 2022) and the second lowest in the last decade in regional cities (about 328,000 m sq.). A larger number of developmental investments can only be expected in 2025.

“Nearly three years of blending remote and stationary work has allowed employers to better estimate how much space they need. More often companies are reducing the size of the space they occupy. The average area of ​​a newly rented office in Warsaw has been steadily decreasing for three years, from over 1,000 m sq. before the pandemic to about 800 m sq. in 2023. Instead, tenants sometimes choose a higher standard or better location. Given the limited supply, companies looking for an office can currently take advantage of often very attractive subletting offers and the still developing offer of coworking spaces,” comments Jarosław Pilch, Director of the Office Space Division at Savills in Poland.

“In 2024, with the increasing availability of space in existing buildings, we expect more renegotiations and relocations to facilities that are already successful on the market and are of the appropriate quality and location. Data centers will continue to develop, which are crucial for supporting increased demand for cloud services. The development of artificial intelligence, the popularization of electric vehicles and the automation of production cause a sharp increase in demand for semiconductors, which according to the European Chips Act assumes a more than doubling of the share of EU countries in global semiconductor production by 2030. The central location of Poland and access to qualified workers make our candidacy seriously considered by semiconductor manufacturers from Europe as part of nearshoring strategies,” comments Katarzyna Pyś-Fabiańczyk, Director of Industrial Services Hub at Savills in Poland.

In 2024, we will continue to talk a lot about ESG, but according to Savills, it may also be the year when words will be followed by actions and we will observe a larger number of implementations in the real estate market. The primary goal will remain decarbonization and reducing energy consumption and carbon footprint. We should expect both investors and banks financing new constructions to look very closely at ESG issues, and the weight of this factor in making property purchase decisions will increase.

“After a period focused on planning and education in the field of ESG, it is time to implement the solutions declared in the strategies created so far. 2024 will therefore be a time when the real estate industry will say: check! We will certainly observe a paradigm shift in the S area, by moving away from random social initiatives and turning towards the thoughtful creation of social value and reporting in this area. In the G aspect of ESG, it will be necessary to implement a set of policies and processes relating to sustainable supply and human rights. This should also be the year of the fight against greenwashing, i.e., the use of ESG only in communication, unsupported by real actions,” comments Katarzyna Chwalbińska-Kusek, director of ESG and sustainable development at Savills in Poland.

In Savills’ view, increasing attention is currently being paid to the function that properties should fulfill due to the impact of how buildings are used on both the natural environment and society. Significant changes are taking place in the modern world and economy, and our expectations of real estate are changing along with them. This creates significant challenges, but also opportunities for the entire industry, placing a great responsibility on market participants.