In recent months, there has been a significant increase in transaction values in the commercial real estate market in Poland, but new investments are still lacking.
In the second quarter of this year, the Polish commercial real estate market recorded over a fourfold increase in transaction values compared to the first quarter of this year. Year-on-year, the value of investments in the first half of 2024 doubled.
Significantly higher investment activity compared to the previous year is observed not only in Poland but also across the entire Central and Eastern Europe (CEE) region. Commercial real estate in the CEE area is attracting much more interest from investors than assets in other European locations and outside the continent.
The intensification of investment activity is undoubtedly supported by the June interest rate cut in Europe, which brings the potential for further decisions by the European Central Bank on additional cuts, which in turn could reduce financing costs for investments. Bartłomiej Zagrodnik, Managing Partner and CEO at Walter Herz, however, points out that besides financing costs, other factors such as rent growth potential, demand in the rental market, and overall economic opportunities in a given location are also analyzed when making property purchase decisions.
Strategic Approach of Investors
-With the arrival of spring, the investment market in Poland, similar to the land market, has seen a significant revival. This year, we are observing greater interest from investors in regional cities and smaller towns where there is strong local demand and lower entry costs. Regarding investment plots, there is also a high demand for land suitable for mixed-use projects that combine residential, office, and retail spaces, allowing for maximized returns on investment. There is also significant interest in land for Data Centers, but supply is limited by the requirements related to power demand. When purchasing land, factors related to sustainable development and compliance with ESG guidelines are increasingly being considered, which shows the growing importance of environmental issues in real estate investments – says Bartłomiej Zagrodnik.
– We are observing a strategic approach by investors towards purchasing properties that offer opportunities to improve profitability, as well as land with long-term potential in areas that may benefit from infrastructure improvements and urban expansion plans in the future. Well-located, prime parcels with clear development potential are preferred. However, investors are showing great caution, leading to meticulous due diligence analyses. It is also worth noting that Polish investors are increasingly participating in both land transactions and investment purchases. The share of domestic entities in this year’s purchases of investment assets in the real estate sector has already reached several percent, rather than just a few – says Bartłomiej Zagrodnik.
Office Buildings and Retail Properties in Focus
In the Polish transaction market, the dominant group of investors currently consists of regional capital, primarily from Czechia. It is encouraging that we can regularly observe the debut of new investment entities in our market.
In recent months, investors have primarily focused on office buildings and retail properties, with retail parks holding a dominant position. The market is mainly active with investors looking for typical value-add assets and opportunistic investors seeking lucky chances. Large institutional players, who are focused on purchasing core assets, have not entered investment processes for many months, awaiting cheaper financing. However, in the office and retail sectors, long-awaited large portfolio transactions were recorded in the second quarter of this year.
Although prime transactions have appeared in the Polish office market, the most popular in the first half of 2024 were value-add office buildings with potential for value growth. In recent months, not only Warsaw office buildings but also office buildings located in major regional markets have changed hands.
Investment demand for warehouses, which we observed in recent years, has recently declined. The transaction volume in this sector in the first half of this year decreased by one-third compared to the first half of 2023. In the case of warehouse properties, investors are focusing on modern facilities equipped with solutions necessary to achieve ESG goals, located within major logistics hubs.
Awaiting New Projects
The investment transaction market is regaining its potential. We will soon see whether the intensification of investment processes in Poland will also lead to a revival in new investment projects. Analysts at Walter Herz are optimistic, predicting an increase in the number of investments, particularly in mixed-use projects and the Private Rented Sector (PRS).
The cooling of demand for offices and warehouses has recently resulted in a decline in investments in these sectors. The biggest drop in new supply is observed in the office markets. In the first half of this year, only 65 thousand sq m. of office space entered the Warsaw market, and over 60 thousand sq m. of new offices were delivered in regional markets.
In the warehouse sector, resources increased by 1.6 million sq m. in the first half of 2024, a one-third decrease compared to the same period last year. Over 2 million sq m. of space is still under construction.
Meanwhile, domestic retail resources are increasing at a steady pace. In the first 6 months of this year, around 195 thousand sq m. of retail space emerged, with about 400 thousand sq m. currently under construction.
