The Polish investment market is currently characterized by relative liquidity and low total volume of investment compared to previous years, which is due to the macroeconomic, geopolitical situation and market development. According to experts, next year the situation should stabilize and have a positive impact on the revival of investor activity.
Currently, the market is dominated by investors from Central and Eastern Europe, the Baltic countries and also local capital, which is hunting for investment opportunities. The situation is unlikely to change in the short term, as institutional funds are now focusing on their local Western European markets, where they can find a lot of price bargains not seen in many years. And only in the second instance will they return to the Polish market. New foreign players who are not yet present in the Polish market, but have analyzed potential projects in the past, are also part of this trend.
It is further difficult for investors to obtain financing from banks, as banks look carefully and meticulously at the projects they are to finance. In addition, the cost of money is high. With the stabilizing interest rates bank financing in 2024 is likely to be more available.
ESG will also continue to be an important factor influencing real estate purchases, which is increasingly being incorporated into the investment strategies of funds in particular institutional ones. This aspect will also be a key element in obtaining financing from banks.
Will this be a better or worse year? It seems that 2024 will be an interesting one, with the gap in price expectations between sellers and buyers narrowing, which in turn will translate into increased investor activity in all market sectors and a much higher volume of investment. We are aware of dozens of deals that are underway and should finalize next year.
Office sector
Currently, investors in the office sector are concentrating on properties located in Warsaw, especially in the cheaper districts of Mokotow and Sluzewiec. We do not expect this situation to change anytime soon.
This year we have clearly seen investor interest in older value-add and opportunistic office buildings. This is due, on the one hand, to the fact that in a situation of scarcity of land for development, such buildings, often located in excellent locations, are being considered for demolition or change of their function to, for example, PRS. There are still quite a few such buildings both in Warsaw and in regional cities, so we expect more projects of this type to be announced. Such investments are sought after by funds present on the market focused on obtaining high returns.
There is a return of investors eager for core assets in prime locations, such as the CBD in Warsaw or centrally located and the best, modern buildings in regional cities. However, high volumes can still be a challenge, which will translate into a more sophisticated and structured approach to buying real estate.
Industrial sector
The warehouse sector continues to dominate in terms of volume at the end of 2023. However, it was built on smaller projects – only a few transactions exceeded the €100 million threshold. Next year, we expect the sector to continue its popularity, especially in “sale and leaseback” transactions and more acquisitions of existing facilities that did not find buyers in 2023.
Retail sector
The retail sector will invariably attract investors with retail parks and convenience facilities, which remain a safe type of investment. Investors seeking high returns, on the other hand, will continue to look for attractively priced regional malls, as well as opportunistic assets with redevelopment plans. The competitive prices and attractive locations of older malls make them a higher-return alternative.
PRS sector
Despite the slowdown in buying activity in the PRS sector, investors continue to watch the market. What is limiting the sector’s momentum is the low availability of land for new projects, as well as the cost of construction. Therefore, investors and developers are increasingly willing to consider acquiring older office buildings with the option to demolish or convert their function to PRS.
We expect that the Polish market will attract both local and foreign investors, who can obtain higher investment returns in this sector than in Western European markets. Given the development of the PRS sector, it seems that 2024 may bring the creation of more platforms, created by the developer-investor arrangement, which will ultimately increase the product base for purchase by current and incoming investment funds in Poland.
Author: Marcin Purgal, Senior Director, Investment at Avison Young
