Despite a weak performance in the opening months of 2024, the Polish commercial real estate market is showing signs of stabilisation, with investment activity expected to bounce back in the second half of the year, reveals “At A Glance – Investment Market in Poland, Q1 2024”, a report from BNP Paribas Real Estate Poland. Investors’ interest continues to focus on logistics and industrial assets, with a further boost to this sector likely to be provided by planned legislation changes.
Fewer transactions
The first quarter of 2024 on the Polish commercial property investment market was a reflection of the challenging geopolitical and economic conditions of recent months. Poland’s commercial real estate investment volume for the surveyed period reached nearly EUR 364m, down by almost half year-on-year and by approx. EUR 18m from the previous quarter. The office sector, which is the most sensitive to interest rate changes, was the hardest hit, with the remote work trend being an additional downside. As a result, it posted an average fivefold decrease in investment volumes compared with 2021-2022. Industrial and logistics assets accounted for the largest share of the first quarter investment figure at 38% while trading in Core and Core+ office assets remained limited.
Higher transaction volumes on the horizon
Prime property yields remain static in Poland, the latest figures show. For this trend to reverse, the European Central Bank would have to cut its interest rates. With inflation apparently back under control in many countries, 2024 is likely to be a breakthrough year. However, stubbornly high US inflation figures and tensions in the Middle East pushing oil prices up may be a case for delaying cuts.
Mateusz Skubiszewski, Head of Capital Markets, BNP Paribas Real Estate Poland notes that investors are returning to the market, which is expected to translate into higher transactions volumes in the second half of the year. “Buyers expect rates of return on equity for Core+ offices of over 10-12%, a high requirement given current real estate financing conditions offered by the banking sector and expected yields. Capital targeting Core office assets that guarantee stable cash flows in the long term may take a little longer to arrive,” he says.
An opportunity for Polish capital
Marta Gorońska-Wiercioch, Associate Director, Capital Markets, BNP Paribas Real Estate Poland adds that the subdued activity of international investment funds is opening up new opportunities for alternative real estate investment and financing by Polish investors. In early April 2024, the Polish Ministry of Development and Technology presented draft regulations on a new investment vehicle - publicly listed REITs.
“According to current proposals, REITs will allow for investing in commercial and residential properties, but will also be required to distribute as dividends at least 90% of rental income less costs and taxes. Shareholders will not have to pay any dividend tax. Rents continue to grow for almost all asset classes, partially offsetting the decompression of yields which stabilized in the last quarter,” explains Marta Gorońska-Wiercioch.
Key investment transactions on the Polish market
Only eight office buildings changed hands during the first three months of 2024. The first quarter of the year saw just two larger transactions: the acquisition of the CPI Group’s Concept Tower in Grzybowska Street in Warsaw by the Czech-based Wood & Company and the acquisition of Futureal’s buildings C and D of the Lipowy Office Park by 1 Asset Management.
The retail sector saw a total of six low-value transactions, the largest being the Dor Group’s sale of the retail park Aniołów Park in Częstochowa to Terg for EUR 25m. Investment activity continued to focus on smaller retail formats such as retail parks and convenience shopping centres.
Industrial and logistics assets were the best performing sector with the largest transaction being the sale of West Park Pruszków and West Park Ożarów Wrocław by DWS to Hillwood for EUR 55m. The total investment volume in the year to date amounted to EUR 138m, representing a decrease of 12% year-on-year.
