Over the past year, the share of Polish capital in investment purchases in the commercial real estate market in Poland has doubled.
Following the suspension of activities by international institutional investors in the Central European real estate market, the investment landscape has shifted. Local investors have taken the place of Western investment funds, which previously dominated the investment market in Poland. The Polish market now predominantly attracts entities from the CEE region, including those from Czech Republic, Slovakia, Hungary, and Lithuania, as well as Scandinavia and Germany. Capital also flows into Poland from the United States.
After a long period of dormancy, Polish capital is also becoming more vocal. In the first half of 2024, its share in investments in the commercial real estate sector in Poland is twice as high as it was a year ago.
As recently as 2022, Polish investment entities accounted for just 2% of purchases in the commercial real estate market in Poland. In the first half of 2024, the share of domestic capital rose from 6% to 12% year on year, allowing Polish investors to rise to fourth place in investment rankings. The most significant investments during this time were made by British capital and capital originating from the CEE region and Western Europe.
Course on Increasing Investment Value
The forms of investing into which Polish capital enters vary. Individual investors choose to buy shares and bonds of developers, opt for debt funds and ‘equity’ loans, or loans convertible into shares. Also, investors who acquire land capable of project implementation in a JV formula, or independently as well as purchasing residential and commercial premises, and selected hotel premises for commercial lease. However, this requires larger financial outlays.
Polish capital also seeks commercial buildings characterized by good location and attractive price. Domestic investors mainly focus on cheaper assets of the value-add type intended for revitalization, which is usually associated with a change in their function. Investments made by Polish entities are largely opportunistic acquisitions driven by a desire to resell the investment at a profit.
The involvement of Polish capital in the retail sector is mainly associated with investing in detached buildings, usually intended for grocery stores, often chain stores. Domestic investors are also interested in retail parks of various sizes, whose prices range from a few to several million euros. An example of such investments can be seen in the case of the Polish company Terg, which is expanding the Aura Park chain.
Regarding office buildings, Polish capital invests in older buildings valued at a few to a dozen or so million euros. In this case, the acquisition is usually associated with plans to increase their profitability by modernizing and commercializing the facilities, or changing the property’s purpose, including demolitions. Examples of such transactions recently concluded in Warsaw include the office buildings Ludna 2, Curtis Plaza, or office buildings forming part of the myHive Mokotów complex.
It is important to note that Polish investors showed a particular interest in hotels this year. All acquisitions in this sector that were finalized in the first six months had Polish capital backing. Two Hampton hotels were purchased by Satoria Group, and TMS Inwestycje invested in the suburban Holiday Inn in Warsaw.
The Structure of Polish Capital
Polish capital is represented by both larger investment entities, with years of market experience, as well as smaller individual investors and family-owned companies. These latter investors place excess capital from the main business activities into commercial real estate as a way to diversify income.
In the near-term, we can expect a rise in Polish investor participation in transactions that will be carried out in a new legal form through family foundations.
Unfortunately, Polish individual and institutional investors still have very limited options for investing and realizing profits in the real estate market. Poland still lacks legislation that would allow earnings from the commercial sector. Market participants consistently emphasize the importance of establishing REITs (Real Estate Investment Trusts) for the further development of the real estate market. These instruments are currently operating in 40 countries, including 14 EU countries. The introduction of this investment model would allow Polish investors to invest more seriously in commercial real estate, not just residential properties. The capital that could flow into companies investing in the commercial sector is estimated at around PLN 20 billion, with approximately PLN 11.5 billion being the potential of individual investors.
In the long-term, these saved funds could go to investment entities operating in the form of REITs and bring decent profits to investors, effectively stimulating domestic investments in the real estate sector.
An Thaw in Investments
Let us remind, that this year the situation on the investment transaction market in Poland, as well as in the whole Central and Eastern Europe region, has improved significantly. In the second quarter of 2024, we noticed a significant revival. Positive changes occurred, indicating a return to the investment volumes of previous years. The first quarter of this year ended with a very poor result, but the turnover recorded after 6 months of this year reached the value of EUR 1.7 billion in Poland. This means a nearly double improvement compared to the same period last year.
In the second quarter of 2024, we also witnessed the first major portfolio transactions carried out in the office and retail sectors. As a result, the value of acquisitions exceeded the volumes recorded in these segments throughout 2023. Another promising sign for our market is the emergence of new sources of capital. Commercial real estate investments are being made by entities that were previously not active in our country.
A positive signal for investors is also the cycle of interest rate cuts initiated by the ECB in June this year. This brings hope for further cuts and more affordable financing costs for investments in the near future.
Source: https://ceo.com.pl/udzial-polskiego-kapitalu-w-inwestycjach-na-rynku-nieruchomosci-komercyjnych-wzrosl-dwukrotnie-w-2024-r-52055
