The two prevailing trends that have shaped the commercial real estate market and buyer sentiment in recent months are uncertainty and volatility. According to the latest Trends Radar report by international advisory agency Cushman & Wakefield, the foundations of the Polish market remain strong, and experts expect a return to balance. Changes in the real estate market are reflected in the number and type of transactions – in the office market, the number of secure prime assets available for purchase is limited, and high financing costs influence investors’ interest in seeking higher returns in riskier transactions. Retail, due to a satisfactory level of foot traffic in large shopping malls post-pandemic and attractive asset prices, has become an interesting target for purchase opportunities. The warehouse and logistics real estate segment continues to be a key focus for investors.
“The high interest rates we have been facing for some time have translated into more expensive investment financing and led to a correction in property prices. This relates to all main European and global markets. In this situation, buyers’ approach has polarized – some are looking for new, secure assets, generating potentially lower returns, while others choose to invest their money into projects generating relatively higher returns”, comments Paweł Partyka, Head of Capital Markets Poland at Cushman & Wakefield.
This second strategy equates to a higher interest in projects with a higher risk profile, such as value-add type projects or those requiring repositioning and function change of older, poorly performing assets.
Core type projects, especially in the logistics segment, remain the most desirable investment product. However, due to higher expected returns, they must have an additional aspect that increases profitability, primarily renting at rates lower than market rates. This trend is particularly evident in the logistics sector, which has recorded one of the most significant rate increases in the past 18 months. “Due to the progressing indexation, these types of products are becoming less and less available. Indexed rents are beginning to reach current market levels for new lease agreements”, adds Robert Tomaszewski Senior Investment Consultant, Capital Markets Poland, Cushman & Wakefield.
Development Driven by ESG Megatrends
Aspects related to ESG have become an integral part of investment fund strategies. Regulatory pressure translates into a faster change in tenant expectations, as well as capital requirements supporting institutional real estate funds. “Holistic perception and assessment of real estate projects in financial terms and environmental impact will become a market norm. A serious and strategic approach to ESG today will certainly affect the competitive advantage and contribute to building long-term value for companies”, says Partyka.
Cushman & Wakefield’s expert adds that the growing importance of ESG trends requires adjusting investment strategies to new standards. This is a significant challenge as most of them are not yet finally determined at both the regulatory and market level, generating financial and organizational pressure.
However, we can say that adapting some properties to strict ESG standards may prove too costly. A common solution in such a situation is to change the building’s function while preserving most of its structure. These kinds of rebuilds often turn out to be difficult and require an in-depth analysis of scenarios and decisions on which of the available alternatives will be most beneficial for the current owner. “We have very interesting months and years ahead of us, and the strong investment fundamentals of the Polish real estate market allow for cautious optimism regarding the expected buyer activity,” concludes Partyka.
