According to experts at BNP Paribas Real Estate Poland, who published the report “At A Glance – Investment Market in Poland, Q4 2023”, Poland has stable economic prospects, but the global geopolitical situation and persistently high interest rates in Europe do not favor rapid turnover recovery and large investments in commercial properties. The results from the previous year confirmed a decrease in the sector’s liquidity in the national market.
Numerous challenges for investors
According to the latest report by BNP Paribas Real Estate Poland, describing investments in the commercial property market in Poland, investors signed contracts worth nearly €2,090 million throughout 2023. This is a level that was last recorded in 2010. As experts point out, such a market response is a result of tightened monetary policy and strong decompression of capitalization rates across Europe. The situation demands some funds to freeze commercial investment funds and seek alternative assets.
A significant factor affecting the market is also the geopolitical situation.
“Before the end of the year, the yield on bonds from most EU countries was in a declining trend, however the outbreak of conflict in the Middle East and fear of further increase in energy prices and return of inflation caused adverse market changes again. The economic prospects for the European market remain unclear, and the specter of interest rate hikes remains real. But Poland’s economic forecasts for 2024 are promising, due to the decrease in annual average inflation to 5% (down by 6.6 percentage points compared to the previous year)”, emphasizes Mateusz Skubiszewski, Director of Capital Markets at BNP Paribas Real Estate Poland.
End of the year moderate, but there are prospects for 2024
The fourth quarter of 2023 accounted for just over 18% of all transactions. The leader in national investment volume last year were warehouse-production assets, which represented 46% of all investments. Retail assets ranked second (21%).
The divergence in price expectations between buyers and sellers was reflected in investors’ activity in the office market. In 2023, sales transactions for office properties accounted for only 21%, while the average in 2020-2022 was nearly 35%.
“Unlike previous years, there was a noticeable lack of ‘prime’ transactions, and most were opportunistic purchases of older properties. The office property sector will face the challenge of debt commitments maturing over the next three years in a pan-European context. It is estimated that the funding gap in Europe’s real estate sector throughout 2024-2026 will exceed 90 billion euros, of which over 45% will concern office properties”, adds Marta Gorońska-Wiercioch, Deputy Director for Capital Markets at BNP Paribas Real Estate Poland.
In Poland, due to a stable rental market and a relatively lower level of reductions than in other parts of Europe, most investors and the banking system should not have problems with refinancing loans for commercial properties in their portfolios. The expected reduction in the eurozone interest rates in 2024 should also positively affect investors’ interest in properties.
Capitalization rates and selected transactions
Analyzing the year-end data, capitalization rates for key projects increased by an average of one percentage point. Although offices used to be one of the biggest driving forces in the market, in 2023 they proved to be the least resistant to the rapid increase in capitalization rates. As shown in the report, the office property sector recorded the largest growth, at 1.25 percentage points.
In 2023, only 18 buildings changed or partially changed owners. The overall value of transactions, totaling nearly €430 million, was more than five times lower than the previous year. The largest transaction last year was the purchase of the Mokotów Nova building by M&A from British Tristan Capital for approx. €75 million.
The investment market for shopping centers proved to be the most resistant to rising interest rates, with year-on-year rate growth of 0.75 percentage points up to 6.25%. Transaction volume for Polish retail properties in 2023 reached over €430 million. Interestingly, the average size of the acquired property was 14,500 sq. m. and over 74% of transactions pertained to assets worth less than €20 million, indicating that investors primarily focus on smaller retail formats located in regional cities. The largest transaction of the fourth quarter was the sale of Galeria Tarnovia at €12.5 million.
Last year was the best for the warehouse-logistics sector in terms of transactions. This asset class recorded contracts worth nearly €966 million, which represented 46% of the total volume. In the fourth quarter, 7 transactions were concluded, with the largest being GLP’s acquisition of Panattoni Park Janki II in Pęcice for approx. €31 million.
The most spectacular transaction in this segment involved the NREP fund taking over control of the Polish developer 7R’s real estate portfolio by acquiring 80% stake in the company for approx. €200 million.
