In 2023, the Polish investment market, like foreign markets, experienced a low level of investor activity. The value of investment volumes in all real estate sectors was significantly lower than in previous years. Investors are seeking an improvement in the macroeconomic situation and interest rate cuts, waiting for price stabilization and cheaper money. Until that happens, significant changes are hard to expect.
Lower financing costs are expected to increase investment values and help bridge the gap between buyer’s and seller’s price expectations. However, there is still a significant negotiation gap between transaction parties in many cases, encouraging creative approaches to settlements.
Investors are looking for new forms of settlements and alternatives to bank financing, forming investment alliances. Limited access to credit promotes partnerships and the creation of new areas of cooperation between developers and investors. Many entities are optimizing their strategies to realize profits.
Investors are still interested in properties attractive in price and location, offering an attractive return rate, as well as “value-add” investments with the potential to increase value through more efficient lease management, or activities in the field of renovation, conversion, and function changes.
In 2024, market participants will continue to analyze the profitability of the properties in their portfolio and seek new opportunities. We see new investors, who have not yet been present in Poland, scrutinizing the Polish market, both developers, investors, and financing entities, as confirmed by recently announced transactions.
The last few years have seen a significant decrease in new supply in the office market, both in Warsaw and in the largest regional markets. This trend is expected to continue this year. Developers’ activity depends on the macroeconomic situation, the possibility of financing new projects, and the demand for new offices. Regional markets are increasingly optimizing occupied areas and are cautious about relocation due to high arrangement costs. Due to the proliferation of hybrid work, offices are reduced by an average of 25-30%. Therefore, in the largest regional cities in Poland, developers’ inactivity will be standard in the near future. In Warsaw, space in new projects is being rented out rapidly. Companies mostly choose central locations, and of all the markets in Poland, employees are most willing to return to the offices, hence new, large office investments are initiated, such as Skyliner II, Office House in the Towarowa 22 complex, or Studio A.
In the coming years, tenants will be attracted mainly by centrally located, modern buildings providing wide access to communication and “value add” solutions for employees. Office complexes that offer not only traditional spaces but also co-working areas, relaxation zones and various types of services and amenities. The demand for flexible office spaces that can be quickly adapted to the changing needs of companies will continue.
In response to the transformation of the work environment, developers and investors can offer more flexible leasing conditions and office spaces with the possibility of easy reconfiguration. Due to cost-optimization by tenants, building owners will focus on finding ways to reduce maintenance and operating costs.
Companies will be relocating from older office buildings to newer and attractively located buildings. I expect that the demand for offices in Warsaw will maintain its good, last year’s level this year, while in regional markets lower demand for offices will cause further growth in the amount of unrented space.
ESG criteria and sustainability standards are now the basis for classifying and evaluating real estate. There is a huge difference in the standard of buildings between top-class projects and outdated office buildings, which will be gradually demolished or adapted to other functions. Cost-ineffective office buildings will give way to modern investments. In the near future, other office buildings will surely follow in the footsteps of the Warsaw Atrium International, which will be replaced by the modern Upper One, or Ilmet, which is to be demolished.
We are facing a wave of ecological and digital changes in the real estate market. Investors and developers will focus on buildings with ecological certificates, which offer solutions to reduce operating costs. Banks are already imposing this on investors, offering cheaper financing for such projects. Buildings adapted to EU emission requirements will also be chosen by investors, who are now mainly building “green” investment portfolios.
Regulations will force owners of older buildings, which are not energy-efficient, to modernize them in the coming years. In addition to rising energy prices, the ETS2 system, which already operates in the industry and is to cover transport and real estate, will also contribute to this. The EU directive in this regard is likely to come into force from 2026 and we will have two years to implement it. First, non-residential, commercial and public buildings will be covered by the new regulations. From 2028, commercial buildings under construction will have to be zero-emission, and by 2030 this requirement will also cover residential buildings.
In the coming years, the use of digital technologies, such as artificial intelligence, the Internet of Things (IoT) and automation in real estate management is expected to increase. These solutions will help make building management more efficient, improve tenant satisfaction, and support energy efficiency, thus reducing costs.
AI solutions will streamline data analysis from sensors, optimize the use of space and increase building performance, effectively translating into additional sources of income for developers. Based on data analysis, artificial intelligence will also enter areas such as asset valuation, market analysis, and tenant management, facilitating investment decisions.
Investments in the retail sector in recent years have been dominated by shopping parks and convenience centers, which constitute over 80% of new projects. And in the near future, probably not much will change in the retail market in this respect. Throughout the country, about 470,000 sq. m. of retail space is under construction, mainly in smaller formats, local parks, which are mostly being built in small towns. New supply in the retail sector reached a level of about 450,000 sq. m. In this year we can expect similar results.
The coming time in the retail sector will also be a time for owners of older facilities to decide on renovations and conversions, as was the case with Bonarka in Cracow, or on changes in their function, examples of which may be Arkady Wrocławskie or Galeria Malta in Poznań.
Owners of shopping complexes will continue to focus on optimizing property maintenance costs and issues related to ESG, emissions and solutions ensuring savings.
As in the case of other asset classes, in this sector, investors focus on smaller facilities, opportunities and projects with the potential to increase value due to conversions or optimization of management.
After years of market prosperity, in 2023 the Polish warehouse real estate sector has slowed down. However, a rebound is expected. This scenario is very likely, considering the prospects of the sector in the context of Poland’s role in the global transformation of supply chain organization and the transfer of processes from Asia to Europe. The rapid increase in demand for semiconductors and the European Chips Act, which envisages Poland more than doubling its share in global semiconductor production by 2030, also bring optimistic forecasts and a chance for the development of the Polish industrial and warehouse sector.
The increase in automotive production in Poland, mainly electric cars and batteries, will also contribute to further sector development. Several large investments in the field of electromobility have already been announced, which are to be launched soon.
The resources of the Polish warehouse market have grown rapidly in recent years, and three more locations hosting modern logistics facilities have joined the group of the five largest markets. Therefore, we have appropriately prepared facilities. Moreover, in Gdańsk, Gdynia and Świnoujście, port infrastructure for maritime transportation is being expanded, which will also have an impact on the activation of further industrial investments and further development of logistics.
However, the high requirements for financing new projects will limit this year’s speculative investments in favor of safe projects with pre-rental contracts. The increase in the vacancy rate in the warehouse market in 2023 will probably mean that this year developers will limit their plans. New supply that 2024 will bring to the sector may be lower than last year due to lower demand and high rental rates. Rental rates in modern urban warehouses, located near major agglomerations, may continue to rise due to continued high demand and a shortage of such space.
Last year, the warehouse sector returned to the position of the market leader, recording the highest transaction value. However, the size was significantly smaller than in past years. The return of global investors and increasing liquidity in this and other sectors is dependent on an improvement in the macroeconomic situation.
Author: Bartłomiej Zagrodnik, Managing Partner, CEO at Walter Herz
