The Polish investment market is currently characterized by relative liquidity and low total volume compared to previous years, which results from macroeconomic, geopolitical conditions, and market developments. According to experts, the situation is expected to stabilize in the upcoming year and positively influence the revival of investor activity.
Presently, investors from Central and Eastern Europe and the Baltic States dominate the market, alongside local capital hunting for investment opportunities. This trend is unlikely to change in the short term, as institutional funds are currently focusing on their local Western European markets, where they can find many price opportunities that haven’t been available for many years. The Polish market will become their secondary focus. This trend is also endorsed by new foreign entities that have not yet entered the Polish market but have analyzed potential projects in the past.
Investors still find it challenging to obtain financing from banks, which scrutinize the projects they finance very cautiously and meticulously. Additionally, the cost of money is high.
The ESG issue will continue to be a significant factor influencing real estate purchases, as it’s increasingly considered in the investment strategies of particularly institutional funds. This aspect will also play a crucial role in securing financing from banks.
Will 2024 be better or worse? It seems that 2024 will be exciting, and the pricing expectations between sellers and buyers will narrow. As a result, investor activity across all market sectors will increase, resulting in a higher annual volume. We know of dozens of transactions that are ongoing and should conclude in the coming year.
Currently, office sector investors focus on properties located in Warsaw, particularly in cheaper Mokotów and Służewiec districts. We do not expect this situation to change anytime soon.
This year, there has been a clear interest in older “value-add” and opportunistic office buildings. Due to lack of land for construction, such buildings, often in prime locations, are considered for demolition or change of function, for example, into PRS. Such buildings are plentiful in Warsaw and regional cities, so we expect the announcement of further projects of this type. Such investments are sought by funds in the market aiming to achieve high returns.
Investors are returning to “core” assets in prime locations like Warsaw’s CBD or centrally located and top-notch new buildings in regional cities. However, high volumes continue to present a challenge and may require more sophisticated and structured approaches to property purchases.
As of the end of 2023, the warehouse sector continues to dominate in terms of volume. However, it was built on smaller projects – only a few transactions exceeded the €100 million threshold. Next year, we anticipate the sector’s popularity to continue, especially in “sale and leaseback” transactions and further acquisitions of existing facilities that did not find buyers in 2023.
The retail sector will still attract investors with retail parks and convenience type properties, which remain a safe type of investment. Investors seeking high returns will still look for attractive and cheap regional shopping centers, as well as opportunistic assets with restructuring plans. Competitive pricing and attractive locations of older shopping malls make them an alternative with a higher return rate.
Despite the slowdown of purchase activity in the PRS sector, investors continue to monitor the market. What limits the sector’s momentum is the low availability of land for new projects, as well as construction costs. Therefore, investors and developers are considering the possibility of acquiring older office buildings with the option of demolition or converting their use into PRS. We expect the Polish market to attract both local and foreign investors who can achieve higher rates of return in this sector compared to Western European markets.
Considering the development of the PRS sector, the year 2024 might bring the establishment of more platforms created by the developer-investor alliance, which will ultimately increase the product base for purchases by current and incoming Polish investment funds.
Author: Marcin Purgal, Senior Director, Investment at Avison Young
