According to the latest report by international advisory agency Cushman & Wakefield, “CEE Investment Outlook”, 2023 marked a decrease in the activity of western capital, which is reflected in the half volume of transactions in Central and Eastern Europe year on year. With a result of 1.8 billion euros, Poland maintained its first place among the CEE markets, accounting for 36% of the total investment volume. However, this is a much lower level compared to what we have been accustomed to in recent years. Poland stands out from the regional average in terms of demand structure – over 50% of transactions on the domestic market involved assets from the logistics sector, while in other Central and Eastern European countries the most capital was invested in the office sector. Moreover, local investors accounted for two-thirds of the investment transaction volume in the region, marking a significant increase compared to previous years. Despite challenges, the market showed resilience, particularly in logistics and the residential sector, highlighting areas with potential for growth.
In Poland, a clear waiting attitude is noticeable, especially in the office market. While the largest part of the investment volume in the CEE region concerned office properties (32% in 2023 vs. 41% in 2022), on the domestic market as much as 51% of the volume fell on the logistics sector.
As stressed by experts from the international advisory firm Cushman & Wakefield, there is a clear need in Poland to implement tools that will increase the scale of domestic capital investment.
Rise of Local Capital
In 2023, the commercial real estate market in Central Europe observed a significant change in the sources of capital, with a clear increase in local investment against a decrease in capital inflow from the West.
Local investors and those from CEE countries made up the majority (65%) of investment transactions in the region in 2023, a significantly higher share than in previous years (42% in 2022 and 37% in 2021).
This change reflects a broader trend in which regional investors play a key role in maintaining market liquidity and driving investment. The changing landscape highlights the need for a strategic approach to capital acquisition, highlighting the growing importance of local and regional investors in navigating the current economic environment. The investment gap from the West is very effectively filled by capital from the Czech Republic, Slovakia, Hungary, or Lithuania. For Poland, this means one thing – the necessity to introduce REITs or other investment vehicles that will allow individual investors to place funds in assets other than just residences, comments Paweł Partyka, Head of Capital Markets Poland, Cushman & Wakefield.
Capitalization Rates: Resilience to Economic Turbulence
Generally, the commercial real estate market in Central Europe has seen a clear drop in investment volumes led by Poland, which registered the deepest change, indicating increased investor caution in the face of economic uncertainty. However, this decline contrasts with the varied behavior of prime property yields in the region, which have shown resilience in the face of economic changes, says Jeff Alson, Head of Capital Markets CEE, Cushman & Wakefield.
Despite the decrease in volumes, prime property yields in some markets saw a slight increase, reflecting investor demand for low-risk premium assets, while others remained stable, underlining the ongoing resilience and attractiveness of this type of commercial property in Central Europe. At the sector level, prime building yields have been growing since the beginning of 2022 across all asset classes.
In Poland, returns increased for all asset classes, with more decisive ones observed in the logistics, office, and shopping center and street segments. Commercial property owners expect a return to greater stability and are not willing to give up higher yields, explains Paweł Partyka.
Biggest Transactions in the Logistics Market Shaped the Investment Landscape in Poland
In a period of significant investor caution regarding decisive moves in Poland’s office sector, investments in logistics took first place.
The largest transaction of the past year was NREP’s purchase of an 80% stake in the Polish company 7R. Other agreements related to this sector took the following places – P3 Logistic Parks’ acquisition of Campus 39 and Heye Poland’s purchase of nearly 135,000 sq.m property from Panattoni’s portfolio. It is also worth noting the first signs of a revival in transactions in the hotel market. We ended 2023 by closing the transaction to purchase Crown Plaza and Holiday Inn Express in The Warsaw HUB by a French investment fund, comments Paweł Partyka.
The whole CEE region in 2023 saw a differentiation in the level of investment activity among different sectors – there was a visible increase in interest in purchasing residential and hotel assets.
Markets Prepare for Strategic Growth and Return to Balance
According to Cushman & Wakefield, the volume of investments in commercial real estate in Central Europe in the coming years seems to be on a good path to cautious, but potentially stable recovery. It is expected to gradually increase by 10 to 15% annually, although this outlook depends on the stabilization of the global economic environment and the continuation of adaptation to market conditions post-pandemic.
The market is unlikely to see a quick price rebound that would satisfy both sellers and buyers. Moreover, the anticipated need for de-leveraging from banks leading to a lack of new equity for existing transactions or reinvestments could result in a larger number of forced sales, further complicating market challenges.
Local capital will play a key role in the continuation of investment activity in the region, mitigating the impact of a temporary withdrawal of international capital. Nevertheless, as Cushman & Wakefield experts predict, international capital will eventually return, strengthening the investment landscape of the region.
Despite the traditionally stable investment environment in the CEE region, there is currently a gap in the investment volume on the order of three to five billion euros compared to historical averages. We foresee this deficit being balanced by a steady return of international capital and a consistent increase in local investments, supported by a healthy but more demanding debt market, summarizes Jeff Alson.
