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Polish Real Estate Market: Value Add and Opportunistic Investors to Dominate in 2024

REAL ESTATEPolish Real Estate Market: Value Add and Opportunistic Investors to Dominate in 2024

Moderate optimism, despite a weakened activity in 2023 and a decline in investment volume by 3.8 billion EUR – Colliers experts present forecasts for the new year.

In 2023, both the Polish and foreign investment markets were characterised by a weakened investor activity. As revealed by the data presented by Colliers, compared to 2022, the total value and number of transactions in all sectors of the commercial real estate market in Poland dropped by 3.8 billion EUR. Despite this, due to the increasing number of potential transactions and expected interest rate cuts this year, prospects for the coming months are moderately optimistic. Colliers’ experts summarise the key events of the last 12 months in the Polish investment market and present forecasts for 2024.

Major events of 2023:

  1. Freeze of investment capital activity

The year 2023 was marked by a continual weakening of activity in the investment market, influenced by global economic limitations and high costs of bank financing. The value of investments in the Polish market decreased, similar to the entire Central and Eastern Europe, EMEA, North America, and Asia regions. Bank loans remain available, but the process of obtaining them takes longer than before.

The total value and number of transactions in all sectors of the Polish commercial real estate market dropped from about 5.8 billion EUR in 2022 to about 2 billion EUR in 2023.

  1. A decline in asset valuations

Amid a downward trend in all asset classes, a new price level was established. Considering the lack of liquidity and benchmark transactions, the market is volatile in this area. The capitalisation rates increased by about 100 basis points for the best real estate assets compared to the levels at the end of 2022.

  1. Slowdown in investor activity

Most renowned foreign investors have delayed purchasing decisions, awaiting price stabilisation and improved market sentiment. This created a unique opportunity for buyers from the region (CEE, Baltic countries, Middle East) to compete for “prime” product at lower prices.

A significant decline in investor activity in the office sector was observed, including a lack of investment transactions in the office market in regional cities, whereas despite the return of interest from the largest international institutional players towards Western markets in anticipation of price reductions, the logistics sector continued to attract buyers – says Piotr Mirowski, Senior Partner, Investment Advisory Department, Colliers.

  1. Sweedish and American purchases

It is estimated that about 23% of the invested capital in the Polish market (around 400 million EUR) came from Sweden, another 340 million EUR was invested by American investors.

  1. Discrepancies in the expectations of buyers and sellers

Several office and logistics transactions are currently in progress, which may be finalised in the upcoming quarters. Additionally, it is predicted that interest in retail assets will grow.

The real estate market is facing challenges related to setting new price levels due to a lack of liquidity and benchmark transactions in recent months. This still leads to a significant discrepancy between purchase and sale prices, which often also impacts the lack of transaction finalisation – points out Piotr Mirowski.

Forecasts for the investment market in 2024:

  1. A chance for a gradual uptick in the investment market

The outlook for 2024 is cautiously optimistic.

In the market we are observing an increasing number of potential transactions due to the reduction in the price gap between sellers and buyers, and the emerging prospects of interest rate cuts, should have a stabilising effect and encourage the return of players who have been waiting for greater clarity regarding the monetary policy of the European Central Bank. A key factor driving potential growth in investment volume will be the lower financing cost and its availability – says Piotr Mirowski.

  1. Refinancing and maturity of commercial bonds

In 2024, loans taken out for the purchase of commercial properties in the record-setting year of 2019 will expire, indicating high activity in the area of refinancing. This will be a period of intense negotiations between owners and banks. It is also the time for maturities of commercial bonds issued by developers or investors of significant value and low coupon. If they wish to refinance their debt with new issues, they will be forced to offer higher yields than before.

The process of refinancing could result in interesting assets appearing for sale.

  1. Dominance of value add and opportunistic investors

The lack of activity by low-risk core investors likely only has a limited chance of changing in 2024, although Colliers experts expect the first significant transactions, which will serve as a benchmark for the wider market. Entities of the type value add and opportunistic will dominate, seeking double-digit investment returns, who will want to capitalise on the liquidity situation and acquire properties with growth potential. Gradually core+ funds will return, buying institutional-grade assets generating somewhat higher yields.

  1. Alternative investment methods

Some investors, in search of more attractive yields, have turned to placing capital in debt strategies (private debt) and alternative forms of real estate financing, such as preferred equity or mezzanine finance. With the decline in asset values and capital requirements resulting from refinancing, interesting opportunities to take over portfolios or entire investment platforms may also appear on the market.

  1. Sector-wise, no significant changes

Colliers experts note that investors’ sector preferences will remain largely unchanged.

At the top of the list, as has been the case so far, are industrial and warehouse properties, which offer a combination of stable income and rental growth potential, with capital values significantly lower than in Western Europe – lists Piotr Mirowski. – In the retail space sector, demand will return for food supermarkets and retail parks. We expect a greater number of transactions than in 2023 in the office sector, due to noticeable price discounts, as well as positive factors in favor of this market, including gradually decreasing vacancy rates and a limited number of new projects under construction. – concludes the Head of the Investment Advisory Department at Colliers.

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