In recent months, there has been a significant surge in transaction value in Poland’s commercial real estate market, but new investments are still lacking.
In the second quarter of this year, the Polish commercial real estate market recorded over a fourfold increase in transaction value compared to the first quarter. Year-over-year, the value of investments in the first half of 2024 doubled.
Much higher investment activity compared to the previous year is being observed not only in Poland but across the entire Central and Eastern Europe (CEE) region. Commercial real estate in the CEE area has attracted significantly more interest from investors compared to assets in other European and non-European locations.
The increased investment activity has been undoubtedly supported by the interest rate cuts in Europe in June. This presents an opportunity for further rate reductions by the European Central Bank, which could help lower the cost of financing investments. Bartłomiej Zagrodnik, Managing Partner and CEO at Walter Herz, notes that besides financing costs, other factors are also considered when deciding to purchase real estate, such as rental growth potential, demand in the rental market, and the overall economic prospects of the location.
Strategic Approach of Investors
– With the arrival of spring, there has been a noticeable revival in the investment market in Poland, similar to the land market. This year, we are observing increased interest from investors in regional cities and smaller towns, where there is strong local demand and lower entry costs. In terms of investment land, there is also high demand for plots suitable for mixed-use projects that combine residential, office, and retail spaces, which maximize investment returns. There is also substantial interest in land for data centers, although supply is limited by power demand requirements. Factors related to sustainable development and compliance with ESG guidelines are increasingly considered when purchasing land, reflecting the growing importance of environmental issues in real estate investments – says Bartłomiej Zagrodnik.
– We see a strategic approach from investors to acquiring real estate that offers the potential for improving profitability, as well as land with long-term potential in areas that may benefit from infrastructure improvements and urban expansion plans. Well-located, prime parcels with clear development potential are preferred. However, investors are extremely cautious, leading to thorough due diligence analyses. It is also worth noting that Polish investors are increasingly participating in both land transactions and investment acquisitions. Their share in this year’s investment property purchases has risen from just a few percent to over a dozen percent – adds Bartłomiej Zagrodnik.
Focus on Offices and Retail
Currently, regional capital, primarily from the Czech Republic, dominates the transaction market in Poland. It is encouraging that we are seeing regular debuts of new investment entities on the Polish market.
In recent months, investors have mainly focused on office buildings and retail properties, with retail parks holding a dominant position in the sector. The most active players are those looking for typical value-add assets and opportunistic investors searching for deals. Large institutional players, focused on acquiring core assets, have been absent from investment processes for months, waiting for cheaper financing. However, in the office and retail sectors, some long-awaited major portfolio transactions were completed in the second quarter of this year.
Although prime transactions have appeared in Poland’s office market, value-add office buildings with potential for value growth were the most popular in the first half of 2024. In recent months, not only Warsaw office buildings but also those in major regional markets have changed owners.
Investor demand for warehouses, which was high in recent years, has now declined. The transaction volume in this sector in the first half of this year decreased by one-third compared to the first half of 2023. In the warehouse real estate sector, investors are focusing on modern facilities equipped with solutions necessary to meet ESG goals, located within major logistics hubs.
Waiting for New Projects
The investment transaction market is regaining its potential. We will soon see if the intensification of investment processes in Poland will be followed by a revival in new projects. Walter Herz analysts are optimistic, forecasting an increase in the number of investments, particularly in mixed-use projects and the PRS (private rented sector).
The cooling demand for offices and warehouses has recently led to a decline in projects in these sectors. The largest drop in new supply has been recorded in the office markets. In the first half of this year, only 65,000 sqm of space was added to the Warsaw market, while regional markets received a total of over 60,000 sqm of new office space.
In the warehouse sector, 1.6 million sqm was added in the first half of 2024, representing a one-third decline compared to the same period last year. However, over 2 million sqm is still under construction.
Retail space, on the other hand, is growing steadily. In the first six months of this year, approximately 195,000 sqm of retail space was added, and around 400,000 sqm is currently under construction.
Source: [ceo.com.pl](https://ceo.com.pl/zwrot-czy-tylko-ozywienie-inwestycyjne-w-nieruchomosciach-komercyjnych-77139)
