Commercial parks and convenience-type properties strengthened their position last year in the Polish investment transactions market. In 2024, the commercial real estate sector will continue to attract investors towards these assets, which are considered one of the safest investment options.
In 2023, the investment market slowed down. It was primarily affected by high lending costs, limited access to financing, and the general macroeconomic situation. In both Poland and throughout Europe, investor activity decreased, resulting in a drop in investment volumes in all real estate market sectors. In 2023, the value of investments in Poland reduced by about 70% compared to the previous year.
The standout sector in the investment transactions market was commercial real estate, which recorded transaction volumes exceeding 440 million euros, positioned second after warehouses. In 2023, the commercial sector accounted for almost 30% of the total value of acquisitions made in Poland. Investors were primarily attracted to retail parks and convenience-type properties, which generated over 60% of transaction volume in that sector. Transaction values generally ranged from 20 to 30 million euros with three transactions involving single properties exceeding 30 million euros and one exceeding 100 million euros.
Investor Interest in Commercial Properties
Last year marked another year when investors’ appetite for smaller commercial properties – retail parks and convenience centers – grew. In turbulent times, investment entities focus on projects that promise a long-term and stable income. In 2018-2019, the volume of investments in commercial real estate was modest. Yet in 2022, a noticeable increase in the share of commercial assets in investments was evident. The commercial sector generated about 26% of the investment volume, and retail parks accounted for 65% of completed transactions.
In 2023, an interesting turn took place where commercial properties outpaced offices. Last year, the value of the investment volume in the commercial sector was higher than in the office segment. The highest transaction value was recorded in the warehouse sector, accounting for half of all investments in Poland.
There was a significant increase in investor activity interested in commercial properties, especially in the final quarter of 2023. We can expect this trend to continue this year. The market has many opportunistic investors targeting attractively priced commercial properties as well as higher returns in properties with renovation plans.
Arrival of New Investors
The influx of new players interested in commercial assets into the Polish investment market each year is optimistic. In 2022, the Lithuanian company Lords LB Asset Management, Czech BHM, and German firm Leoff made their Polish debut. In 2023, the French investor – Frey entered our market, acquiring the Matarnia Commercial Park in Gdansk from Ingka, executing the largest acquisition last year in the commercial sector. An Austrian investor also made his debut by purchasing a portfolio of convenience properties in the Śląskie Voivodeship.
Even our neighbors have impressive investment plans. Newgate Investment Fund, whose capital comes from Ukraine, announced plans to expand its portfolio of properties in our country. Over the next four years, it plans to increase its involvement in the Polish market from 160 to 400 million euros. The investor, who has long been present in the Polish market, runs a network of over 100 stores and conducts online trading. For a decade, it has been investing part of its profits in Polish retail parks, where it manages a portfolio of 29 commercial properties. It plans to expand, not only on the Polish market but also in other Central and Eastern European countries.
The Polish retail park market currently observes several investment entities interested in their purchase. A larger share of Polish private investors in the market is also visible. Unfortunately, the price expectations of buyers and sellers often diverge. High money costs caused capitalization rates for the best retail parks in Poland to rise to around 7% in the second half of 2023. Many investors are set on opportunistic purchases, looking for price opportunities and properties to be reconstructed with the potential for profitability growth.
Greater Choice of Commercial Assets
In the Polish market, there is no shortage of investors or attractive assets. Despite high construction costs, the commercial sector quickly enriches resources. In 2023, over 560 thousand square meters of space was made available in Poland, several percent more than the previous year. Over 370 thousand square meters were allocated to retail parks and convenience centers, which have been supplying our market with most new commercial space for years. Each year sees the addition of about 30 traditional and regional retail parks and nearly as many convenience centers. Most of the new space is consumed by smaller towns.
Today, the country has over 600 retail parks with an area of at least 2 thousand square meters. The total supply of space in retail parks and convenience centers exceeds 3.6 million square meters. Funds and private entities investing in this area have an increasingly wide range of products.
The year 2024 will also belong to retail parks and convenience centers. The good condition of the retail market in our country is evidenced not only by the large activity of investors and the significant increase in new supply, but also by the level of vacancies, which in the commercial sector barely exceeds 3%.
About 430 thousand square meters of commercial space remains under construction in Poland, with nearly 80% located in investments where retail parks and small, local shopping centers are being implemented. The growing popularity of smaller formats is reflected in the average size of new commercial projects under construction, amounting to just under 10 thousand square meters.
The large number of convenience-type properties and retail parks being implemented in Poland encourages investors looking for stable investment products. Confidence in retail parks as safe assets significantly increased during the pandemic, when the retail market found itself in a difficult situation, yet retail parks thrived and stood out with confidence from banks.
The cost of financing investments and access to capital are crucial for future growth in investment volume. The anticipated interest rate cut in Europe would be an incentive for the return of large, international players to the market.
Agata Karolina Lasota, Managing Director of LBC Invest
