In the report “At A Glance – Poland’s Investment Market in Q1 2024,” analysts from BNP Paribas Real Estate Poland note that despite a challenging start to the year, the market shows signs of stabilization, and forecasts indicate increased investment activity in the second half of 2024. Logistics and industrial assets continue to attract the most interest from investors, and anticipated regulatory changes may further stimulate the market.
Decline in Transaction Volume
The first quarter of 2024 in the Polish commercial real estate investment market reflected the difficult geopolitical and economic conditions of recent months. During this period, the transaction volume for commercial real estate in Poland was nearly EUR 364 million. This result is almost half the value achieved in Q1 2023 and about EUR 18 million lower compared to the previous quarter. The office market, which is particularly sensitive to changes in interest rates, has been significantly affected. The trend of remote work also contributes to this decline, with volumes dropping on average fivefold compared to 2021-2022. Industrial and logistics assets accounted for the largest share of the quarterly investment volume (38%). Transactions involving “Core” and “Core+” office assets continue to have a small share of the volume.
Higher Transaction Volumes on the Horizon
Based on current data, capitalization rates for the best assets in Poland remain unchanged. A significant trend reversal requires a reduction in interest rates by the European Central Bank. In many countries, inflation appears to be under control, raising hopes that 2024 could be a pivotal year. However, persistent high inflation in the United States and tensions in the Middle East, negatively impacting oil prices, could act as brakes.
Mateusz Skubiszewski, Senior Director of the Capital Markets Department at BNP Paribas Real Estate Poland, notes the return of investors, which should translate into higher transaction volumes in the second half of this year. “The expected internal rates of return on equity for ‘Core+’ office assets are above 10%-12%, which still sets a high bar under the current real estate financing conditions by the banking sector and expectations regarding capitalization rates. We will have to wait a little longer for capital seeking office buildings that ensure long-term and stable cash flows within the ‘Core’ segment,” he assesses.
Opportunities for Domestic Capital
Marta Gorońska-Wiercioch, Deputy Director of the Capital Markets Department at BNP Paribas Real Estate Poland, adds that reduced activity by international funds opens new opportunities for alternative investment and financing methods by domestic capital. In early April this year, the Ministry of Development and Technology presented preliminary assumptions for a new investment instrument, namely listed real estate investment companies (SINNs).
“In the current proposal, these entities will allow investment in both commercial and residential properties. They will also be required to pay out at least 90% of rental income as dividends, after deducting costs and taxes. Shareholders will not have to pay dividend tax. For almost all asset classes, rent rates continue to rise, partially neutralizing the decompression of capitalization rates, which stabilized during the quarter,” explains Marta Gorońska-Wiercioch.
Key Transactions in the Polish Market
In the first three months, only eight office buildings found new owners. The market saw just two major transactions: the purchase of the Concept Tower on Grzybowska Street in Warsaw by Czech investor Wood & Company, and the acquisition of two buildings (C&D) in the Lipowy Office Park complex by 1 Asset Management. The sellers were CPI Group and Futureal, respectively.
The retail market was dominated by smaller transactions. A total of six deals were concluded, the largest being the sale of Aniołów Park retail park in Częstochowa by Dor Group to Terg for EUR 25 million. Investors continue to show interest in smaller formats such as retail parks and convenience centers.
Industrial and logistics properties, on the other hand, were the dominant asset class, with the largest transaction being the sale of two West Park properties in Pruszków and Ożarów Wrocław for EUR 55 million. The buyer was Hillwood, and the seller was DWS. Since the beginning of the year, agreements worth a total of EUR 138 million have been signed, a 12% decrease compared to the same period last year.
