Domestic investors hold only a 2% share in the Polish real estate market, compared to 60% in the Czech Republic. This is partly due to the lack of legislation in Poland that would allow local individual and institutional investors to invest capital in commercial real estate, such as REIT funds that are successfully used in the US and Europe. There are renewed hopes for the introduction of REITs after the promise made by Finance Minister Andrzej Domański, who declared that his office is ready to actively participate in the discussion about this concept. Experts emphasize the introduction of Polish REITs would help quicker reactivation of the Polish commercial real estate market after a period of slowdown.
“Everyone hopes that the year 2024 will be better for the Polish transactional market than the last one. We can already see the first signs of such activity. We still have some time before experiencing investors from the United States and Western Europe, but we observe the activity of investors from Central Europe, Eastern Europe, and Scandinavia. We hope that this trend will get stronger,” says Katarzyna Kopczewska, partner in charge of the Baker McKenzie Tax Practice, as she speaks to the Newseria Biznes agency.
Real estate firm Savills points out that the Polish commercial real estate industry faces the challenge of returning to high investment activity in the face of continuing instability, which leads to investor caution. This factor is partly responsible for the past year’s poor performance for the industry; as reported by Cushman & Wakefield, the volume of investments in the Polish commercial real estate market decreased by as much as 68% y-o-y to the value of 1.8 billion euros, the deepest decline in the entire CEE region. This was due to the specificity of the Polish market, where foreign capital is responsible for over 90% of the transaction value. Last year, investors held back their decisions because of geopolitical uncertainty, economic instability, and high financing costs.
“Polish capital also has an appetite for investing in commercial real estate. Over the past year and a half, we have observed such activity, which comprises private investments,” says Katarzyna Kopczewska. “Certainly, the number of such investments would increase with the introduction of legal frameworks or an investment platform such as Real Estate Investment Trust, which would lower the entry threshold to the market and allow Poles to invest more widely in the Polish commercial real estate market.”
Poles want to invest in properties, which they perceive as safe and attractive capital investments – according to data from the National Bank of Poland, in 2022, as much as 70% of apartments were purchased for investment purposes. However, in the case of commercial properties, the share of Polish capital does not exceed a few percents.
The introduction into Polish law of Real Estate Investment Trust (REIT) could change this situation – mutual funds enabling individuals to invest in commercial properties that ensure participation in rents paid by tenants. REITs have been successfully functioning for years in the US, the UK, Finland, Sweden, Germany, and neighboring Czech Republic, allowing local investors to hold several dozen percent share in the transaction market. For example, in the Czech Republic and Germany, local investors account for 60% of the invested capital, e.g., in offices or warehouses. In Romania and Hungary, the proportion is around 45%. In Poland, even though the local commercial real estate market is twice as big as that in the Czech Republic, the share of local investors does not exceed 2% (CBRE data).
The idea of introducing REITs regularly resurfaces in Poland. A few years ago, work was underway on legislation that would bring them to life, but it was eventually abandoned. Now, investors’ hopes have been revived by the announcement made by Finance Minister Andrzej Domański who, in February, declared that his office is ready to actively participate in the discussion about this concept. Experts stress that the introduction of Polish REITs would help reactivate the Polish commercial real estate market faster after a period of slowdown.
“It is particularly needed now as local capital is the first to return to the market and improve its liquidity after a crisis,” says the co-director of the Baker McKenzie Tax Practice.
Analysts estimate that despite a temporary slump, the Polish real estate market has solid foundations. Therefore, in light of the expected improvement in key macroeconomic indicators expected this year, the year 2024 should show signs of a rebound. As financing costs decrease, the gap between the pricing expectations of buyers and sellers should reduce, which would translate into a gradual increase in investment volume. On the other hand, geopolitical negatives this year will continue to impact the real estate market, so investors may continue to be cautious, waiting for stabilization that would reduce transaction risk.
“We hope for new legal frameworks allowing collaboration between private investors and government agencies or local authorities to increase the supply of affordable rental apartments. However, in Western Europe, the obvious and noticeable trend is ESG, which includes, among other things, revitalization of buildings, changing the existing urban fabric,” says Katarzyna Kopczewska.
In a recent report (“CEE Investment Market Outlook 2024”), Cushman & Wakefield indicates that sustainable development and ESG factors are becoming crucial in the context of investment attractiveness. Savills also points to this, stating that in the coming months, “value-add” properties will be targeted by investors, that is those with potential for value increase through active management in both the rental area and modernization, reconstruction, or changing the use function.
