The first half of this year saw an absolute record-breaking result in the history of the Polish investment market in the warehouse segment. For the office sector, it was the second-best six months in history in terms of transaction value. Despite the turmoil caused by COVID-19, total transaction volume in the commercial real estate sector in Poland in the first half of this year was even higher than the excellent result from the same period in 2019, according to Walter Herz.
“Exceptionally large deals were finalized in the first six months of the year. One of them was the sale of the majority stake in GTC with assets located all over Poland. Their purchase from Lonestar by Optima accounted for as much as 15 per cent of the total transaction volume recorded in the first half of this year in Central and Eastern Europe. Our country is a leader on the investment market in the region. The investments planned by Microsoft and Google will certainly contribute to reinforcing the leading position, as they will revolutionize our digitization market and will allow Poland to become a strategic partner in the CEE area,” says Bartłomiej Zagrodnik, Managing Partner/CEO at Walter Herz.
The largest contracts signed in the first half of 2020 in the office sector included, among others, Skanska's sale of Krakow's High Five 4 & 5 to Credit Suisse, Warsaw's Wola Center building by LC Corp to Hines, and Kracow's Equal Business Park complex through Cavatina to Apollo Rida. The result of the office segment was also significantly influenced by the above-mentioned purchase of the majority of shares in GTC by the Hungarian Optimum Ventures Private Equity Fund, where the portfolio included office buildings and shopping centres. Moreover, CPI Property Group has finalized 5 new acquisitions. The Group's portfolio gained such office buildings as Green Corner A, Equator II, Equator I, Moniuszki 1A and over 50 per cent of shares in Chałubińskiego 8 office building.
Return to negotiations
Repeating the record result achieved on the investment market in Poland last year will depend on many factors. Nevertheless, it is not impossible. The COVID-19 slowdown halted negotiations in the second quarter of this year, the consequences of which will certainly be visible in the second half of the year. Currently, however, we are observing a resumption of activity on the part of investors, which translates into a growing number of initiated transaction processes, the finalization of which will be possible this year, if new restrictions related to the virus do not appear in autumn. It is also a condition for returning to negotiating postponed transactions.
Meanwhile, positive spirits are visible in business. Poland attracts new investors. Half of the volume of investments finalized in the first six months of this year is for new entities that have not been previously invested in the country. Capital flows in from countries such as the Czech Republic, France and Hungary, as well as from distant corners of the world, such as Lebanon, Singapore and South Africa.
The warehouse sector attracts investors' attention
Investors are still primarily focused on offices, but the results recorded in the logistics real estate sector show that the interest of global entities is now shifting to this class of assets as well. This is not a surprise, because we have already observed this phenomenon recently, and the pandemic has only increased it. The growing interest in warehouses is related to the extremely rapid increase in the share of the e-commerce sector in retail and producer’s endeavour to shorten supply chains. A further increase in the number of transactions related to this segment can be expected in the upcoming months.
The exceptionally high result in the transaction volume in the first 6 months of this year, which included the share of the warehouse sector, was due to large portfolio transactions, corporate acquisitions and acquisitions of shares in investment platforms, such as Goodman selling real estate located in the CEE region to GLP and the transfer of shares in the European Logistics Investments platform managed by Griffin from Redefine Properties to Madison International Realty.
Also, the purchase of 40 warehouse facilities was finalized, the largest of which was the sale of the portfolio of five Panattoni properties to Savills Investment Management, Hines distribution parks to CGL and the sale of facilities managed by Apollo to GIC. As well as the sale of P3's Park Mszczonów to Elite Partners Capital, and the purchase of an investment platform established by REINO Capital, IO AM and the Grosvenor Group of the Logistic City Piotrków Trybunalski logistics centre by Polish Logistics LLP.
It's getting harder to obtain financing
The result of the boom in e-commerce in recent months is also an increased interest in plots for logistics investments. Developers with financial surpluses are also looking for land for office projects, despite the fact that banks are currently selectively approaching financing investments in the commercial real estate market. While loans are granted for warehouse and office projects, shopping centres and hotels have practically been excluded from financing. Banks also require a higher financial contribution, at the level of 40 percent, as well as a pre-let exceeding as much as 50 per cent.
Financing by banks, on the other hand, in the next few quarters will be crucial and will define the development market, including supply. The lower propensity of banks to finance may translate into slower growth in office resources, as a result of which the vacancy rate should remain at the current level or decrease.
In the upcoming months, an increase in the number of sale and leaseback transactions is very likely, which may become a rescue for entities in a more difficult situation. There is also a greater interest on the market in transactions, in which a specific share in a special purpose company is purchased or the seller provides Vendor Financing.
