This year, we can observe a decrease in investor activity in the commercial real estate sector throughout Europe. The value of the investment volume in the first quarter of 2023 decreased in Poland by over 60 per cent year-on-year, and in some Western European markets by as much as 90 per cent. The Polish market boasts higher rates of return than those offered by Western Europe and still compares favourably with European markets. According to Walter Herz, investors are looking for opportunities in the Polish commercial real estate market.
"Changes in the global economy and expensive project financing slowed down the activity of the largest international players. The money market has changed dramatically. High financing costs mean that funds cannot count on optimal profits when buying core real estate. In the case of these assets, the price expectations of the owners and potential buyers are very divergent. Hence, less interest in prime real estate and large investment entities waiting for the stabilization of interest rates, and thus capitalization rates that would reflect their level. The biggest players have adopted a waiting strategy. The instability of the financial markets increases the downward pressure on asset valuations. In the current conditions, the American market offers investors greater opportunities than the real estate market in Europe", says Bartłomiej Zagrodnik, Managing Partner, CEO of Walter Herz.
"In 2022, one-third of investors active in Poland came from the United States, and the next largest group was capital from Western Europe. – In 2023, entities from the US are still relatively active, while the interest in investing shown by Western European companies, especially from Germany, has significantly weakened. The Polish market attracts new, local players from the CEE region, who focus on warehouse and office assets. Among the entities that are now buying in our country are Investika and Trigea from Czechia as well as Indotek and Adventum from Hungary. New players are emerging, such as Eika Asset Management fund and Lords AB from Lithuania. In addition, new capital is flowing to Poland from the Baltic States and Scandinavia", says Katarzyna Tencza, Associate Director Investment & Hospitality at Walter Herz.
Primarily opportunistic purchases
Real estate is now purchased mainly by entities that invest their own funds and companies that have the opportunity to obtain financing from a bank. Bartłomiej Zagrodnik notes that many investors in our market are looking for opportunities. – Investors are focused on opportunistic purchases. However, there are no sales transactions that the owners are forced to make due to pressure and financial difficulties. Investors from the region of Central and Eastern Europe, who have now replaced investment entities from Western Europe, do not aim at portfolio purchases, but are looking for individual properties that can be invested in and quickly increase their value and profitability – says Bartłomiej Zagrodnik.
In the first three months of 2023, investors placed the most capital in Poland in real estate from the warehouse sector. The commercial segment and office buildings in Warsaw were also successful. Most of the invested capital came from Central and Eastern European countries. Players from the US and capital from the Middle East had a much smaller share of the investment volume.
In the first quarter of this year, the industrial and warehouse sector more than doubled the investment volume in a y/y comparison. The assets from the primary market, located mainly in the western part of the country, were the most popular. Among the sellers in this market segment, Panattoni still maintains its leading position. At the beginning of this year, the largest warehouse transaction was the sale of Panattoni Campus in Wroclaw measuring 184 thousand sqm. It was purchased by P3 for €138.5 million.
In the office sector, in the first quarter of this year, Eika Real Estate Fund, a Lithuanian fund making its debut on the Polish market, represented by Eika Asset Management, purchased the Celebro building in Warsaw from White Stone company. Eika's portfolio consists of diversified real estate in various segments located mainly in Lithuania, but the investor is now expanding to other markets of Central and Eastern Europe.
"Transactions in the retail sector in the first months of 2023, were dominated by opportunistic purchases of single, small facilities, the largest acquisition being the sale of Atrium Molo Szczecin by G City Europe for €46.3 million. This year, regional retail parks were in demand, as they allowed for an increase in value after additional investment. ‘The hotel sector is also looking for value-add assets located in the largest Polish agglomerations, but the market does not offer many properties of this type", says Katarzyna Tencza.
Warehouses are still dominating
In the second quarter of this year, the warehouse sector continues to be the most popular among investors. Panattoni has finalized the sale of a 33 thousand sqm. logistics centre in Uniejów, which is the fourth facility within the campus to be acquired by LCN Capital Partners, a private equity investor operating in Europe and North America, with whom Panattoni has been cooperating for years. In April, LCN Capital Partner also purchased a 30 thousand sqm. BTS production and warehouse facility developed by Panattoni in Tczew.
The Scandinavian NREP fund is preparing to take over shares in 7R. In this case, an application was submitted to Office of Competition and Consumer Protection. The investor plans to strengthen its position on the Polish industrial and logistics real estate market. Nordic Strategies Fund V Limited Partnership, based in Luxembourg and owned by NREP, is planning to take control of 7R, which has completed 1.8 million sqm. of warehouse space in large-scale logistics parks throughout Poland and urban warehouses under the 7R City Flex brand. Our country is the first market outside Scandinavia to be entered by NREP.
In the office sector, at the end of April, Develia signed a contract for the sale of the Wola Retro office building in Warsaw for €69.3 million with WR Office, owned by an investment fund managed by Adventum Group.
On the retail market, JWG Invest purchased four retail facilities from an international investment fund - Stara Cegielnia in Szczecin, Galeria Kosmos in Koszalin, OK Centrum Wałbrzych and OK Centrum Strzegom.
Experts predict that the value of transactions this year will be much lower than last year (€5.8 billion). The main challenges of the investment market are the rising costs of financing and increasingly restrictive conditions for granting loans, the mismatch of price expectations of buyers and sellers and the spectre of an economic slowdown on a global scale.
