At the end of the first half of 2024, the investment market rebounded, reaching a transaction volume of €1.8 billion, which is double the year-over-year value. In the office market, several transactions finally appeared in regional cities, and in the retail sector, the largest transaction since Q1 2022 was finalized. The warehouse sector, on the other hand, is still waiting for large transactions. Hotels are enjoying increased popularity, and in the residential segment, 5 transactions were closed in Warsaw, says Avison Young.
Q2 2024 showed the eagerly awaited signs of market acceleration, which allowed analysts to look to the future with greater optimism. The market finally noticed the decline in interest rates, which may anticipate a further decrease. This is a signal for the return of more affordable financing, which is likely to stimulate investor activity.
By the end of H1 2024, the investment market rebounded, achieving a transaction volume of €1.8 billion, which is double the year-over-year figure. The two largest transactions, involving the CPI and Cromwell portfolios, concluded in Q2 and accounted for 45% of this result. Moreover, the office investment market finally saw several deals in regional cities and the retail sector recorded the largest transaction since Q1 2022. The industrial sector keeps awaiting large deals. The hospitality sector has regained attractiveness and 5 residential transactions were closed in Warsaw.
As the interest rates begin to decline, the market can expect to operate at its full capacity in the next 12 months. Therefore, those who are well-prepared, having thoroughly analysed the market and identified promising assets, will be poised to capitalize on the current situation.
Offices: finally, prime transaction to come
Investors continue to focus on office assets in the capital city, as evidenced by the largest transaction in the first half of 2024 - the sale of a portion of CPI shares to Sona Asset Management. This transaction is also the most significant in the Polish investment market since Q3 2022.
"Interestingly, 6 out of the 22 closed office transactions pertained to regional office markets, including the acquisition of Krakowska 98 in Wrocław, which was brokered by Avison Young. “This is a considerable shift, as recently the majority of transactions were seen in the Warsaw office market. Well-performing office properties in secondary cities present a solid investment opportunity while underperforming assets are attractive due to their location and pricing”, comments Marcin Purgal, Senior Director - Investment at Avison Young
Most deals occurring are still due to value-added and opportunistic assets, indicating a strong domination of investors who are prudent in their approach and seek out opportunities without overpaying for assets. But, like we recently predicted, the market also saw – finally! - a prime office purchase in the city centre office area to be closed in Q3 2024. Having in mind that the ECB has cut interest rates, for the first time in 5 years, it constitutes a promising forecast for core capital which should activate and increase investment activity.
“Despite the domination of the Warsaw office market, the growing investor interest in regional cities is evidenced by the increase of such deals in H1 2024, as well as ongoing discussions between sellers and buyers. We are aware of at least a few deals which are now in the last stage of the transaction process”, adds Purgal.
Retail: strong debut from the CEE region
The retail sector represented nearly 30% of the transaction volume in the first half of 2024, primarily driven by the significant sale of the Cromwell 6 shopping centres portfolio, acquired for €285 million. This deal stands as the largest retail investment transaction since Q1 2022, when 50% of shares of EPP portfolios were sold. Notably, the retail sector has once again attracted new investors to the Polish market, specifically Star Capital Finance from Czechia as the buyer. This transaction further highlights the strong activity of CEE investors in our market.
Additionally, a portion of the CPI portfolio, including SC Ogrody in Elbląg and Galeria Orkana in Lublin, was divested to Sona Asset Management. Besides the portfolio sales of shopping centres, two single transactions of this asset type were recorded: one in Nowy Sącz and another involving a 50% stake in Centrum Ursynów sold by Cromwell. As a result, the retail investment market was predominantly composed of gallery transactions. However, retail parks accounted for 21% of the volume and constituted 50% of closed deals. Avison Young's investment team brokered over 30% of the volume in the retail park and convenience subsector.
“Interest in Polish retail parks remains robust, with over 20 investors actively seeking opportunities in this segment. The main challenge is identifying properties that satisfy both affordability and quality criteria. The most desirable retail parks are newly constructed, located in major cities, and anchored by a grocery store tenant secured by a long-term lease", comments Artur Czuba, Associate Director - Investment at Avison Young
Industrial: limited scale due to the price imbalance
In 2024, a slowdown in the warehouse market is still visible. In H1 2024, the industrial sector saw 12 closed deals, totalling €294 million, which is a drop of 33% y-o-y. The biggest transaction recorded was the acquisition of Panattoni Park Poznań XI in Żerniki, while the divest of two Warsaw West Parks by DWS to Hillwood was the only portfolio deal recorded in the analysed period. Moreover, 9 out of 12 deals took place in the so-called ”big five” industrial hubs.
The decrease in investment volume is mainly due to the lack of large portfolio transactions, resulting from – among others – still high financing costs and ongoing process of pricing adjustments between vendors and purchasers. A reduction in interest rates in the Eurozone and potentially in the United States will likely stimulate active purchases in the warehouse sector. Additionally, the stabilization of prices in Western Europe could further motivate foreign funds to invest in Poland and the CEE region, especially for investors seeking attractive price levels.
“We anticipate a resurgence in the acquisition of larger warehouse portfolios by investors aiming to quickly scale up in the sector. However, finalization of the first significant transactions is expected towards the end of 2024 or the beginning of 2025”, comments Bartłomiej Krzyżak, Senior Director - Investment at Avison Young.
PRS: increasing scarcity of residential land in large cities
By mid-2024, the number of PRS developments in Poland exceeded 120 projects, of which 73% were completed and the remaining 27% are under construction. Nearly ¾ of the projects analysed are located in areas covered by binding local master plan (MP).
Due to the increasing scarcity of residential land in large cities, investors are more often opting to build PRS facilities on commercial-designated plots whose location is attractive for housing. The purchase prices of commercial-designated plots are usually lower than those of the ones with residential zoning, which makes them an interesting alternative for PRS investors. In addition, they do not have to compete with typical residential developers when acquiring such land. However, a PRS investment on commercial land, despite cheaper plots, once the facility is developed and commercialised, involves a VAT charge on rental income, which affects the initial yield.
The residential investment market recorded 5 transactions closed in H1 2024 which amounted to approx. €130 million. All acquired properties are located in Warsaw. The major one is the Heimstaden Wschodu Słońca project with 400 PRS units, which was developed by Dantex based on forward funding. Avison Young Technical Advisory team supervised the construction progress of this biggest completion set up in 2024.
What awaits us in the second half of the year?
Poland still remains an economically stable and strong market, providing good conditions for real estate investment. This is well seen by European market players and so we have already welcomed newcomers to Poland.
Based on Avison Young's projects and discussions with other market participants, the analysts observe that numerous properties across various sectors are currently in the bidding, due diligence, or even finalization phase. These are mostly not large-scale or spectacular projects, but AY expects bigger transactions to appear on the market later this year.
Observing current market activity, the agency remains optimistic about the number of transactions and hopes that the investment volume in 2024 will significantly surpass that of 2023, signalling growth in the subsequent years.
