Saying goodbye to 2022 means welcoming a year of uncertainty for the fourth time in a row. Two pandemic years, war in Ukraine, historically high inflation and the upcoming spectre of recession have forced the Polish investment market to cope with tough times, says Avison Young Poland
“Notwithstanding, 2022 results comparable to 2021 volumes, strongly confirm the resilience and solid foundations of the Polish investment market”, says Paulina Brzeszkiewicz-Kuczyńska, Research and Data Manager at Avison Young.
Contrary to 2021, this year’s volume was shaped by five historically large investment transactions, responsible for 40% of the total investment volume in 2022. Thus, the liquidity dropped by 27%, from 166 deals in 2021 (which was a record-breaking result) to 122 in 2022. Until the end of September 2022,
the total investment volume exceeded the analogous result of 2021 by over 20%. The fourth quarter brought €1.5 billion in transactions and 2022 closed with the result of over €5.8 billion.
After the domination of the industrial sector in 2020 and 2021 in terms of volume, 2022 brought back the office investment sector to the position of a leader. The office market saw equal transaction volumes both in Warsaw and on the regional markets. Convenience schemes dominated the retail investment transaction structure, while prime shopping centres in regional cities are back in the game. When it comes to the PRS sector, 7 transactions were closed, mainly in Warsaw.
Office sector: Warsaw and regional markets strike a balance
In the face of uncertain market conditions, many office investors turned to stable, core assets. Nearly 90% of €2.1 billion put in offices in 2022 went towards - core or core+ properties confirming investors’ attitude to choose low-risk strategies. Nevertheless, H2 2022 saw a sharp increase in opportunistic transactions, especially in Warsaw.
After the-clear domination of investment volume transacted on office buildings located in Warsaw in the last years, 2022 was characterized by regional markets’ bloom. Among 28 office transactions recorded in 2022, 19 regarded regional office markets. Nevertheless, the two most impressive and historical deals took place in Warsaw. The Warsaw Hub and Generation Park Y transactions accounted for 41% of the total investment volume in the office sector and 83% of the total investment volume was transacted within the capital city.
The increase in rents resulting from, among other things, indexation of rates and the rising operating costs are the impulses that in 2023 will force both tenants and landlords to optimise costs. “We expect that in the most liquid markets, including Warsaw, the best projects and well-established locations will continue to be of interest to investors, although yields may be decompressed”, says Marcin Purgal, Senior Director, Investment at Avison Young.
Industrial sector: Pricing clash ricochet
The industrial and logistics sector, the undisputed leader of 2021 responsible for over 50% of total investment volume, is now facing a considerable investment slowdown. Warehouse products are currently experiencing a pricing clash, which is the main subject of discussion. Investors haven’t forgotten about the industrial assets in Poland, however, they are offering lower pricing, while owners are trying to keep the value at the previous levels.
In 2022, the total investment volume in the industrial sector stood at €2.0 billion, which means a drop of over 30% compared to the previous, record-breaking year. As a consequence, the office investment market volume slightly surpassed the logistics sector results. In the end, industrial transactions amounted to 34% of the Polish investment market volume. The acquisition of the Danica industrial portfolio by CBRE IM from Hillwood was the second largest transaction recorded in the entire 2022, being responsible for 26% of total industrial volume. It was also the third biggest industrial portfolio deal in Poland in terms of volume. The logistics sector, just like the office and retail investment market, is characterised by a considerable shift to secondary hubs.
“A trend that can be noticed and will become stronger in 2023 and in the following years, is the growing demand for brownfield land in the largest agglomerations, due to continuous development of last mile logistics and the e-commerce market. It should be noted that in many cases investments in attractive brownfield projects may turn out to be a better solution than the purchase of the undeveloped but properly serviced plots”, comments Bartłomiej Krzyżak, Senior Director, Investment at Avison Young.
Retail sector: Shopping centres awaking from the slumber
2022 has brought shopping centres back on the table, which was in line with Avison Young forecasts. After the plunge in 2020, there were 12 large‑scale shopping centres transacted in the best locations in major cities in 2021. Those were all sold at attractive pricing with the opportunity to create value or for redevelopment. Interestingly, 2022 saw 6 deals for redevelopment purposes but – what is worth noting - also 4 transactions of regular shopping centres on the regional markets.
The biggest shopping centre transaction was the acquisition of Forum Gdańsk by NEPI Rockcastle for €250 million, which was the first such an impressive single-asset shopping centre deal since 2018. The investor has enriched its portfolio with the Atrium Copernicus shopping centre in Toruń. Moreover, among the shopping centres sold, there were also two Atrium malls in Płock. In 2022, the beginning and the end of the year were the most abundant in terms of retail investment volume, while Q2 and Q3 ranked in the third and second lowest place since 2016. The Q1 period was marked with the two EPP JVs, while Q4 was determined by the anticipated comeback of the regular shopping centres’ acquisitions.
Unsurprisingly, retail parks and convenience schemes are consistently sought-after by investors. In 2022, there were 43 retail transactions recorded on the Polish investment market, 65% of which were due to retail parks and convenience schemes. 3 newcomers who entered the Polish market in 2022, namely Leoff, Lords LB and BIG Shopping Centers, have been attracted by this particular product.
PRS sector: Basic needs as a safety net?
“The widespread uncertainty observed in the markets means that investors often focus their attention on projects centred around the basic needs, namely residential real estate and convenience retail projects. These two types of assets are on the radar of a growing number of investors, as they are considered the safest. Looking at the operations undertaken on the investment market from the perspective of the end of 2022, it seems that these segments will be even more popular in 2023, provided that the costs and strategies of financing investment projects adopted by banks do not prevent it”, says Michał Ćwikliński, Principal, Managing Director at Avison Young.
2022 closed with a volume of €150 million transacted, which is the highest result recorded in Poland. Among 7 PRS transactions, 5 projects were located in Warsaw. The largest transactions in terms of volume regarded the acquisition of over 60 apartments in Złota 44 and the purchase of Pereca 11 in Warsaw, as well as Trio in Cracow. Simultaneously, there are many ongoing PRS projects which have been the subjects of the forward funding agreements, which confirms the market’s dynamics.
Looking forward: It won’t be smooth sailing
The market is in a situation where everyone is expecting discounts and this applies, with some exceptions, to almost all property segments. Therefore, property buyers expect tomorrow’s price today, while sellers want to keep yesterday’s values. The latter talk about rising costs and increasing risks, while the former do not need to rush at all. In Poland, owners are not forced to sell for financial reasons. In the West, where a transaction could close within a month, cash can be recovered quickly to pay off pressing debts. In Poland, transactions take much longer to close, so there are no typical opportunities.
The first half of 2023 will still be marked by a slowdown in the investment market, as some buyers wait for discounts. However, according to Avison Young, the number of transactions should increase in the second half of the year. Interest rate levels affecting financing should stabilise, which will be reflected in balanced prices.
What is on demand among the investors? Buyers are cautious, so the safest bet is to buy flats and retail parks with convenience offer that meets basic needs. But there are also purchasers willing to buy warehouses, especially those well-located and secured by good leases, as well as office buildings in prominent locations. Lands for retail parks or good residential properties sold to institutional entities will remain interesting to investors.
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