Poland has maintained its dominant position in the investment market in Central and Eastern Europe with the highest diversity and liquidity of products and diversity of investors. Demand remained high in all sectors, but office transactions were clearly dominant.
The total value of investment transactions in the first half of 2019 amounted to around €2.58 billion, which is the second-highest performance after the remarkable H1 2018. Market liquidity was high with 75 assets sold in 57 transactions.
“Most of the investments were made in office assets – over 60% of the total turnover (€1.62 billion). Second place was taken by the retail market (18%), with a value of €0.45 billion, followed by warehouses (14%, approx. €0.36 billion) and new, alternative asset classes, such as hotels and student dormitories (6%), in which a record €150 million was invested,” says Piotr Mirowski, Senior Partner, Director, Head of Investment Services at Colliers International.
Noteworthy, was the closing of the first investment transaction for student accommodation in Central and Eastern Europe. An institutional investor from Japan acquired from Oaktree a majority stake in Student Depot, which operates 2,000 beds in five Polish cities. The transaction was valued at around €60 million.
Over a billion euros in Warsaw
Warsaw still remains the most popular market for investors in Central and Eastern Europe, with €1.17 billion invested in the city in the first half of 2019. At the same time, the capital has strengthened its position as a key location for office investments, attracting new domestic, European and international investors. 25 office buildings were sold within 19 transactions in the city for a total of €1 billion, which constitutes a new record for a six-month period. The main contracts include Mapletree taking over the West Station complex from HB Reavis for around €190 million, the sale of Globalworth Warsaw Trade Tower for around €133 million and the purchase of the Ethos office building in Warsaw for €115 million by Credit Suisse.
Regional markets in Poland generated €1.42 billion in closed deals (55% of the national total), highlighting the ongoing appetite for quality product and yield premium over Warsaw. Investors from the Far East continued their expansion in the regions. In the two largest transactions in the office market, ISOC Holding expanded its portfolio by acquiring Business Garden Wrocław from the developer Vastint for around €95 million and Argon (the third phase of the Alchemia complex) in Tri-City for around €92 million from Torus.
American and British capital as the main engine
In the first half of 2019, capital continued to be deployed by US and UK-based investment managers, Germany-domiciled funds and selected buyers from the Republic of South Africa. Poland is enjoying a new wave of institutional and family office capital from Asia with around €0.5 billion invested in H1 2019 by investors from South Korea, Singapore and the Philippines.
Lower rates of return
Further yield compression continued during the last 12 months across all asset classes (though selectively for retail, where only core product enjoyed capital appreciation). Prime office yields for Warsaw’s city centre decreased from 5.2% to 4.5% y/y while in two major regional markets (Wrocław and Kraków) from yields decreased from 5.9% to 5.5%.
BTS, prime logistics assets with long-leases with investment-grade covenants are now expected to trade below 5% with 6.5–7.5% for traditional ones.
Optimistic prognosis
Experts from Colliers International expect that capital inflow will increase in H2 2019. “There are a number of transactions in due diligence, under negotiations and marketing with a view of closing by the end of the year, in particular in the office sector. Commercial real estate alternative assets classes (e.g. student accommodation, rental apartments) will continue to generate increased interest,” predicts Marcin Mędrzecki, Associate Director, Investment Services at Colliers International.
Pricing is expected to remain firm with further yield compression for prime office buildings in Warsaw City Centre and regional cities, such as Wrocław, Kraków, Poznań and Gdańsk.
