Polish investment market in 2023 remained under pressure from the geopolitical backdrop and high interest rates

According to experts from BNP Paribas Real Estate Poland who released “At A Glance – Investment Market in Poland, Q4 2023”, Poland’s economic outlook remains stable but the global geopolitical situation and high interest rates across Europe continue to hamper a quick rebound in commercial property trading and large-scale transactions. Last year’s results confirmed a fall in liquidity for the CRE sector in Poland.

Investors facing many challenges

According to the latest report from BNP Paribas Real Estate Poland on investment activity on the Polish commercial real estate market, 2023’s total transaction volume reached nearly EUR 2.09bn - a level last seen in 2010. This was the result of the tightening of monetary policies and strong yield decompression across Europe, forcing some investment funds to freeze allocations to commercial real estate and to look for alternative assets.

The investment market was also significantly impacted by the geopolitical situation.

“By the end of 2023 most European bond yields were on a downward trend, but the outbreak of the conflict in the Middle East, which is a major oil supplier, and the fear of rising energy prices and renewed inflation worries were unfavourable for the market. Consequently, the European economic outlook remains uncertain and the spectre of interest rate hikes is still looming. However, 2024 economic forecasts for Poland look promising, with the country’s average annual inflation rate expected to fall to 5% (down by 6.6 pp relative to last year),” says Mateusz Skubiszewski, Head of Capital Markets, BNP Paribas Real Estate Poland.

Last year ended with moderate growth but the outlook for 2024 is positive

The fourth quarter of 2023 accounted for just over 18% of all investment deals. The warehouse and industrial sector was the top performer with a 46% share in Poland’s total investment volume, followed by retail assets with 21%.

The delta between buyers’ and sellers’ pricing expectations was reflected in last year’s office investment that accounted for only 21% of the total transaction volume compared to the 2020-2022 average of nearly 35%.

“In contrast to previous years, there were no prime office deals, with opportunistic purchases of older buildings dominating investment activity. Looking ahead, CRE loans maturing in the next three years are likely to be a major challenge for the European market. The debt financing gap for the European property market in 2024-2026 is estimated at over EUR 90bn, of which over 45% will be for the office sector,” adds Marta Gorońska-Wiercioch, Associate Director, Capital Markets, BNP Paribas Real Estate Poland.

In Poland, where the leasing market remains stable and relatively less repricing has taken place compared to other European countries, most investors and the banking system are unlikely to experience difficulties with refinancing CRE loans. In addition, eurozone interest rates are expected to be cut in 2024, which should stimulate investor interest in commercial real estate.

Interest rates and key investment transactions

End of year data shows that yields for key assets moved out by 1 percentage point on average. Offices which previously were one of the main driving forces of the investment market proved least resilient to rapidly softening yields in 2023 and posted the strongest decompression of 1.25 percentage points, according to the report.

In 2023, only 18 office buildings changed hands - either partially or fully. The subdued investment activity in this sector is also reflected in the total office investment volume, which reached nearly EUR 430m, more than a fivefold decrease year-on-year. One of last year’s largest transactions was the acquisition of Mokotów Nova by M&A from the UK-based Tristan Capital for approximately EUR 75m.

Shopping centres proved most resilient to changing interest rates, with retail yields softening by 0.75 percentage points to 6.25%. 2023’s retail investment volume in Poland surpassed EUR 430m. Interestingly enough, the average size of schemes traded was 14,500 sqm and over 74% of all transactions were for assets under EUR 20m, an indication of investors’ focus on smaller retail formats in regional cities. The biggest deal of the fourth quarter of 2023 was the sale of Galeria Tarnovia for EUR 12.5m.

Warehouse and logistics assets were the top-performing sector for investment last year. They recorded almost EUR 966m of deals, accounting for 46% of 2023’s total transaction volume. The fourth quarter saw seven transactions take place, the largest being the acquisition of Panattoni Park Janki II in Pęcice by GLP for approximately EUR 31m. However, this sector’s headline deal was NREP’s acquisition of an 80% stake in the Polish real estate developer 7R for around EUR 200m.