Between January and June 2023, investors spent more than EUR 800 million on Polish commercial real estate - four times less than a year ago. Investment volumes in the second quarter remained under strong pressure from interest rate hikes and rising treasury bond yields across Europe. The Polish investment market was dominated in the last six months by industrial and logistics transactions, with Poland among leading European countries by the number of new development projects breaking ground in this sector.

According to the latest report from BNP Paribas Real Estate Poland on investment activity on the Polish commercial real estate market, investment volumes for the first half of the year reached almost EUR 801 million, down by 74% from the same time in 2022. In addition, transactions closed between April and June accounted for only 19% of that year-to-date total. The deal count was down by around 43% compared to the first half of last year, marking a more modest fall.

This data reflects pressure on investors from interest rate hikes across Europe and rising treasury bond yields. These trends are among the key reasons why investors remain cautious about purchasing assets, especially office stock.

Investors are focusing primarily on value-add projects allowing for above-average returns through repurposing or repositioning, reveals the report.

BNP Paribas Real Estate Poland also notes that the interest rate hike cycle across Europe is unlikely to end any time soon and the current economic trend for commercial real estate is not expected to reverse until early next year.

Looking ahead, commercial real estate trading is likely to be boosted, among other things, by a recovery in new office supply that is expected to take place once yields - which moved out again by 0.25 pp over the quarter for most asset classes - stabilize.

A mismatch of pricing expectations of vendors and buyers has resulted in a substantial price gap on the market. “Despite rental growth, property owners are struggling to maintain capital values and to exit investments with satisfactory returns as yields continue to move out at a rapid pace,” says Marta Gorońska-Wiercioch, Associate Director, Capital Markets, BNP Paribas Real Estate Poland.

The industrial and logistics sector continued to perform strongly throughout the first half of the year while benefiting from the ongoing reorganization of global supply chains. According to BNP Paribas Real Estate, this segment’s recovery to high trading volumes is likely to outpace growth for other asset classes. “We expect prices for most asset classes to stabilize by the end of the year, which should improve the chances of a swift price discovery and become a catalyst for new transactions,” says Marta Gorońska-Wiercioch.

Interest rates

Prime real estate yields moved out on average by 1 pp year-on-year, with the strongest growth of 1.5 pp recorded for shopping centres.

This trend could be reversed by putting a quick end to the interest rate tightening cycle across Europe - a move not expected until late 2023,” says Bolesław Kołodziejczyk, Business and Data Director, Business Intelligence Hub & Consultancy, an expert with responsibility for market analyses and research and strategic consulting.

On the positive side, investor confidence in the Polish economy remains strong, which is an additional stabilising factor for Poland. According to the latest data from the National Bank of Poland, foreign direct investment (FDI) in Poland rose by 3.8% in 2022 to EUR 25.43 billion.

Office and retail transactions

The office sector is rather unlikely to repeat its record performance from 2022 as only eight office buildings changed hands in the first six months of 2023, accounting for 53% of all the transactions finalised in the same period in 2022. The office investment volume in the year to date reached EUR 190 million - four times lower than the figure posted in the first six months of 2022, excluding last year’s remarkable deal: Google’s acquisition of The Warsaw HUB for EUR 585 million. All the transactions of the first half of the year were completed on the Warsaw office market, the largest being the acquisition of Wola Retro by Adventum International for almost EUR 70 million.

In the six months to June 2023, the Polish retail investment market was dominated by low-value deals, with an average transaction size amounting to EUR 23 million. The largest was the acquisition of the Matarnia Retail Park in Gdansk for EUR 105 million by French real estate investor Frey. Retail investment performance in the second quarter of 2023 was comparable to that posted in the same period last year, while the total transaction volume in the year to date climbed to just under EUR 175 million, accounting for 22% of the figure for the first half of 2022.

Industrial and logistics

The industrial and logistics sector, which turned over more than EUR 436 million in the six months to June, outperformed. It is worth noting that 92% of that total is attributable to transactions finalised in the first quarter of the year.

The most active market player in the first half of the year was Panattoni, which sold assets to investors in transactions accounting for 81% of the total investment volume. A recent headline deal was P3’s sale of Campus with an area of 185,000 sqm in Wrocław for EUR 138.5 million.