Geopolitical Factors Constrain Poland’s Investment Market

Navigating Poland’s Investment Market: A Comprehensive Analysis by BNP Paribas Real Estate Poland

BNP Paribas Real Estate Poland has released their latest insights on the investment market in Poland, shedding light on the challenges and opportunities faced by investors. Despite a stable economic outlook within Poland, global geopolitical tensions and elevated interest rates across Europe are impeding a swift recovery in commercial property trading and large-scale transactions.

The commercial real estate (CRE) sector in Poland experienced a decline in liquidity, as confirmed by last year’s results.

The total transaction volume in the Polish commercial real estate market for 2023 reached approximately €2.09 billion, a figure reminiscent of levels seen back in 2010. This decline can be attributed to the tightening of monetary policies and significant yield decompression across Europe.

These factors compelled some investment funds to halt allocations to commercial real estate, seeking refuge in alternative assets. Moreover, the investment landscape was profoundly influenced by ongoing geopolitical tensions.

Mateusz Skubiszewski, Head of Capital Markets at BNP Paribas Real Estate Poland, remarked on the market dynamics. He highlighted that by the close of 2023, most European bond yields were in descent. However, the eruption of conflict in the Middle East, a crucial oil supplier, coupled with concerns over escalating energy prices and renewed inflation fears, cast a shadow over the market’s prospects.

Consequently, the economic outlook in Europe remains uncertain, with the specter of impending interest rate hikes looming large. Despite these challenges, the economic forecasts for Poland in 2024 appear promising, with projections indicating a reduction in the average annual inflation rate to 5 percent, marking a significant decrease of 6.6 percentage points compared to the previous year.

The prevailing conditions have posed significant hurdles for investors navigating the Polish commercial real estate market. The confluence of global geopolitical uncertainties and regional economic factors has led to a cautious approach among investors, with many opting to reassess their investment strategies.

The allure of commercial real estate has been diminished amidst the backdrop of elevated interest rates and volatile market conditions. As a result, investors are exploring alternative avenues to deploy their capital effectively.

In light of these challenges, stakeholders in the commercial real estate sector are urged to adopt a prudent and adaptive approach. Flexibility and agility are essential attributes for navigating the evolving market landscape. Despite the prevailing headwinds, there are pockets of opportunity within the Polish commercial real estate market. Astute investors who demonstrate resilience and foresight stand to capitalize on these opportunities, leveraging market dynamics to their advantage.

Looking ahead, the trajectory of the Polish commercial real estate market will be shaped by a myriad of factors, including geopolitical developments, monetary policies, and economic indicators. While uncertainties persist, proactive measures and strategic decision-making will be pivotal in unlocking value and driving growth in the face of adversity.

As the market continues to evolve, collaboration and innovation will be instrumental in charting a path towards sustainable success in the Polish commercial real estate landscape.

The conclusion of the previous year saw a moderate uptick in economic growth, but the forecast for 2024 appears notably optimistic.

During the fourth quarter of 2023, investment deals surged, constituting just over 18 percent of all transactions. The warehouse and industrial sector emerged as the frontrunner, commanding 46 percent of Poland’s total investment volume, closely trailed by retail assets at 21 percent.

Notably, the office investment sector witnessed a decline, capturing only 21 percent of the total transaction volume, a significant deviation from the 2020-2022 average of nearly 35 percent. This shift reflects the disparity between the expectations of buyers and sellers regarding pricing.

Unlike previous years, prime office deals were absent, with opportunistic purchases of older buildings dominating investment activity. Looking forward, there are looming challenges concerning Commercial Real Estate (CRE) loans maturing within the next three years, which could pose a significant hurdle for the European market.

The projected debt financing gap for the European property market between 2024 and 2026 exceeds €90 billion, with over 45 percent allocated to the office sector, as highlighted by Marta Gorońska-Wiercioch, Associate Director of Capital Markets at BNP Paribas Real Estate Poland.

Despite these challenges, Poland’s leasing market remains stable, experiencing relatively lesser repricing compared to its European counterparts. Consequently, most investors and the banking system in the country are not expected to encounter substantial difficulties in refinancing CRE loans. Moreover, there’s anticipation of interest rate cuts within the eurozone in 2024, a move poised to stimulate investor interest in commercial real estate assets.

Interest rates play a crucial role in shaping key investment transactions across various asset classes. Analyzing end-of-year data reveals a notable shift in yields for these assets, with an average increase of 1 percentage point. Among these assets, office properties, once prominent drivers of the investment market, experienced the most significant challenge in 2023, facing a sharp decompression of 1.25 percentage points due to rapidly softening yields.

The impact of this trend on the office sector was evident, with a mere 18 office buildings changing ownership, either partially or entirely, throughout the year. This subdued investment activity is underscored by the total office investment volume, which plummeted to nearly €430 million, marking a drastic fivefold decrease compared to the previous year.

Notable among the limited transactions was the acquisition of Mokotów Nova by M&A from the UK-based Tristan Capital, a deal valued at approximately €75 million, standing out as one of the largest transactions in 2023.

In contrast, shopping centers demonstrated greater resilience to fluctuating interest rates, with retail yields softening by 0.75 percentage points to 6.25 percent. The retail investment volume in Poland for 2023 exceeded €430 million, indicating sustained investor interest.

Particularly noteworthy is the fact that the average size of traded schemes stood at 14,500 sqm, with over 74 percent of transactions involving assets valued at under €20 million. This suggests a distinct focus among investors on smaller retail formats in regional cities. Notable among these transactions was the sale of Galeria Tarnovia for €12.5 million, marking the largest deal of the fourth quarter in 2023.

Meanwhile, warehouse and logistics assets emerged as the top-performing sector for investment during the same period. These assets recorded an impressive volume of deals, totaling almost €966 million and constituting 46 percent of the total transaction volume for 2023. The fourth quarter alone witnessed seven significant transactions, with the acquisition of Panattoni Park Janki II in Pęcice by GLP for approximately €31 million being among the notable deals.

However, the headline deal in this sector was NREP’s acquisition of an 80 percent stake in the Polish real estate developer 7R, valued at around €200 million, underscoring the robust performance of warehouse and logistics assets amidst changing market dynamics.

Jann Confield
Jann Confield
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