Investor Interest in Poland’s Office Market Surges Amid Favorable Trends and Challenges

Amidst a backdrop of declining financing costs, steady upticks in rental values, and a growing familiarity with the geopolitical landscape, industry experts from Baker McKenzie suggest that the Polish office real estate market could witness a surge in interest from international investors compared to previous years.

However, this potential uptick in investment interest comes with its own set of challenges, particularly the pressing need to modernize older office structures to align with the demands of sustainable development. This emerging challenge underscores the evolving dynamics within the sector and highlights the imperative for adaptation and innovation in the face of changing market demands.

Amidst the economic repercussions of the ongoing pandemic and the unfolding crisis in Ukraine, Poland maintains its allure as a promising hub for foreign investment. Despite the prevalence of hybrid work models dampening traditional office space demands, the country continues to witness a robust influx of startups seeking appealing office accommodations, as highlighted by insights from Baker McKenzie experts.

Furthermore, the cautious re-entry of foreign funds into the market signals a gradual resurgence in investor confidence, with previous hesitancies attributed to macroeconomic uncertainties and geopolitical tensions gradually subsiding. This resurgence underscores Poland’s resilience and attractiveness as an investment destination, despite the prevailing global challenges.

According to Weronika Guerquin-Koryzma, who leads the real estate practice as a partner at Baker McKenzie, the Polish office real estate sector experienced remarkable growth before the onset of the pandemic, emerging as one of Europe’s fastest-growing markets. However, the current phase reflects a necessary correction from that previous boom period, signaling a gradual return to stability and normalcy.

Guerquin-Koryzma emphasizes that unlike some markets, Poland has not witnessed a mass sell-off of distressed assets, indicating the overall health of the real estate sector. Instead, what is observed is a controlled deceleration, rather than a dramatic collapse, reaffirming the resilience and solidity of the Polish real estate market even in challenging times.

In-depth analyses conducted by leading real estate consultancy firms JLL and Cushman & Wakefield shed light on the state of the office market in Warsaw. According to their findings, the total office stock in the city witnessed a reduction of 40,000 square meters, resulting in a total of 6.23 million square meters by the end of 2023.

This decline can be attributed to decreased development activity, as well as the withdrawal of certain buildings from circulation for renovation or repurposing. Concurrently, the office investment market experienced a notable deceleration.

In comparison to the previous year, the total value of transactions plummeted by a staggering 80 percent, amounting to just €427 million in 2023. This figure represents the lowest transaction value observed in over a decade, signaling a significant slowdown in office investment activity within the Warsaw market.

Experts at Baker McKenzie emphasize several key factors that could drive a potential recovery in the office property transaction market in the upcoming year. One significant factor is the initiation of a cycle of interest rate cuts by both the European Central Bank and the US Federal Reserve. These rate cuts are anticipated to stimulate investment activity by reducing financing costs and improving overall market sentiment.

Additionally, experts highlight a correction in valuations and a narrowing gap in price expectations between sellers and buyers as pivotal elements contributing to market revitalization. This adjustment is expected to foster a more conducive environment for property transactions, as it aligns seller and buyer expectations more closely.

Moreover, changes in bank policies are anticipated to play a role in boosting market activity. Banks are increasingly engaging in financing real estate ventures and exploring alternative forms of lending, such as syndication, which could inject additional liquidity into the market. This uptick in banking activity is also driven by considerations surrounding debt maturity, further indicating a potential uptick in investment and transactional activity in the office property market.