At the end of the first half of 2024, the investment market recovered, reaching a transaction volume of 1.8 billion euros, double the year-on-year value. The two largest transactions – the CPI and Cromwell portfolios – finalized in Q2 account for 45% of this result.
The office market finally saw several transactions in regional cities, and in the retail sector, the largest transaction since Q1 2022 was finalized. The warehouse sector, however, is still waiting for large transactions. Hotels are more popular, and when it comes to the residential segment, 5 transactions were closed in Warsaw.
As interest rates begin to fall, you can expect the market to be operating at full capacity over the next 12 months. Therefore, those who are well prepared, have carefully analyzed the market and identified promising assets, will be able to make the best use of the current situation.
Main numbers:
· Volume twice as high year on year
· €1.8 billion – total investment volume
· 55 transactions
· 46% share of the office sector
OFFICE SECTOR
Finally a prime deal
Investors continue to focus on office assets in the capital, which is well reflected in the largest transaction of the first half of 2024 – the sale of part of CPI shares to Sona Asset Management. It is also the largest transaction on the Polish investment market since Q3 2022.
6 out of 22 transactions were completed on regional markets, including: takeover of Krakowska 98 in Wrocław, brokered by Avison Young. “This is a significant change because recently the vast majority of transactions in the sector concerned Warsaw. Highly performing office properties in regional cities represent a good investment opportunity, while poorly performing buildings are attractive due to their location and price.” – comments Marcin Purgal, Senior Director, Investment at Avison Young
The majority of transactions continue to involve value-add and opportunistic assets, indicating a strong dominance of investors who are cautious about their activities and look for opportunities without overpaying for the assets. However, in line with our recent predictions, it has also appeared on the market – finally! – transaction of a modern office property in the city center, the finalization of which is planned for Q3 2024. Taking into account that the ECB reduced interest rates for the first time in 5 years, this is a promising signal for core capital, which should consequently become more active.
“Despite the dominance of the Warsaw office market, the growing interest of investors in regional cities is evidenced by the increase in this type of transactions in the first half of the year. 2024, as well as ongoing talks between sellers and buyers. We know of at least several transactions that are currently in the final stage of the transaction process.” – adds Purgal.
Office sector main figures:
· €801 m – investment volume of the office sector
· The largest transaction since Q3 2022, responsible for 25% of the total investment volume of the half-year – sale of part of CPI shares to Sona Asset Management
· Increase in the number of transactions in regional cities
TRADE SECTOR
An impressive debut of an investor from the CEE region
The retail sector accounted for almost 30% of total transaction volume in the first half of 2024, mainly thanks to the impressive sale of the Cromwell portfolio of 6 shopping centers, acquired for €285 million. This is the largest transaction in the commercial real estate sector since Q1 2022, when 50% of shares in EPP portfolios were sold. It is worth noting that the commercial sector has once again attracted a new investor to the Polish market, with Star Capital Finance from the Czech Republic entering with the greatest impact as the buyer of the above portfolio. This transaction additionally highlights the high activity of investors from Central and Eastern Europe (CEE) on our market.
In addition, part of the CPI portfolio, including the Ogrody shopping center in Elbląg and Galeria Orkana in Lublin, was sold to Sona Asset Management. In addition to the sale of shopping center portfolios, there were two single transactions of this type of assets: one in Nowy Sącz and the other involving 50% of shares in Centrum Ursynów sold by Cromwell. As a result, the volume of the retail sector in the first half of the year was built mainly on transactions in shopping malls. Retail parks accounted for 21% of the volume and 50% of the number of transactions. The Avison Young investment team acted as an intermediary in over 1/3 of transactions in these assets, in terms of realized volume.
“Interest in Polish retail parks remains high, and over 20 investors are actively looking for assets in this segment. The main challenge is finding properties that meet both affordability and quality criteria. The most desirable retail parks are newly built facilities, located in major cities and having a food operator as a tenant with a long-term lease agreement. – comments Artur Czuba, Associate Director, Investment at Avison Young
Main figures of the trade sector:
· €497m – investment volume of the trade sector
· The 2 largest portfolio transactions together account for 67% of the sector's volume
· Impressive debut of a new investor from the CEE region – Star Capital Finance
WAREHOUSE SECTOR
Limited scale due to discrepancies in price expectations
In 2024, we continue to see a slowdown in the warehouse market. In the first half of 2024, 12 transactions were concluded with a total value of EUR 294 million, which represents a decrease of 33% year-on-year. The largest transaction recorded was the acquisition of Panattoni Park Poznań XI in Żerniki, while the sale of two Warsaw West Parks by DWS to Hillwood was the only portfolio transaction recorded in the analyzed period. Moreover, 9 out of 12 transactions took place in the so-called the "big five" warehouse hubs.
The decline in investment volume is mainly due to the lack of large portfolio transactions, caused by, among others, still high financing costs and the ongoing process of adaptation of price expectations between sellers and buyers. A reduction in interest rates in the euro zone and potentially in the United States is likely to stimulate activity in the warehouse sector. Additionally, price stabilization in Western Europe may motivate foreign funds to invest in Poland and the Central and Eastern European region, especially in the case of investors looking for assets at attractive prices.
“We expect purchases of warehouse portfolios by investors seeking to quickly scale up their operations in this sector, but only at the end of 2024 or early 2025.” – comments Bartłomiej Krzyżak, Senior Director, Investment at Avison Young
Main figures of the warehouse sector:
· €294 m – investment volume of the warehouse sector
· 12 transactions, none exceeded €100m
· Only one portfolio transaction
PRS
Growing shortage of land for residential development in large cities
In mid-2024, the number of investments in the PRS formula in Poland exceeded 120 projects, of which 73% are completed and the remaining 27% are under implementation. Nearly ¾ of the analyzed projects are located in areas covered by the applicable local development plans.
Due to the increasing shortage of residential land in large cities, investors more often decide to build PRS facilities on plots for service purposes, the location of which is attractive in terms of housing. The purchase prices of service plots are lower than the prices of residential plots, which makes them an interesting alternative for investors from the PRS sector. Additionally, when acquiring such land, they do not have to compete with typical residential developers. However, a PRS investment in a service area, despite the cheaper land, after the construction and commercialization of the facility is associated with VAT on rental income, which affects the rate of return on the investment.
The residential investment market recorded 5 transactions in the first half of 2024, the value of which was approximately EUR 130 million. All acquired properties are located in Warsaw. The largest of them is the Heimstaden Sunrise project with 400 PRS premises, which was implemented by Dantex based on the so-called "forward funding". The Avison Young Technical Consulting Team supervised the progress in the construction of this sector's largest investment in 2024.
What awaits us in the second half of the year?
Poland remains an economically stable and strong market, providing good conditions for investing in real estate. European investors notice this, which is why we have already welcomed new players this year.
Based on our own projects and conversations with other market participants, we observe that many properties from various sectors are currently in the offer, due diligence and even finalization phase. Most of these are not large-scale projects, but we expect some significant transactions towards the end of this year.
We remain optimistic about the number of transactions and hope that the investment volume in 2024 will significantly exceed that of 2023, signaling growth in the following years.