Will cheaper money in the eurozone stimulate the transaction market?

Polish real estate market is witnessing the first major investment transactions. The second half of the year will show whether a potential further interest rate cut in the eurozone and a return to cheaper financing bring the long-awaited recovery.

Investment decisions have so far been primarily held back by high inflation and interest rates, resulting in a high cost of capital. The mere announcement of interest rate cuts by the ECB has already heralded an increase in transactional activity in Poland. In Q2, the value of real estate investments is higher than in the first three months of this year, and new players are entering the Polish market.

After a slow start to the year, the Polish market is recording its first significant transactions, including portfolio acquisitions in the retail sector and several transactions involving the purchase of office buildings. Office buildings are changing hands not only in Warsaw, but also in major regional cities. The acquired assets include both modern core properties and older buildings in attractive locations, often purchased with plans for redevelopment. The market is responding positively to the first interest rate cut in the eurozone in years, and investors are anticipating further reductions.

In 2023, nearly half of the total value of commercial real estate transactions in Poland was generated in the logistics and industrial sector, which took the leading position from the office segment. Acquisitions announced in recent weeks indicate that this year, the scale of investment in the office sector could be significantly larger.

Higher value transactions

This year, the retail sector has emerged as the leader in the transaction market. This is mainly due to a portfolio transaction involving the purchase of six retail parks from Cromwell (CH Janki in Warsaw, Kometa in Toruń, Korona in Wrocław, Tulipan in Łódź, Ster in Szczecin, and Rondo in Bydgoszcz) with a total of 219,000 sqm by the newcomer to Poland, Star Capital Finance, valued at EUR 285 mln.

At the beginning of the year, the retail market, similar to other sectors, was dominated by smaller transactions, the largest of which was the sale of Aniołów Park in Częstochowa for EUR 25 mln. The recently recorded portfolio transaction will likely enable the retail sector to surpass the total value of last year's transactions.

Warehouses, with their market share this year, occupy the second position in transactions, partly due to the completion of a EUR 92.5 mln acquisition in May. Panattoni Park Poznań XI complex, consisting of two halls located in Żerniki near Poznań, changed ownership during this period. In March, Panattoni, which held over 50 pct of the transaction volume in the Polish industrial real estate market in 2023, also sold Panattoni Park Wrocław West Gate.

In Q1 of this year, the largest warehouse transaction was Hillwood's purchase of two West Parks from DWS for EUR 55 mln. Transactions in this area are still being hampered by the persistent gap between buyer and seller expectations, which is particularly noticeable in the warehouse sector.

Office buildings are changing owners

Investors interested in offices are now targeting not only the Warsaw market, but also assets in the regions. In Q1 of this year, the market did not register any large-value office acquisitions. In Warsaw, buildings such as Concept Tower and two offices in Lipowy Office Park complex changed ownership. In Wrocław, Krakowska 98 building found new owners.

Recently, however, Skanska sold the Warsaw building Studio B to Stena Real Estate, a company within the Swedish Stena Group, for EUR 86 mln. Additionally, the company announced the sale of the office building Nowy Rynek E, located near Poznań Główny station, to the Swedish firm Eastnine AB for EUR 79 mln.

CPI Property Group has signed a 250 mln euro agreement with the British firm Sona Asset Management concerning the acquisition of a minority stake in CPIPG's subsidiary, which owns 11 office properties in Warsaw and two retail facilities in Elbląg and Lublin, Poland.

Meanwhile, Immofinanz finalized the sale of three office buildings totaling 43,000 sqm in the Empark complex in Warsaw – Myhive Mokotów. Archicom acquired these properties for EUR 28.5 mln with plans for demolition and residential development.

Alides Polska, a company belonging to the Belgian developer Alides and AYA Properties Fund, announced the purchase of the Warsaw office building Metron from a company owned by Patrizia Frankfurt Kapitalverwaltungs GMBH.

Greenstone Fund, in turn, acquired nearly 80 pct of the shares from Torus in the company that owns Format office building in Gdańsk. Additionally, the office building located at ul. Barska in Warsaw is being sold by the real estate development company SGI.

The hotel sector is also gaining prominence. Several transactions have been registered this year. Among them, two properties along the Baltic Sea have changed ownership, and recently, TMS Inwestycje acquired Holiday Inn Resort Warsaw Jozefów from the Aquila Group, featuring 148 rooms.

Improving investment mood

The market is adjusting to the new economic environment, characterized by permanently higher interest rates compared to the pre-pandemic period. The first interest rate cut in the eurozone has clearly boosted investor confidence. Another cut would allow returning to optimal financing costs and restoring greater investment activity in the Polish market.

Investments in Poland are supported by optimistic GDP forecasts and stable lease conditions across all real estate sectors. Above all, the competitive level of investment returns speaks volumes. Poland ranks among the top countries in Europe where investors can achieve the highest property returns. Income indicators are bolstered by energy prices and labour costs, which remain lower in our country compared to Western nations.