Poland Investing in times of uncertaintyInvestment & finance
By the end of September 2022, the total volume of investments exceeded the result of the same period in 2021 by more than 20 pct, with Q4 bringing transactions worth EUR 1.5 bln and 2022 closing with a final result of more than EUR 5.8 bln.
Saying goodbye to 2022 means welcoming a year of uncertainty for the fourth time in a row. Two pandemic years, war in Ukraine, historically high inflation and the upcoming spectre of recession have forced the Polish investment market to cope with tough times. Notwithstanding, 2022 results comparable to 2021 volumes, strongly confirm the resilience and solid foundations of the Polish investment market.
Paulina Brzeszkiewicz-Kuczyńska, Research and Data Manager at Avison Young
After the dominance of the warehouse sector in terms of volume in 2020 and 2021, the office sector returned to the leading position in 2022, which in turn was characterised by comparable transaction volumes in Warsaw and regional cities. In the retail sector, convenience facilities dominated the transaction structure. The best shopping centres in regional cities also returned to the game. In the PRS sector, seven transactions were completed, mainly in Warsaw.
Faced with uncertain market conditions, many investors in the office sector turned to stable assets. Almost 90 pct of the EUR 2.1 bln invested in the sector in 2022 went into core or core+ properties, which fit into a low-risk strategy. Nevertheless the second half of 2022 saw a surge in opportunistic transactions, particularly in Warsaw.
After Warsaw's overwhelming dominance in terms of volume in recent years, regional markets have flourished in 2022. Out of the 28 office transactions recorded in 2022, 19 involved regional markets, but it was in the capital that the two most impressive acquisitions took place. The Warsaw Hub and Generation Park Y transactions accounted for 41 pct of the total investment volume in the office sector and 83 pct of the total investment volume in the capital.
Rental increases resulting from, among other things, indexation of rates and rising operating costs are factors that will force both tenants and landlords to optimise costs in 2023.
We expect that in the most liquid markets, including Warsaw, the best projects and well-established locations will continue to be of interest to investors, although yields may be decompressed.
Marcin Purgal, Senior Director, Investment at Avison Young
The warehouse and logistics sector, the undisputed leader of 2021, responsible for more than 50 pct of the total investment volume, is currently facing a significant investment slowdown. Price expectations for warehouse products are currently the hottest topic under discussion for many. Buyers have not forgotten about this sector, their offers, however, are often lower than expected by landlords, who are trying to maintain the value of properties at existing levels.
In 2022, the total investment volume in the warehouse sector was EUR 2 bln, down more than 30 pct from the previous record year. As a result, the investment volume of the office sector was slightly higher, with the warehouse segment accounting for the total of 34 pct.
CBRE IM's acquisition of the Danica warehouse portfolio from Hillwood was the second largest transaction recorded in 2022, accounting for 26 pct of total warehouse sector volume. It was also the third largest transaction by volume in the warehouse sector in Poland since the start of the market. The warehouse sector, like office and retail, is characterised by significant transaction growth outside the core markets.
A trend that can be noticed and will become stronger in 2023 and in the following years, is the growing demand for brownfield land in the largest agglomerations, due to continuous development of last mile logistics and the e-commerce market. It should be noted that in many cases investments in attractive brownfield projects may turn out to be a better solution than the purchase of the undeveloped but properly serviced plots.
Bartłomiej Krzyżak, Senior Director, Investment at Avison Young
According to Avison Young's forecasts, shopping centres are back in the game in 2022. After the market collapse in 2020, 12 large-scale shopping centres, very well located in major cities in Poland, were the subject of transactions in 2021. All were bought at attractive prices by opportunistic investors or for redevelopment. As highlighted by Avison Young's experts, there were six transactions of facilities planned for redevelopment in 2022, but there were also four transactions of regular, operating shopping centres located in regional markets.
The largest transaction in the retail sector was the acquisition of Forum Gdańsk by Nepi Rockcastle for EUR 250 mln, which was the first such impressive deal for a single shopping centre since 2018. The investor also added the Atrium Copernicus shopping centre in Toruń to its portfolio. Two Atrium malls in Płock were also among the shopping centres sold.
As Avison Young's experts point out, the beginning and end of 2022 were the most abundant in terms of transaction volume in the retail sector. Q2 and Q3, on the other hand, ranked third and second lowest respectively since 2016. Q1 was marked by two joint venture investments created by EPP. Q4, on the other hand, was determined by anticipated come back of the regular shopping centres’ acquisitions.
Retail parks and convenience facilities were invariably popular with investors. In 2022, 43 transactions were recorded in the Polish retail investment market, 65 pct of which were for retail parks and convenience facilities. In 2022, three new players - Leoff, Lords LB and BIG Shopping Centers - entered the Polish market and were attracted by this product.
The widespread uncertainty observed in the markets means that investors often focus their attention on projects centred around the basic needs, namely residential real estate, and convenience retail projects. These two types of assets are on the radar of a growing number of investors, as they are considered the safest. Looking on the operations undertaken on the investment market from the perspective of the end of 2022, it seems that these segments will be even more popular in 2023, provided that the costs and strategies of financing investment projects adopted by banks do not prevent it.
Michał Ćwikliński, Principal, Managing Director at Avison Young
The year 2022 closed in the PRS sector with seven transactions with a total value of EUR 150 mln, the highest result ever recorded in Poland. Five projects were completed in Warsaw. The purchase of 60 units at Zlota 44 and of the Pereca 11 building in Warsaw, as well as Trio in Kraków, stood out for the highest volume. At the same time, there are a number of PRS projects in the pipeline that are subject to forward funding agreements, confirming the dynamics of the market.
According to Avison Young analysts, the market is in a situation where investors expect price reductions and this applies, with some exceptions, to all segments of the property market. Buyers are expecting "tomorrow's price" today, while owners want to maintain yesterday's values. The latter talk of rising costs and increasing risks, while the former are in no hurry at all.
Avison Young experts point out that in Poland, owners are not forced to sell their property for financial reasons. In Western Europe, a transaction can be closed within a month and cash can be obtained relatively quickly to pay off urgent debts. In Poland, transactions take much longer to close, so there are no typical 'bargains' on the market.
According to Avison Young, the first half of 2023 will continue to be characterised by a slowdown in the investment market as some buyers wait for discounts. However, the number of transactions should increase in the second half of this year. The level of interest rates affecting financing should stabilise, which will be reflected in the stabilisation of prices.
As assessed by the experts from Avison Young, buyers are cautious, so the safest bet is to buy flats and retail parks with convenience offer that meets the basic needs. But there are also purchasers willing to buy warehouses, especially those well-located and secured by good leases, as well as office buildings in prominent locations. Lands for retail parks or good residential properties sold to institutional entities will remain interesting to investors.