Over the last year, the share of Polish capital in investment purchases on the commercial real estate market in Poland has doubled, says Bartłomiej Zagrodnik, Managing Partner, CEO of Walter Herz.
Investment landscape has changed with the suspension of activity by international institutional investors in the real estate market in Central Europe. Local investors have taken the place of Western investment funds, which previously dominated the market in Poland. Now, entities from the CEE region, including the Czech Republic, Slovakia, Hungary, Lithuania, Scandinavia, and Germany, are primarily investing in our market. Capital from the United States is also steadily flowing into Poland.
After many years of dormancy, Polish capital is also gaining momentum. In the first half of 2024, its share in investments made in Poland’s commercial real estate sector was twice as high as it was a year ago.
Until 2022, Polish investment entities accounted for only 2 per cent of purchases in the commercial real estate market in Poland. In the first half of 2024, the share of domestic capital grew from 6 per cent to 12 per cent year-over-year, placing Polish investors in fourth position for investments. During this period, the largest investments came from British capital, as well as capital from the CEE region and Western Europe.
Heading for Growth in Investment Value
Polish capital is entering various forms of investments. Individual investors are purchasing shares and bonds of developers, investing in debt funds, equity loans, or convertible loans. Another group consists of investors acquiring land for potential joint ventures or independent projects, as well as buyers of residential and commercial units or select hotel properties with the potential for commercial leasing, which requires significant financial input.
Polish capital is also seeking commercial buildings that share good locations and attractive pricing. Domestic investors mainly focus on cheaper, value-add assets intended for revitalization, often accompanied by a change in function. Investments made by Polish entities are largely opportunistic purchases driven by the desire to resell with a profit.
Polish capital’s involvement in the retail sector usually involves investing in standalone buildings, typically for grocery stores, often belonging to chain brands. Domestic investors are also interested in retail parks of varying sizes, with prices ranging from several to several dozen million euro. A prime example of this type of investment is Terg, a Polish company which is expanding the Aura Park network.
Polish capital is also investing in older office buildings, valued between several and several dozen million euro. Acquisitions in this segment are typically associated with plans to increase profitability through modernization, re-commercialization, or changing the property’s use, including demolitions. Recent transactions of this type have taken place in Warsaw, including the acquisition of the Ludna 2 office building, Curtis Plaza, and office buildings in the myHive Mokotów complex.
It is also worth mentioning that hotels have garnered particular interest from Polish investors this year. All acquisitions finalized in the first six months of this year in this sector were backed by Polish capital. Two Hampton hotels were purchased by the Satoria Group, and TMS Inwestycje invested in the Holiday Inn near Warsaw.
Structure of Polish Capital
Polish capital is represented by both larger investment entities with years of experience in the market, as well as smaller individual investors and family businesses, which invest surplus capital from their core activities into commercial real estate to diversify revenue streams.
In the near future, we can expect to see an increase in the participation of Polish investors in transactions conducted in a new legal form, through family foundations.
Unfortunately, both individual and institutional Polish investors still face very limited opportunities to invest and make profits in the real estate market, as Poland lacks legislation that would enable profitable investments in the commercial sector.
Market participants consistently emphasize that the establishment of REITs is crucial for the further development of the real estate market. REITs currently operate in 40 countries, including 14 EU states. The introduction of this investment model, which is currently being worked on by government departments, would allow Polish investors to become more seriously involved in commercial real estate investments, rather than just residential. It is estimated that Polish capital, which could flow into companies investing in the commercial sector, amounts to around PLN 20 billion, including approximately PLN 11.5 billion from individual investors.
In the long term, these saved funds could be directed toward investment entities operating in the form of REITs, generating decent returns for investors while effectively stimulating domestic investments in the real estate sector.
Investment Thaw
Let’s also remember that this year, the situation in the investment transaction market in Poland, as well as in the entire Central and Eastern European region, has visibly improved. The second quarter of 2024 saw significant revitalization. Positive changes occurred, signaling a return to the investment volumes of previous years. The first quarter of this year still ended with weak results, but the turnover recorded after the first six months reached €1.7 billion in Poland. This is almost double the result compared to the same period last year.
In the second quarter of 2024, we finally saw the first major portfolio transactions in the office and retail sectors. As a result, the value of acquisitions exceeded the volumes registered in these segments throughout 2023. A positive sign for our market is also the fact that new sources of capital are regularly appearing. Entities that were previously inactive in our country are now investing in commercial real estate.
Another positive signal for investors is the European Central Bank’s initiation of a cycle of interest rate cuts in June of this year, raising hopes for further reductions and more affordable investment financing in the near future.
