In recent months, there has been a significant increase in the value of transactions in the commercial real estate market in Poland, but new investments are still lacking. In the second quarter of this year, the Polish commercial real estate market saw a more than fourfold increase in transaction value compared to the first quarter. Year-on-year, the value of investments in the first half of 2024 doubled.
This surge in investment activity is not unique to Poland but is also being observed across Central and Eastern Europe. Commercial properties in the CEE region are attracting more interest from investors than assets in other European locations and beyond.
The recent drop in interest rates in Europe in June has undoubtedly contributed to the intensification of investment activities. This presents an opportunity for further decisions by the European Central Bank regarding additional rate cuts, which could ultimately reduce the costs of financing investments. Bartłomiej Zagrodnik, Managing Partner, CEO at Walter Herz, emphasizes that besides financing costs, factors such as rental growth potential, market demand, and overall economic prospects in a given location are also analyzed when making investment decisions.
Strategic Approach of Investors
With the arrival of spring, the investment market in Poland, much like the land market, has seen a significant revival. This year, there is a noticeable increase in investor interest in regional cities and smaller towns where there is high local demand and lower entry costs. When it comes to investment plots, there is also a high demand for land suitable for mixed-use projects that combine residential, office, and retail spaces, maximizing investment returns. There is also significant interest in land for Data Centers, although supply is limited due to power requirements. Environmental sustainability and compliance with ESG guidelines are increasingly considered in real estate investments.
Investors are taking a strategic approach to property acquisitions that offer opportunities for improved profitability and long-term potential in areas poised to benefit from infrastructure improvements and urban expansion. Well-located prime parcels with clear development potential are preferred. However, investors are exercising caution, leading to thorough due diligence analyses. It is worth noting that Polish investors are increasingly participating in land transactions and investment purchases in the real estate sector.
Focus on Office Buildings and Retail Properties
Currently, the dominant group of investors in the Polish transaction market is regional capital, primarily from the Czech Republic. It is encouraging to see regular debuts of new investment entities in our market.
In recent months, investors have been focusing on office buildings and properties from the retail sector, with retail parks taking the lead. Investors seeking value-add and opportunistic assets are the most active in the market, looking for opportunities. Large institutional players, focused on core asset acquisitions, have been holding back from investment processes for many months in anticipation of cheaper financing. However, significant portfolio transactions have been observed in the office and retail sectors in the second quarter of this year.
While prime office transactions have emerged in the Polish market, value-add office buildings with growth potential have been the most sought-after in the first half of 2024. Owners of office buildings in Warsaw and major regional markets have changed hands in recent months.
Investment demand for warehouses, which has been strong in recent years, has now declined. The transaction volume in this sector decreased by one-third in the first half of this year compared to the same period in 2023. Investors in the warehouse sector are focusing on modern facilities with ESG-compliant solutions located within major logistics hubs.
Anticipation for New Projects
The investment transaction market is regaining momentum. It remains to be seen whether the intensification of investment processes in Poland will also lead to a revival in new investment projects. Analysts at Walter Herz are optimistic, forecasting an increase in investments, especially in mixed-use projects and the PRS sector.
The cooling demand for offices and warehouses has led to a decrease in new investments in these sectors recently. The largest drop in new supply has been observed in office markets. In the first half of this year, only 65,000 sqm of office space entered the Warsaw market, with over 60,000 sqm of new offices delivered in regional markets.
In the warehouse sector, the supply increased by 1.6 million sqm in the first half of 2024, representing a one-third decrease compared to the same period last year. Over 2 million sqm of space is still under construction.
On the other hand, national retail stocks are steadily increasing. Approximately 195,000 sqm of retail space was added in the first six months of this year, with around 400,000 sqm currently under construction.
About Walter Herz
Walter Herz is a leading Polish entity operating in the commercial real estate sector in Poland. For 11 years, the company has been providing comprehensive and strategic advisory services throughout the country. Walter Herz’s experts advise investors, property owners, and tenants, offering full support to both private and public sector companies.
Walter Herz advisors assist clients in finding and leasing office space and provide advisory services for investment projects in the warehouse, office, retail, and hotel sectors. The company is headquartered in Warsaw and has regional branches in Krakow and Tricity. Walter Herz is the creator of the Tenant Academy, the first project in Poland that supports and educates commercial space tenants from all over Poland through specialized training meetings. In pursuit of the highest ethical standards in the services provided, the company has introduced a Code of Good Practices.
In 2016, Walter Herz won the CIJ EUROPE Rising Star of the Year award. It was also named the Best Local Agency of the Year 2022 in the CIJ AWARDS competition in Poland and went on to win the Best of the Best Local Real Estate Agency of the Year award in Central and Eastern Europe at the 8th edition of the HOF Awards. In 2024, the company once again received the Best Local Real Estate Agency of the Year award.
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In conclusion, the commercial real estate market in Poland is experiencing a surge in transaction values, driven by increased investor interest and favorable market conditions. With a strategic approach to investments and a focus on office buildings and retail properties, the market is poised for growth. As new projects are anticipated, the future looks promising for the real estate sector in Poland. Walter Herz continues to play a significant role in shaping the industry and providing expert advisory services to clients across the country.