AXI IMMO experts analyze the situation of individual sectors in the investment market in the first half of 2022 in Poland.
The total volume of investment transactions in H1 2022 amounted to almost €2.9 billion, which was more than 40% more than in the same period last year. The high value of investments demonstrates investors’ continued strong interest in Polish investment products in all major categories, despite the new geopolitical situation and the war in Ukraine.
The first six months of this year started very well in Poland’s commercial real estate market. At the end of June 2022, a high volume of transactions was registered in the investment market, resulting from several significant acquisitions launched in 2021. The result obtained was 40% higher than last year and thus similar to 2020. By sector, the most invested in offices at 44%, followed by shopping centers at 28% and warehouses at 24%.
“The biggest unknown in Q2 2022, which influenced the attitude of a large part of investors, was the situation in Ukraine. We see that sentiment towards our region is now returning. Still, some investors from Asia and the US are assessing the proximity of the conflict as a greater risk and are adopting a wait-and-see basis for the time being. On the other hand, those from Europe and the CEE region are already back in the market,” comments Grzegorz Chmielak, Head of Valuation and Capital Markets, AXI IMMO.
The office sector accounted for 44%, or €1.3 billion, of the total transaction volume in the market. Offices defended their position during the Covid-19 pandemic. Now employees have returned to offices, demand in the market is returning to normal, which translates into an upward trend in lease rates and the increased popularity of this asset class among investors. An important signal for the sector was Google’s purchase of buildings B and C of The Warsaw HUB complex from Ghelamco for €583 million. It was a record transaction on the office market. At the same time, it is not only Warsaw that is on the radar of investors, regional cities are also gaining in popularity. Quite large transactions took place in Wroclaw, with the largest one in Poznan, where Estnine bought building D in the Nowy Rynek complex from Skanska for about 121 million euros.
The high performance of the retail sector was mainly due to two transactions finalized by EPP worth €653 million, which involved approximately 50% stakes in two retail property portfolios: PIMCO and I Group – as a consequence of EPP’s delisting from the Johannesburg and Luxembourg stock exchanges. The remaining sales were primarily from retail parks and free-standing grocery stores. It’s the favorite product category of choice for funds, which have invested heavily in smaller formats in Poland for several years. This product category has not lost its popularity even during the Covid-19 pandemic.
The warehouse sector performed 25% lower than last year. Transaction volume closed at €0.7 billion, which is a temporary effect. Logistics and industrial assets continue to attract investors. Demand in the rental market remains high, driven by e-commerce. In the coming quarters, there will be an increasing share of production related to changes in supply chains and the relocation of companies from war-stricken Ukraine. Rental rates have been upward for at least the past two quarters, especially for new projects, which must consider higher construction costs. Financing costs are also rising, and as a result, yields have stopped falling. Capitalization rates for the best warehouse products ranged between 4.7% and 5%.
The rise in mortgage interest rates and the massive influx of refugees from Ukraine have generated solid rental demand, resulting in a sharp increase in rental rates in Poland’s major cities. In addition, the decline in individual apartment sales has prompted many developers to partner with funds investing in the PRS. For the time being, there are not many deals on the market due to rather long decision-making processes and investors’ problems related to increased financing costs. However, the sector’s potential seems relatively high, and we can expect a rebound and a lot of investor activity already in the year’s second half.
“Currently, it is worth noting that the attention and the objectives of foreign funds are focused on the search for alternative real estate classes outside the logistics and warehouse sectors. This is a good forecast for the rest of the market segments, especially office, as it means renewed movement and interesting acquisitions in the coming months of the year,” summarizes Grzegorz Chmielak.
AXI IMMO offers commercial real estate advisory services in the areas of leasing and management of industrial and office space as well as acquisition and disposal of real estate assets and development land. The company also offers B2B and B2C supply chain management services. AXI IMMO’s biggest advantage is combining international standards of service with a thorough knowledge of the local market. The company received the award for the Best Local Agency in 2012-2019 and 2021, and the Best Team for the industrial sector in 2016-2017 in the prestigious CiJ Awards organised by the CEE CiJ Journal magazine.