As predicted, the year 2023 started arduously. The first quarter of 2023 brought only EUR 651 million. According to Avison Young’s forecasts, the coming months will not bring any significant acceleration. This shortness of breath is a consequence of economic turmoil, an increase in the cost of financing, inflation or differences in price expectations between buyers and sellers. However, we forecast that the number of transactions should increase in the second half of the year, especially if interest rates stabilize and prices reach a sustainable level.

Since the beginning of 2023, 26 transactions on the commercial real estate market have been completed in Poland. Statistically, the last quarter maintained moderate liquidity despite low investment volume. These transactions indicate the dominance of opportunistic and value-add real estate as well as redevelopment projects. Warehouse investors focused on assets from the primary market and those located in western Poland. All transactions in the office sector took place in Warsaw. The retail sector was dominated by opportunistic purchases of shopping centers. Investors from the US and Central and Eastern Europe remain the most active, focusing on warehouse and office products.

The most important information:

• EUR 651 million – total investment volume in Q1 2023
• 26 transactions were completed
• 62% – share of the warehouse sector in the total volume of the quarter

Warehouse sector

Currently, the warehouse sector is facing an investment slowdown. Price expectations for stock products are the hottest topic of many discussions right now. Owners want to sell for more than buyers plan to pay, hoping for a price reduction. This adaptation process has been going on for several months now. Currently, we are already seeing a clear downward pressure on the sale prices of logistics real estate, which translates into higher yields. The difference is to some extent “compensated” by owners or developers with increases in basic rental rates.

Investment volume in the warehouse sector worth EUR 401 million accounted for 62% of the total volume in Q1 2023. However, the largest transaction, i.e. the acquisition of Campus 39 in Wrocław by P3 from Panattoni, accounted for over 1/3 of this result. 12 transactions concerned individual assets. No inventory portfolio has been sold. The pattern of investor concentration in western Poland is strengthening. 8 out of 12 warehouse properties transacted in the analyzed period are located near the western border of the country, and 9 out of 12 were acquired on the primary market.

– The launch of new investments is currently complicated by difficulties in obtaining financing for projects and its higher cost, as well as lower availability of materials, workforce or slowdown in tenant activity. However, we expect that newly built warehouse facilities should achieve a certain balance this year. Transactions involving slightly older warehouse properties will continue to be analyzed individually in terms of rent and final value per square meter. And the seemingly lower capitalization rate will result from the greater potential of a given project at the time of renegotiation of lease agreements. – comments Bartłomiej Krzyżak, Senior Director, Investment at Avison Young.

The most important information:

• EUR 401 million – investment volume in the warehouse sector in Q1 2023
• 75% of transactions were finalized on the primary market
• no portfolio transactions

Commercial sector

2023 is unlikely to be able to compete with 2022 results. Thus, the upward trend in the volume of investments in the retail sector, resumed after the pandemic in 2021, is unlikely to be maintained. Two unprecedented transactions last year, namely Joint Venture EPP and the acquisition of Forum Gdańsk, accounted for over 60% of the total volume of transactions in the sector. This year started with 8 transactions with convenience and redevelopment shopping centers, unfortunately without the participation of the best and large assets and, interestingly, only one small retail park.

The volume of retail investments amounted to EUR 134 million, which is 20% of the total volume of the investment market in Poland in the first quarter of 2023. The 8 commercial transactions included two regular shopping centers, i.e. Atrium Molo in Szczecin and Ferio in Legnica. The largest transactions with redevelopment plans were the acquisitions of Europa Centralna in Gliwice by Mitiska REIM and Multikino in Warsaw by GH Development. In Q1 2023, only one portfolio transaction was recorded regarding 4 small shopping centers located in western Poland, in which Avison Young represented the seller.

– Although only one retail park was sold in the first quarter of 2023 – in Rawa Mazowiecka – we believe that retail parks will continue to be an important element of the sector and investors will continue to buy these assets. As for the center sectorcommercial properties, the greatest interest will be in attractively priced facilities in good locations, with the possibility of obtaining financing or maintaining financing from the current lender. – comments Artur Czuba, Associate Director, Investment at Avison Young

The most important information:

• EUR 134 million – investment volume in the retail sector in Q1 2023
• 7/8 deals with convenience shopping centers and redevelopment plans
• 1 wallet transaction

Office sector

After last year’s increase in investors’ appetite for office buildings located on regional markets throughout Poland, transactions concluded in the first quarter of 2023 focused exclusively on Warsaw. 6 office buildings sold are “core +” or opportunistic facilities. 5 of them are located outside the city center – in Mokotów, near Żwirki i Wigury Street and in the area of Aleje Jerozolimskie.

The office sector achieved the smallest investment volume in the first quarter of this year. – EUR 116 million – realized in 6 transactions. Despite the lowest share (18%), the office sector attracted another new investor from Lithuania. EIKA Asset Management has acquired the Celebro office building located in the southern part of Aleje Jerozolimskie in Warsaw. Investment advisors Avison Young represented the seller, White Stone Development, in this transaction.

“We expect many investors to continue to be interested in value-add and opportunistic assets in the coming quarters of 2023. We are already seeing a lot of interest in many such buildings, both in Warsaw and in major regional cities. Unfortunately, there will be less interest in core buildings, as there is no significant reduction in sales price expectations yet, and rising financing costs are not conducive to achieving the expected profits. However, it is only a matter of time when the towers in the center of Warsaw will again be the subject of transactions. – comments Marcin Purgal, Senior Director, Investment at Avison Young.

The most important information:

• EUR 116 million – volume of office investments in Q1 2023
• 6 transactions were completed
• EIKA – a new investor from Lithuania

PRS sector

Institutional rental housing, while still in its early stages of development, is undoubtedly an emerging real estate category driven in terms of demand by global economic turmoil and the geopolitical situation. Interest in PRS products in Poland has been growing for several years, both from tenants and investors. Despite the fact that the desire to own a house is deeply rooted in the mentality of Poles, we are currently observing a change in this approach. In the face of economic uncertainty, PRS apartments, due to their function, create a promising potential for all parties.

Thus, the sector will continue to grow, which is also confirmed by the plans announced by many investors to build another ~ 20,000 apartments for rent in the next few years, i.e. twice as much as the existing stock. What’s more, due to the early stage of development of this sector, the Polish market will be attractive to both domestic and foreign investors, who can obtain higher rates of return on their investments than on the Western European market.

What’s next?

We all expected that the beginning of this year would not be full of transactions and new projects, and indeed – we are observing a slowdown in investment activity across Europe. Despite this, we have an influx of new capital from the Baltic states and Scandinavia. There is also active capital, such as investors from Central and Eastern Europe and a few from Western Europe. However, in times of uncertainty, it can be said that Poland enjoys and will continue to enjoy the interest of investors – it is one of the most active markets in all segments, offering still higher rates of return than Western Europe.

Nevertheless, in the coming months we are unlikely to avoid difficult talks between the parties, fueled by strong pressure to lower prices. The issue of funding will continue to be crucial. Currently, banks are very selective in granting loans. To sum up, the Polish real estate market, despite the smaller number of transactions, will still be one of the most liquid in the region of Central and Eastern Europe.