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Commercial real estate close to set a new record

Within 20 years, Polish commercial real estate market has become attractive for global funds, which are investing in regional cities more and more frequently. The volume of investment transactions concluded in 2017 may surpass record high of €4.6 bn. New capital from outside of Europe among others, may flow into Poland.
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Colliers International
Echo Investment SA
Oaktree


In the middle of the 1990s, Polish commercial real estate was at the initial phase of development. Back then, there were no proven regulations that would guarantee stabilization.
This, combined with low liquidity, was associated with the exposure to greater risk, and therefore the investors took a short-term investment horizon or allocated money to other markets.

Poland’s accession to the European Union in 2004 was a breakthrough, which made the country credible in the eyes of foreign investors and triggered substantial interest in the commercial real estate industry. Inflow of capital from the EU structural funds and growth perspectives for the Polish economy drove investment activity. At the peak moment, the value of transactions concluded in Poland reached €4.5 bn in 2006.

From crisis to record

Global financial crisis of 2008/09 undermined the confidence in the global financial sector and real estate market, and the negative mood affected also Poland. In effect, there was muted demand of international funds for commercial real estate on the Polish market. This resulted in significant decrease in the investment volume to €790 million from record high €4.5 bn three years earlier.

The market was dominated by lack of liquidity among investors and among banks providing financing for new projects. Deadlock, however, didn’t last long, as at the beginning of 2010 there was a gradual increase in the value of concluded transactions. Moreover, the investment volume reached new high at €4.6 bn in 2016, of which €1.8 bn was invested by investors from the Republic of South Africa.

Spectacular transactions
In recent years, Colliers International has advised on the most spectacular investments in commercial real estate in Poland and Central and Eastern Europe. For instance, Colliers provided commercial advise for the acquisition of Echo Investment’s controlling stake by joint venture between Griffin Real Estate/Oaktree and PIMCO back in 2015.

“Over the last 20 years, the investment market has developed profoundly enough to attract players from around the globe who invest in real estate in Poland. New investors primarily want to build or take over a platform upfront, enabling them for quick organic growth and upscaling. Both sellers and buyers can count on full support of professional advisors. We help clients effectively conclude even the most complex transactions,” says Piotr Mirowski, Partner and Head of Investment Services at Colliers International.

On the radar of global investors

Over the last 20 years, the structure of investor origin has changed. Today, funds from the United Kingdom, Germany or the U.S. are not the only ones investing on Poland’s commercial real estate market. There is an increasingly bigger number of buyers from the Republic of South Africa and Asia (Malaysia, South Korea, Singapore).

Chinese investors also marked their presence in Poland, and more investors from outside of Europe may follow suit, as funds from Canada and Australia are considering the purchase of real estate assets in Poland.

Regions growing in importance
“Investors more and more eagerly invest in smaller Polish cities. In 2010, transactions worth EUR 1.7 bn were concluded in Poland, 80% of which was invested in Warsaw, while 20% was allocated to regional markets. In 2016, this proportion shifted, as ca. 75% of capital was invested in regional markets, and Warsaw’s share in the transaction volume decreased to ca. 25%.
This shift predominantly reflects increasing investors’ confidence in regional markets, but it also stems from the lack of suitable investment products in Warsaw available for sale,” says Piotr Mirowski.

Prime yield for best office buildings in Warsaw is currently at ca. 5.25%, whereas in regional markets it stands at ca. 6%. When it comes to shopping centres in Warsaw and regional markets, yield is currently at 5%, and in smaller cities it’s between 6.5% and 8%, depending on the population and scheme’s position on the local market.

New record on the horizon

According to data gathered by Colliers International, transactions totalling €34.2 bn were concluded on Poland’s commercial real estate market from 2006 to first half of 2017. Only in the first two quarters of this year, the investment volume amounted to €1.5 bn and the value for the whole 2017 may surpass €4.6 bn, record high of 2016.

“Poland generates interest from large global funds. Economic potential, legal system stability and size of urban areas, in which investors are looking to invest their capital, speak in favour of the Polish market. Some international players begin to classify Poland as ‘core’ market, which is characterized by stability and low risk level. Poland’s share in the European commercial real estate market should continually increase in the years ahead,” says Piotr Mirowski. ”Commercial real estate transaction volume for the whole 2017 may climb to new record high. In my view, 2018 will be another year of growth, however, a lot will depend on the availability of properties for sale,” foresees Piotr Mirowski.