The total value of the more than 100 investment transactions closed in the commercial real estate market in Poland last year exceeded €7.2 billion, which means an almost 45 percent increase on the volume witnessed in 2017 (approximately €5 billion), according to Savills data. The 2018 figure marks the best performance of the country’s investment market in history (the previous all-time high, around €5.05 billion, was seen in 2006). Record-high transaction volumes were also recorded last year in each of the main commercial property market sectors.
Around €2.75 billion, approximately €2.5 billion and about €1.84 billion was transacted in 2018 in the office, retail and logistics sectors respectively. Investment deals finalized in the hotel sector last year were worth a total of some €120 million. After three consecutive years of the dominance of the retail sector, the office sector again attracted the most investor interest in 2018. However, the result achieved in the retail sector is still impressive, argued Marek Paczuski, deputy head of investment at Savills in Poland.

SHIFTING INVESTOR ATTENTION

The bulk of the volume recorded in the retail sector – over 70 percent – is accounted for by transactions closed in Q1 2018. Later in the year investors were gradually shifting their attention to the logistics sector, where volumes kept growing from quarter to quarter. The value of deals in the logistics sector increased by as much as 83 percent y/y in 2018. The impressive growth can, to a large extent, be attributed to the rising levels of demand for warehouse areas that is generated globally by the development of the e-commerce sector.
Investors are lured by the logistics sector’s strong fundamentals and prospects for further long-term growth. Experts point out that the sector also offers a very diverse pool of assets – both core and opportunistic funds will find attractive product there. What is more, the sector presents opportunities for portfolio acquisitions of various sizes. Indeed, the abundance of portfolio transactions is something that defines the 2018 investment activity in Poland’s commercial real estate market.

BIGGEST DEAL EVER

As many as seven investment deals of this kind were closed in the logistics sector. They included the purchase by Mapletree of Hillwood properties for approximately €320 million and the purchase by the same investor of Prologis properties for around €260 million. In the retail property sector, ARES, AXA and Apollo Rida sold a portfolio of 28 assets to Chariot Top Group for a total of about €1 billion. This is the biggest investment transaction to have ever been signed in the Polish market.
Other major retail deals included the acquisition by Atrium European Real Estate of Warsaw Sawa Junior in Warsaw from a fund managed by CBRE Global Investors for €301.5 million and the purchase by EPF of Galeria Katowicka from Meyer Bergman for about €300 million. Apart from large assets, there was also considerable investor interest in smaller neighborhood shopping centers and retail parks located in cities with populations of less than 100,000. In the office sector, properties in Warsaw attracted more than 60 percent of the invested capital. Investors were interested in both newly completed quality products and older buildings with the potential for adding value. Notable transactions in the Polish capital included the acquisition by EPF of buildings “C” and “D” in the Gdański Business Center complex from HB Reavis for over €200 million. Among major deals in regional cities was NIAM’s purchase of Skanska’s portfolio for €173 million.

NEW CAPITAL INFLOWS

There was an increased inflow of new capital into Poland in 2018, which mainly came from the APAC (Asia Pacific) region and predominantly targeted core office and logistics assets, as well as whole logistics portfolios. While similar to previous years, investors from the US, the UK and Germany were among the most active buyers in the country last year, funds from Asian countries such as the Philippines and Singapore made their first acquisitions in the Polish market in the period. Malaysia’s EPF, Singapore’s Mapletree and South Korea’s Vestas all made sizable acquisitions in Poland in 2018. The latter fund bought one of Europe’s biggest and most advanced e-commerce-dedicated logistics centers that is occupied by Amazon. South African investors, involved in previous years in spectacular retail transactions in Poland, last year also became interested in the logistics sector. Redefine Properties, for one, was involved in the purchase of a portfolio of logistics parks from Panattoni Europe. “As the most attractive market in Central and Eastern Europe, Poland is an excellent alternative to the Western European markets,” commented Krzysztof Cipiur, associate director, capital markets, at Knight Frank. He pointed out that Poland has recently advanced in the FTSE Russel ranking, becoming the region’s first country classified as a developed economy. This, in Cipiur’s opinion, will in the long-term have a reflection in investment volumes.

RECORD YIELD COMPRESSION

2018 was also a record year in terms of the compression of prime yields, which reached levels not seen in the Polish market, breaking the psychological barrier of 5 percent in the office and retail sectors and dropping to only slightly over 5 percent in the logistics sector. “This sets new benchmarks for core assets and opens the door for some yield compression for non-core assets and locations,” Paczuski commented. According to Savills, some 2018 office deals were closed at 4.70-4.75 percent, while in the retail sector the figure was even as low as 4 percent. Analysts predict that the positive investment sentiment in Poland’s commercial real estate market will continue throughout 2019. Prime yields are expected to stabilize at the current levels in the coming months. Particularly strong investment activity is anticipated in the office and warehouse property sectors. We should also see more transactions in the hotel sector, said Mateusz Skubiszewski, director, capital markets department, at BNP Paribas Real Estate Poland.