According to Executive Director Karolis Adlis, W. P. Carey remains optimistic about Central Eastern Europe and Poland despite uncertainties in the market. The combination of robust economic growth, infrastructure development, and favorable tax policies for investors.
W.P. Carey is one of the largest net lease REITs, with over 1,400 properties across the United States and Europe. Since our first transaction in the region in 2006, our total investment volume in Central Eastern Europe (CEE) has grown to €1.3 billion. Out of this, €735 million has been invested in Poland. We continue to view Central Eastern Europe as an attractive region for investment due to its strong growth potential and favorable yields compared to other parts of Europe.
In 2021, we acquired seven DIY retail stores in Poland for €72 million, encompassing approximately 70,000 square meters. These stores were triple-net leased to OBI, one of the world’s largest DIY retailers, for a term of 15 years, with rent increases tied to the Eurozone CPI. This investment follows our previous investments made with OBI, including our initial investment in CEE in 2006. Currently, we own 26 OBI retail stores across Poland, making OBI one of our top ten tenants based on ABR (Annualized Based Rent).
Despite the prevailing market uncertainty, we still see opportunities in the industrial and warehouse sectors due to the strong fundamentals of those asset classes. For example, in March, we successfully completed the sale-leaseback of eight industrial assets in Italy and Spain, which are now leased to a leading manufacturer of specialized forged metal components. Additionally, we continue to identify opportunities in select retail segments across Europe, such as grocery and DIY, as these sectors continue to bounce back post-COVID. Over the past two years, we also acquired a portfolio of 42 retail food stores in Denmark leased to Coop, a leading grocery retailer.
The conflict in Ukraine has had broader implications for the European real estate market as a whole, beyond just Central Eastern Europe, contributing to inflationary pressures on energy and food and causing supply chain disruptions. Nevertheless, we continue to see CEE as an attractive market, especially in Poland, due to its combination of economic growth, infrastructure development, and investor-friendly tax policies. The region has also emerged as a central hub for the flow of goods across Europe, seamlessly connected to major European cities by road, rail, and air transportation, making it an attractive destination for large manufacturing companies seeking real estate footprints.
What investment strategy are you pursuing in Europe and the Poland/CEE region?
W. P. Carey follows a diversified investment strategy encompassing various property types, tenant industries, and geographical locations. This approach allows us to allocate our capital to areas where we achieve the best risk-adjusted returns. Our primary focus is on sale-leaseback transactions, where we have the flexibility to structure our own leases and work with prospective tenants to ensure all parties’ needs are met. Additionally, our investment strategy prioritizes acquiring “mission-critical” real estate, which refers to properties essential for the tenant’s business operations. This long-term investment approach ensures that tenants are likely to remain in the facilities for the duration of the lease, with a strong likelihood of lease renewal upon completion.
What are your expectations for the coming year, including for the Poland/CEE market?
Given the prevailing economic headwinds and rising debt costs, transaction volume is expected to remain at lower levels compared to previous years across all markets, including CEE. However, rising interest rates make sale-leasebacks more attractive as a financing option for corporates on a relative basis, so we’ll likely see an influx in these types of opportunities. As an all-equity buyer with no reliance on third-party bank financing, W. P. Carey is well-positioned to capitalize on these opportunities. Despite the current challenges we remain optimistic about our ability to identify and close attractive deals.
