Silesia City Center in Katowice
Big deal: the sale of Silesia City Center in Katowice was this year’s largest at €412m

Poland’s commercial property market is set to reach €3bn in transaction volume this year, the highest level since 2006, as international investors flock to the country looking to diversify their European portfolios.

“Investors indicate that Asian markets are overheating and that they’ve missed the opportunity in the US,” says Neil Gregory-Eaves, head of investment services in eastern Europe at Colliers International, property advisers. “Now they are looking to invest in the European recovery.”

Funds are satisfied with their exposure in the main European markets of Germany, the UK and France, and prefer Poland’s relative economic and political stability to countries where there is more uncertainty, such as Italy and Spain.

Investment activity is high. This year there may be as many as 60 large transactions in the Polish market, compared with the typical 40-45 annually, says Michal Cwiklinski, head of investment at property firm Savills in Warsaw.

But supply is tight for the ultra-secure assets that the big funds are looking for. Most of Poland’s standing prime properties have been sold in the past few years.

Competition for those that remain has driven up prices, pushing yields to new post-2009 benchmark lows. They have already fallen below 7.5 per cent in the logistics market and below 6 per cent in the retail market, while the benchmark yield in the office market is expected to fall below 6 per cent later this year.

The biggest property deals in Poland so far in 2013 include the sale for €412m of Silesia City Center, a shopping mall in the southern city of Katowice, to a consortium led by Allianz, and the sale of the New City office complex in Warsaw for €127m to Hines Global REIT, a real estate investment trust.

The creation of a joint venture between developer Prologis and Norges Bank Investment Management, which runs Norway’s sovereign wealth fund, included the sale of about 590,000 sq m of logistics space in Poland. The official figure for the transaction was not disclosed, but has been estimated at about €100m.

The money is coming from around the globe. German and US funds have been particularly active, but Asian and Middle East investors’ interest is increasing, too. Qatar Holding bought a large class-A office building in Warsaw in 2011. One of the buyers in the Silesia City Center deal was Chinese.

“There is even some concern about overpricing,” says Stefan Brendgen, chief executive of Allianz Real Estate Germany, which has €600m allocated to Poland for this year.

The growing investor interest has reinvigorated development activity. Some 600,000 sq m of office space is under construction in Warsaw alone, though the vacancy rate remains relatively high, at about 10 per cent.

A potential rise in vacancy rates as a result of new supply is “a concern”, says Marty McCarthy, chief executive of Valad Europe, an investment manager whose Polish portfolio includes retail and logistics properties. “We won’t go chasing after offices.”

Other investors take a more sanguine view, noting that Warsaw’s office market is shallow, at only about 4m sq m, so new stock can push up vacancy rates disproportionately.

Economic growth is expected to increase over the next few years and prime assets generally have little trouble attracting tenants, says Mr Brendgen.

In the retail sector, shopping centre saturation remains below western European levels – 435 sq m per 1,000 residents in Warsaw. To fill the vacuum, three big centres with a total of nearly 1m sq m of retail space were constructed this year.

Tenants continue to absorb prime stock in expectation that retail sales will keep growing. Louis Vuitton, the luxury retailer, opened its first Polish store in Warsaw in June.

Meanwhile, logistics properties are increasingly popular. The sector accounted for as much as 17 per cent of the total transaction volume last year and reached 16 per cent in the first half of this year, according to Cushman & Wakefield, a property consultancy.

This represents a rise on previous years, when logistics accounted for only about 6 per cent of transaction volume.

Since 2009, logistics developers have eschewed speculative development altogether, opting instead for built-to-suit schemes.

As a result, there is not much open space in the market, but rents are still low. However, that could change in the near future, as the rapidly growing e-commerce sector drives demand for warehouses.

Ben Bannatyne, managing director for central Europe at Prologis, says: “The market is at the bottom of the cycle, just ready to come up.”

Get alerts on Poland when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article