International investors increasingly value Polish real estate market

Over 90% of investment funds that invested in Central and Eastern Europe in 2016 intend to spend money in the Polish real estate market again. This means this year Poland will remain the key investment market in the region. Office buildings and apartments will attract the greatest interest. Likewise, investors also appreciate hotel buildings and logistics facilities. On the other hand, interest in retail facilities has diminished.

A survey of representatives of more than 70 international investment funds operating in, among others, Central and Eastern Europe conducted jointly by the research consultant PMR and real estate advisor Project Partners International shows that Warsaw remains the preferred Polish city to locate investment projects, with more than 90% of investors planning to acquire assets in the city. Cities with a percentage of respondents’ answers at 50-60% are Wroclaw, Lodz, Gdansk and Krakow. Poznan, Gdynia and Katowice attract less interest from investors.

In 2016, investors favoured office buildings and retail facilities, which jointly accounted for more than three-quarters of transactions. However, the investor survey shows that there is a likely shift in investor preferences regarding the Polish market in 2017, which can result in the segment of retail projects losing market share. The survey shows that office buildings and apartments (intended for sale and for rent) are at the top of the list, with almost half of investors interested in them. Investment land is ranked only a little lower, next to hotel buildings, which experience a marked upturn following several years of stagnation. Only one out of every five investors plan to acquire retail buildings.

Nearly half of investment funds planning to invest in Poland in 2017 also plan projects in other countries of the region, mostly in the Czech Republic followed by Hungary, Romania and Slovakia. As for now, such countries as Croatia, Russia and Albania attract less interest from investors. As much as one-quarter of investors plan to spend more than €100m on the planned investments in CEE countries other than Poland.

The largest investment transactions completed last year include: the sale of a 75% interest in the €1.2bn Echo Prime Properties real estate platform in Poland by Griffin, Pimco and Oaktree to the Redefine Properties Limited investment fund, the sale of the Krakow-based Bonarka City Center (€361m) by TriGranit (TPG Real Estate) to Rockcastle, the sale of Focus shopping centres in Piotrkow Trybunalski and Zielona Gora (€161m) by Aviva Polish Retail Fund to Rockcastle and the sale of Galeria Warminska (€150m) by Galeria Warminska to Rockcastle.

The Griffin Real Estate group has already for some time been a prominent investor − it acquired Echo Investment in 2015. In October 2016, Echo Investment and Echo Polska Properties entered into a preliminary agreement for the sale of seven office buildings totalling almost €264m (eg. O3 Business Campus in Krakow, Tryton Business House in Gdansk, A4 Business Park in Katowice and Symetris Business Park in Lodz).

An interesting deal completed in the hotel market was the sale of a five-star Westin Warsaw hotel (managed by Marriott International) by Skanska to Qatar’s Al Sraiya Holding Group. It was the investor’s first ever acquisition in Poland (and Central and Eastern Europe), and it was also the first transaction involving a hotel property in Poland for Skanska.

The first quarter of 2017 saw a number of interesting transactions and events in Poland. Warimpex announced partial sale of its hotels to Thai investor U City Public Company Limited (€180m). Moreover, in March Algonquin sold a five-star Sheraton Grand Krakow hotel to Invesco Real Estate in a €70m deal. Echo Polska Properties and Echo Investment jointly acquired Warsaw’s Galeria Mlociny under construction from Rosehill Investments (transaction valued at almost €42m). It was also in March that Poland’s first REIT-type company, Griffin Premium RE, was listed on the Polish stock exchange. The Dutch-based company operates within a REIT-like investment vehicle. Griffin Premium RE’s senior management plans to transform the company into a REIT as soon as the relevant regulations applicable to REITs have been adopted in Poland.

Real estate companies estimate that between €4.5bn and €5.2bn − depending on calculation method − was invested in the Polish real estate market in 2016, marking the highest investment in 10 years. The results of the survey of representatives of top investment funds indicate that this year the Polish real estate market will remain an attractive and safe haven for investors, offering relatively high returns on investment when compared to Western European countries. In the coming years, the situation in the Polish investment real estate market is likely to be driven by the planned changes in legal regulations applicable to the real estate market, new investment tools which can be deployed and a new government-led housing programme.

Bartlomiej Sosna
PMR Head Construction Analyst
Katarzyna Grabarz
PMR Construction Market Analyst