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The first half of this year was an absolutely record-breaking result in the history of the Polish investment market in the warehouse segment. For the office sector, it was the second best six months in history in terms of transaction value. Despite the turmoil caused by COVID-19, the total value of the transaction volume in the commercial real estate sector in Poland in H1 2020 was even higher than the excellent result obtained at the same time in 2019.
In the first six months of the year, exceptionally large deals were finalized. One of them was the sale of a majority stake in GTC with assets located all over Poland. Their purchase from Lonestar by the Optima company accounted for as much as 15% of the total transaction volume recorded in the first half of this year in Central and Eastern Europe. Our country is a leader on the investment market in the region. The planned investments of Microsoft and Google will certainly contribute to strengthening this position, as they will revolutionize our digitization market and will allow Poland to become a strategic partner in the CEE area.
The largest contracts signed in H1 2020 in the office sector included, among others Skanska’s sale of Krakow’s High Five 4 & 5 to Credit Suisse, Warsaw’s Wola Center building by LC Corp to Hines, or Krakow’s Equal Business Park complex by Cavatina to Apollo Rida. The result of the office segment was also significantly influenced by the above-mentioned purchase of the majority of shares in GTC by the Hungarian Optimum Ventures Private Equity Fund, where the portfolio included office buildings and shopping centers. Moreover, CPI Property Group has finalized 5 new acquisitions. The Group’s portfolio includes office buildings: Green Corner A, Equator II, Equator I, Moniuszki 1A and over 50% shares in the Chałubińskiego 8 office building.
Back to negotiation
Repetition of the record result achieved on the investment market in Poland last year will depend on many factors. Nevertheless, it is not impossible. The covid slowdown slowed down the negotiations in Q2 2020, the consequences of which will certainly be visible in the second half of the year. Currently, however, we are observing a resumption of activity on the part of investors, which translates into a growing number of initiated transaction processes, the finalization of which will be possible this year, if new restrictions related to the virus do not appear in autumn. It is also a condition for returning to negotiating postponed transactions.
Meanwhile, positive moods are visible in business. Poland attracts new investors. Half of the volume of transactions finalized in the first six months of this year is for new players who have not previously invested in our country. Capital flows to us from countries such as the Czech Republic, France and Hungary, as well as from distant corners of the world, e.g. from Lebanon, Singapore or South Africa.
The warehouse sector attracts investors’ attention
Investors are still primarily focused on offices, but the results recorded in the logistics real estate sector show that the interest of global players is now shifting to this asset class as well. This is not a surprise, because we have already observed this phenomenon recently, and the pandemic only aggravated it. The growing interest in warehouses is related to the extremely rapid increase in the share of the e-commerce sector in retail trade and the desire of producers to shorten supply chains. A further increase in the number of transactions related to this segment can be expected in the coming months.
The exceptionally high result, which was the share of the warehouse sector in the transaction volume in H1 2020, was due to large portfolio transactions, corporate acquisitions and acquisitions of shares in investment platforms, such as the sale by Goodman to GLP of properties located in the CEE region and the transfer of shares in the European Logistics Investments platform managed by Griffin from Redefine Properties to Madison International Realty.
The purchase of 40 warehouse facilities was also finalized, the largest of which was the sale of the portfolio of five Panattoni properties to Savills Investment Management, Hines distribution parks to CGL and the sale of facilities managed by Apollo to GIC, as well as the sale of P3’s Park Mszczonów to Elite Partners Capital, as well as the purchase by Polish Logistics LLP, an investment platform established by REINO Capital, IO AM and the Grosvenor Group of the Logistic City Piotrków Trybunalski logistics center.
Financing is harder
The effect of the boom in e-commerce in recent months is also an increased interest in plots for logistics investments. Developers with financial surpluses are also looking for land for office projects. Although banks are currently selectively approaching financing investments in the commercial real estate market. While loans are granted for warehouse and office projects, shopping centers and hotels have practically been excluded from financing. Banks also require a higher own contribution, at the level of 40%, as well as a pre-let in excess of 50%.
Bank financing in the next few quarters will be crucial and will define the development market, including supply. Banks’ lower propensity to finance may translate into slower growth in office resources, as a result of which the vacancy rate should remain at the current level or decrease.
In the coming months, it is very likely that the number of sale and leaseback transactions will increase, which may be a rescue for entities in a more difficult situation. There is also a greater interest on the market in transactions in which a specific share in a special purpose vehicle is purchased or the seller provides Vendor Financing.
Source: Walter Herz