How is the Polish real estate market developing? A market commentary by Beata Latoszek, Managing Director of Deutsche Hypo – NORD/LB Real Estate Finance Warsaw.
The Polish commercial real estate market has shown positive development over the last year. The total transaction volume in the key asset classes office, retail and logistics amounted to €4.8 billion, evenly distributed across these asset classes with €1.6 billion each. Notably, there has been increased demand in both the office and retail sectors.
Retail
Retail is once again being considered by investors. The shopping market has revived, witnessing the entry of strong retail portfolios which led 2024 to its best result since 2019. Despite the existing dominance of shopping centers in retail, most investors continued to focus on retail parks and local suppliers. Opportunistic investors are seeking older shopping centers to refurbish. With a 23% increase, prime yields are showing signs of recovery.
Office
The office market is currently experiencing low levels of new construction activity. Approximately 560,000 m² of modern office space is under construction, with 48% located in Warsaw. The regions outside the capital area continue to see a significant slowdown in development activity. The trend towards refurbishing older office properties is increasingly evident, particularly in the capital. Properties in central locations are in high demand. In CBD Warsaw, the vacancy rate was 8.9%, while it reached 12.2% outside CBD.
Pressure on prime rents is increasing, energy prices are significantly impacting operating costs, and a gradual absorption of vacancies is expected in the coming quarters. Hybrid working models continue to influence tenant demand across the region, with companies optimizing their office spaces for efficiency, employees appeal, and well-being. Future space requirements remain uncertain, as it is currently unclear whether the trend towards working from home will persist.
Logistics
Logistics continues to be one of the most attractive asset classes in the real estate market. Logistics transactions increased by 27% in 2024 compared to 2023, and the stock of modern warehouse space in Poland has reached 34.6 million sqm. The warehouse market was characterized last year by stabilization, a slowdown in rental growth and a decline in construction activity. With 2.1 million m² of new construction space, construction activity fell by 33% compared to 2023. The volume of newly initiated projects has also decreased. However, there has been an increase in demand, primarily driven by lease renegotiations. Lease renegotiations and extensions dominated the leasing mix, accounting for 61% of the total transaction volume. Tenants are increasingly focused on green solutions, and the market is adapting to their needs.
The trend of nearshoring has gained significance in 2024, with the light industrial sector becoming increasingly important. This shift is largely attributed to trade tensions between the United States, the European Union and China, leading more companies to choose Poland as a strategic location for their logistics and production centers. There is a steadily growing interest from manufacturing companies worldwide. Additionally, the demand from Asian clients, for whom Poland is becoming one of the key destinations for supplying Western Europe, is significantly increasing. For investment funds and financing banks, logistics projects with tenants from the light industrial sector are particularly attractive, as these typically involve new, high-quality buildings located in logistics centers with long-term leases and a nearly guaranteed option for further extensions. Despite high financing costs, a decline in yields in the warehouse and industrial sector is expected for 2025.
Hotel Properties
The hotel industry looks back on 2024 with satisfaction. Leisure hotels performed better than business hotels, which have not yet reached pre-COVID levels. Demand is driven by domestic travelers, but the number of overnight stays booked by international guests is also increasing. Despite improved hotel performance and heightened investor appetite for transactions, the volume of hotel investments in Warsaw decreased in 2024 compared to 2023, primarily due to a lack of available products in the market.
Conclusion
Overall, the sentiment in the Polish commercial real estate market is very positive, although the situation is not entirely straightforward. The market is saturated, and the quality and location of properties are of utmost importance. There is an increasing focus on operating costs as well. I remain optimistic about the year 2025, as investor demand is present, prices are attractive, and new opportunities are emerging in segments such as light industrial and shopping centers.