Capital Markets

The COVID-19 pandemic changed the rules of the game for the investment sector. Industrial and logistics space leads the way with a record-breaking result

24 lutego 2021

2020, marked by the COVID-19 pandemic, saw the volume of investment transactions on the commercial property market reduce considerably (by approx. 30%) as compared to the record year of 2019. However, taking into consideration the current investment climate, a volume of transactions exceeding the EUR 5.3 billion threshold is still an impressive result. According to the At A Glance Investment Poland 2020 report published by the BNP Paribas Real Estate Poland consultancy, investor appetite for purchases on the Polish market remained solid despite the global economic crisis, severe impact felt by the property sector market worldwide, and the general decline in sentiment.

The industrial and logistics sector is the undisputed beneficiary of the current favourable market conditions; it is growing at a rapid pace across Poland, continuously attracting increasing interest from investors from around the world. It was this sector that, for the first time in the history of Poland’s commercial property market, dominated the structure of distribution of the capital invested, accounting for nearly half of the value of investment transactions completed during the year. At the same time, the achieved result of EUR 2.6 billion is the highest result ever recorded in this segment, beating the previous record established in 2018 by more than 30%, and that achieved in 2019 by more than 80%. As regards the top ten transactions in terms of the volume of capital invested, six were concluded in respect of a product from the industrial and logistics sector. The purchases were completed with regard to large warehouse portfolios and entire property platforms, such as the acquisition of Goodman by GLP Group and the purchase of Hillwood’s portfolio by Rosewood, as well as individual facilities, including the highly desirable e-commerce distribution centres: Amazon in Poznań acquired by Blackbrook, and Amazon Wrocław which is now part of Hines' portfolio.

The high level of demand for industrial and logistics investment product affects sellers’ price expectations and translates into strong pressure as regards cap rate compression, with cap rates currently oscillating around 5.25% for prime industrial and logistics facilities and dedicated BTS locations.

Investors have shown interest in large warehouse portfolios and entire property platforms, as well as individual facilities of different classes, in particular those secured by long-term leases. Distribution centres occupied by leading e-commerce operators form a distinct group here, with cap rates compressing to approx. 4.2%. Investor sentiment in 2020 clearly reflected the extremely favourable situation prevailing on the industrial and logistics market and the positive prospects for further growth of this sector. The continuous growth of the e-commerce segment, increasing demand for logistics and courier services, expected growth of the fledgling last-mile logistics segment, and the nearshoring processes brought about by the COVID-19 pandemic will contribute to further strengthening of Poland’s warehouse sector. We expect that 2021 will see the sector retain its leading position on the investment market.

Mateusz Skubiszewski, Head of Capital Markets, BNP Paribas Real Estate Poland

The office sector, with its value of transactions amounting to approx. EUR 2 billion, accounted for 37% of the total investment volume achieved in the entire year. Compared to 2019, which closed with a record-breaking result for the sector, 2020 saw the total value of completed transactions fall by nearly a half. The increasing popularity of the hybrid work model, uncertainty as regards demand for office space, and the limited investor appetite for office schemes located on the regional markets can be counted amongst the key impacts of the COVID-19 pandemic and the stringent health restrictions. The regions, with their share in the total office investment figures increasing gradually in the past, attracted approx. 30% of the capital invested in offices. The leader here was Kraków, with completed transactions including two High 5ive buildings (4 and 5) purchased by Credit Suisse, the Equal Business Park complex (the A, B and C buildings, as well as the D building currently under construction) acquired by Apollo-Rida and Ares, and the successive phase of the Podium Park complex (the B building) purchased by Globalworth. The largest transactions finalized in Warsaw included the purchase of the A and B buildings of the Lixa complex by Commerz Real on behalf of Hana Financial Investment, the acquisition of Wola Center by Hines, as well as the purchase of the Generation Park Z office tower by DEKA (at a price of approx. EUR 98 million).

According to experts at BNP Paribas Real Estate Poland, at the moment prime assets in Warsaw can bring a cap rate of approx. 4.6%, where at the beginning of last year, before the outbreak of the COVID-19 pandemic in Poland, negotiations were taking place with cap rates in the range of 4.25-4.35%.

2021 will continue to bear the burden of the COVID-19 pandemic and the wide-ranging application of the hybrid model combining remote work and office time, however the positive news regarding the increasing numbers of COVID-19 vaccinations taking place now bring us closer to the return to offices of progressively more employees. Investor sentiment towards core and core+ investment product, in particularly when located in Warsaw's thriving office zones and on the leading regional markets, will strengthen gradually. A “freeze” was put on a number of transactions commenced before the outbreak of the COVID-19 pandemic, however the parties involved will still be able return to the suspended negotiations and finalize the process in 2021. Moreover, we are expecting to see an increase in interest in properties the life cycle of which as an office building is coming to an end and which can instead represent an attractive location for a residential development for which there is continuously increasing demand.

Piotr Goździewicz, Dyrektor w dziale Rynków Kapitałowych, BNP Paribas Real Estate Poland

2020, on the other hand, saw a sustained decrease in investor appetite for retail properties. The turmoil in the industry caused by the COVID-19 pandemic and the steady growth of the e-commerce segment, which has without doubt accelerated as a result of the restrictions imposed on the operations of traditional stores and service outfits, were reflected in the interest shown by investors in properties in this sector. Transactions worth approx. EUR 658 million were completed throughout the year, representing approx. a mere 30% of the average volume recorded in the previous five years. The vast majority of the above amount was achieved in Q2 when the Hungarian state fund Optimum Ventures acquired Lone Star’s equity in GTC, with the portfolio covered by the transaction also including GTC’s shopping centres (Galeria Północna in Warsaw and Galeria Jurajska in Częstochowa). Given the ongoing fundamental changes in consumer buying habits and their direct impact on the condition of retail properties, investor interest is now focused on the so-called proximity centres, small retail parks, discount supermarkets and free-standing specialty stores. 2020 in the retail sector brought with it decompression of cap rates for leading shopping centres by approx. 50 basis points. The situation in the coming months will be affected by a number of factors, the key ones being the direction the pandemic takes and the restrictions imposed on retail operations under the new health regulations. These may bring severe consequences for operators from the retail, service, and particularly the food and drink, and entertainment sectors. The strengthening investor sentiment towards the broadly defined convenience retail format is reflected in cap rates in the range of 7.00-8.00% for small retail parks, conveniently located in the vicinity of large residential clusters.

The global COVID-19 pandemic is a textbook example of a black swan event that no one was able to predict or prepare for. Investment markets are now gradually adapting to the new circumstances, the most difficult aspect of which have been, and continue to be, the restrictions imposed on travel. It is likely that the next few months will be marked by limited investment activity, however a solid rebound is expected as early as in the second half of 2021.

Mateusz Skubiszewski, Head of Capital Markets, BNP Paribas Real Estate Poland