Retail parks and convenience facilities have strengthened their position on the investment transaction market in Poland in the past year. In 2024, the retail real estate sector will continue to attract investors with these types of assets, which are considered one of the safest investment options.
In 2023, the investment market slowed down. Its dynamics were mainly affected by high borrowing costs, limited access to financing and the general macroeconomic situation. Both in Poland and across Europe, investor activity declined, resulting in lower investment volumes in all sectors of the real estate market. In 2023, investment volumes in Poland declined by around 70 per cent year-on-year.
The outstanding sector in the investment transaction market was the retail real estate sector, which, with a transaction volume of more than EUR 440 million, ranked second, just behind warehouses. In 2023, the retail sector accounted for almost 30 per cent of the total value of acquisitions recorded in Poland. Investors’ attention was mainly attracted by retail parks and convenience facilities, which generated more than 60 per cent of the transaction volume in this sector. Transaction values generally ranged from EUR 20 million to EUR 30 million. Three transactions involving single facilities exceeded €30 million and one €100 million.
Investors interested in retail property
Last year was another year when investors’ appetite for smaller retail properties – retail parks and convenience centres – grew. This is because in unstable times, investment entities are focused on projects that guarantee the prospect of a long and stable income. In 2018-2019, the volume of investment in retail real estate was muted. And already in 2022, we witnessed a clear increase in the share of retail assets in investments. The retail sector generated around 26 per cent of the investment volume, and retail parks accounted for 65 per cent of the deals concluded.
In 2023, on the other hand, there was an interesting turnaround, with retail properties outstripping offices. Last year, the value of investment volume in the retail sector was higher than in the office segment. The highest transaction value was registered in the warehouse sector, which accounted for half of all investments in Poland.
There was a clear increase in the activity of investors interested in retail properties, especially in the last quarter of 2023. We can expect this trend to continue this year. There are many opportunistic investors in the market who are targeting attractively priced retail properties, as well as higher returns in facilities with plans for modernisation.
Inflow of new investors
There is optimism that new players interested in retail assets are entering the Polish investment market every year. In 2022, the Lithuanian company Lords LB Asset Management, the Czech BHM, the German company Leoff . made their debut in Poland. In 2023, on the other hand, the French investor Frey entered our market and acquired the Matarnia Retail Park in Gdansk from Ingka, completing the largest acquisition registered in the retail sector last year. An Austrian investor also made its debut, purchasing a portfolio of convenience properties in the Silesian Voivodship.
Our neighbours also have impressive investment plans. The Newgate Investment fund, whose capital comes from Ukraine, has announced that it plans to expand its real estate portfolio in our country. Over the next four years it wants to increase its involvement in the Polish market from EUR 160 million to EUR 400 million. The investor, which has a long-standing presence on the Polish market, owns a chain of more than 100 shops and operates e-commerce. For a decade it has been investing part of its profits in retail parks in Poland, where it manages a portfolio of 29 retail properties. It plans to expand, not only in the Polish market, but also in other countries in the CEE region.
The retail parks market in Poland is currently observed by more than a dozen investment entities interested in purchasing them. A greater market share of Polish private investors is also apparent. Unfortunately, the price expectations of buyers and sellers are often divergent. The high cost of money has caused yields for Poland’s best retail parks to rise to around 7 per cent in the second half of 2023. Many investors are geared towards opportunistic purchases, looking for price bargains and redevelopment properties with the potential to increase profitability.
Greater choice of retail assets
In the Polish market, there is not only no shortage of investors, but also of attractive assets. Despite high construction costs, the retail sector is adding assets at a rapid pace. In 2023, more than 560 thousand sq m of space was delivered in Poland, several per cent more than in the previous year. More than 370 thousand sq m went to retail parks and convenience centres, which have been supplying our market with the most new retail space for years. Around 30 traditional and regional retail parks and almost the same number of convenience centres are added per year. Most of the new space feeds into smaller towns and cities.
We now have more than 600 retail parks in the country with at least 2,000 sq m of space. The total supply of space in retail parks and convenience centres exceeds 3.6 million sqm. Funds and private investors in this area have an increasingly wide choice of products.
The year 2024 will also belong to retail parks and convenience centres. The good condition of the retail market in our country is evidenced, not only by the high activity of investors and the considerable increase in new supply, but also by the vacancy rate, which in the retail sector exceeds just 3 per cent.
Around 430,000 sq m of retail space remains under construction in the country, almost 80 per cent of which is in developments involving retail parks and small local shopping centres. The growing popularity of smaller formats is reflected in the average size of new retail projects under construction, at less than 10,000 sq m of space.
The large number of convenience facilities and retail parks under construction in Poland encourages investors looking for stable investment products. Confidence in retail parks as safe assets increased significantly during the pandemic, when the retail market was in difficulty, yet retail parks prospered and were distinguished from other properties by the confidence of banks.
Decisive for future investment volume growth is the cost of investment finance and the availability of capital. The eagerly awaited reduction in interest rates in Europe would be an incentive for large international players to return to the market.
Author: Agata Karolina Lasota, Managing Director of LBC Invest
