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Rental Growth Prospects Drive Office and Industrial Investment in 2018

Capital Markets Team
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Investment volume H1 2018

According to the latest analysis by global real estate services firm Cushman & Wakefield, total investment volumes in Poland in H1 2018 surpassed €3 billion reaching €3,246 million, up 113% on H1 2017. 

In H1 2018, the retail sector remained the largest with a 59% share at €1,902 million, more than double the H1 2017 figure. The high investment activity in this sector was primarily due to large portfolio deals with investors attracted to the retail sales growth in Poland regardless of the Sunday trading ban.

Office sector investments are also on the rise, adding €938 million to the aggregate figure in H1 2018 and outperforming H1 2017 by 261%. This growth is underpinned by booming occupier demand and falling vacancy rates. These factors, together with rental growth prospects and competitive yields compared to Western European markets, continue to offer solid investment fundamentals.

The industrial sector also noted growing interest with an investment volume of €338 million - a figure representing a 10% share for H1 2018. Following the €750 million Logicor portfolio record transaction by China Investment Corporation in 2017, the industrial and warehouse sector is expected to reach new highs in forthcoming periods. As in the office sector, record high take-up and rental growth prospects are expected to drive investment demand in the industrial sector. 
The hospitality sector accumulated €69 million in investments, 2% of the H1 2018 total investment volume. This subdued investor activity is largely due to a lack of stock availability. However, the relatively robust tourism demand in Poland with hotel occupancy rates growing by the year helped to underpin the RevPAR growth of 9.2% in 2017, far ahead of the European average of 2.2%. 
Landmark transactions in 2018 so far include:

  • Griffin Real Estate’s acquisition of the largest retail portfolio on the Polish investment market – M1 portfolio, consisting of 28 retail assets (shopping centres, retail parks, hypermarkets and DIY stores) across Poland, at a value of €1.0 billion.
  • The acquisition of Galeria Katowicka by Employees Provident Fund of Malaysia for €300 million.
  • The acquisition of a 50% stake in the Warsaw Spire tower by the U.S. newcomer - Madison International Real Estate Liquidity Fund VI LP, for €175 million.
  • The Revetas and Goldman Sachs Asset Management acquisition of TriGranit and its office portfolio located across the CEE region, with €327 million in assets and business operations in Poland. 

The Outlook for H2 2018

Investor sentiment is expected to remain healthy in forthcoming quarters, probably outperforming 2017. We anticipate further consolidation platform operators, with the growing importance of M&A transactions as well as waves of new capital. We estimate the total investment volume in 2018 to exceed €6.0 billion and expect increased activity of North American, German, Asian, South African and Czech investors. 

Prime retail and office yields to drop below 5%
Prime yields at year-end 2018 are expected to further compress below 5% for the retail and office sectors, whereas those for industrial and hospitality sectors are likely to remain at 6.75% and 6.50%, respectively. We anticipate further yield compression in 2019. 

Table 1. Investment volume H1 2018

Sector

H1 2018 (EUR MN)

% Share

Offices

938

29%

Retail

1,902

59%

Industrial

338

10%

Hospitality

69

2%

Total

3,246

100%