Why Warsaw’s star is on the rise for real estate investors

More real estate investors are turning their attention to the Polish capital with over €2 billion invested in its office market in 2018.

10 mai 2019

Warsaw’s run of major real estate deals is set to continue as strong economic fundamentals buoy investor interest.

Large, multi-million-euro office developments remain in demand, yet smaller buildings are also changing hands.

“There are already a number of large office transactions underway in Warsaw - but there’s appetite too for sub-€200 million assets,” says Tomasz Puch, head of office and industrial investment at JLL Poland. “Investor demand across the spectrum is there.”

Attractive yields are one reason why, says Puch, especially compared with major European office markets. While prime yields across Poland are compressing and rent levels are growing, Warsaw’s office yields of 4.75 percent are more favourable than in cities such as Munich in neighbouring Germany at 3.2 percent.

“In addition, the Polish economy’s credentials really stack up right now,” says Puch.

GDP growth is expected to come in at 3.7 percent for the year and Polish unemployment hovers around 1.5 percent.

An emerging destination

More than €2 billion was invested in the Polish capital’s office market last year, according to JLL, outperforming the previous record set in 2006 by 20 percent.

Kuala Lumpur’s Employee Provident Fund invested €200 million in the Gdański Business Center while German investor Strabag Real Estate recently bought the Atrium International office building on Warsaw’s Jana Pawła II Avenue off compatriot Patrizia Immobilien.

Investors are following occupiers as more big-name companies move in, attracted by the country’s skilled workforce. Last year Standard Chartered announced plans to create a new global business services hub in Warsaw.

“Warsaw and major Polish cities offer a high pool of talent across the labour market - that’s driving demand from a wealth of occupiers for space,” Puch says. “Investors – both established and debutantes – are tapping into that.”

A widening investor base

Investors are coming from further afield, with a mix of Asian, European and North American capital invested in the Polish capital over the past year, and new investors arriving from South Korea. Two South Korean financial services firms, Heungkuk Fire & Marine Insurance and Kiwoom Securities, jointly invested US$162 million in an office property in Warsaw last year.

“There’s a healthy mix of investor types and nationalities from near and far, with the presence of blue-chip tenants such as JP Morgan and Samsung a definite pull,” says Puch. “That’s good for Warsaw and will continue.”

As a result of rising interest levels, Warsaw featured for the first time in JLL’s top 10 global cities for cross-border investment last year.

Options beyond the capital

“Warsaw is the strongest success story in the country,” says Puch. “But competition is intensifying among investors and that’s slowly bringing other regional cities into focus.”

An office portfolio, including assets in Krakow and Warsaw, was recently bought by London-listed Globalworth. Deals such as this, and that done by The Cromwell Group’s European REIT vehicle, which simultaneously bought in Warsaw and Gdańsk, could become more frequent, Puch says.

“Investors are supplementing Warsaw acquisitions with regional assets in the likes of Gdańsk and Krakow,” he says.

That, says Puch, is thanks to the wider favourable outlook for the Europe Union’s eighth largest economy. Warsaw and Poland may not reach last year’s record investment levels, but demand – from large occupiers and investors – says Puch, will remain strong.