The year of prudent investments is coming

Author  Michał Ćwikliński, Principal, Managing Director – Poland at Avison Young

Taking into account the mood and current investment activity, it would seem that the recession on global markets is only just developing. A clear slowdown in the real estate transactions has been visible since mid 2022. Several factors contributed to it, including increase in interest rates, uncertainty related to the geopolitical situation, war in Ukraine, games between the USA, Taiwan and China, as well as the instability of government and economy in Great Britain and economic problems in China.

As a result, most investors, especially those who have adopted the principles of a limited risk policy, reduced their purchasing plans in Poland. Investors who are still active expect attractive prices now, while sellers are not yet ready for corrections.

The widespread uncertainty observed in the markets means that investors often focus their attention on projects based around basic needs, focusing on residential real estate and convenience retail projects. These two types of assets are on the radar of a growing number of investors, as they are considered the safest. Looking on the activities undertaken on the investment market from the perspective of the end of 2022, it seems that these segments will be even more popular in 2023, provided that the costs and strategies of financing investment projects adopted by banks do not prevent it.

Warehouse assets will continue to attract a lot of interest in 2023. However, investors will pay more attention to the quality of the location and the structure of tenants. Real estate acquisitions in this sector will be increasingly well-thought-out. Rising financing costs, unstable construction costs and pressure from investors to discount existing warehouse properties will affect the investment land market. Only well-prepared land, secured by lease agreements, will have a chance to be the subject of transaction.

This year, there is no pressure from landowners to raise prices. Sellers who show a unique lack of price flexibility in the face of a dynamically changing economic situation, in many cases, have to put their offers back on the market.

A trend that can be noticed and will become stronger in 2023 and in the following years will be the growing demand for brownfield land in the largest agglomerations, i.e. Warsaw, Tri-City, Wroclaw, Cracow and Poznan. Which is naturally related to the continuous development of last mile logistics and the e-commerce market. It should be noted that in many cases investments in attractive brownfield projects may turn out to be a better solution than the purchase of undeveloped, though serviced plots.

I would also like to point out that resilience and sustainability are now extremely important topics that are often raised during talks with foreign entities investing in real estate. Energy efficiency, green solutions and ecological materials are aspects that at large extent affect the conclusion of transactions. A technical audit that would indicate a lower than expected level of the project in this respect, may lead to the suspension of negotiations.