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After a period of substantial growth, the Polish real estate market experienced a downturn, largely attributed to adverse economic and geopolitical conditions. In 2023, total investments hit 2.1 billion EUR, down from the prior year's 5.8 billion EUR. However, the prospects of a recovery in 2024 seem promising. Several months of continued inflation reduction and a standstill in interest rate hikes imply reduced financing expenditure for new deals. The foremost challenge for the industry is the need to align with ESG mandates and bolster the energy efficiency of buildings.
Although the previous year was much weaker on the real estate market than previous ones, Poland still remains on investors' radar. In 2023, they concluded a total of 82 transactions worth 2.1 billion EUR - a year earlier there were 122. Such a result was influenced by, among other things, a lower percentage of investors from the USA. In 2023, it was only 13%, which is almost a threefold decrease compared to the previous year (33%). The share of European investors significantly increased - from 22% to 57% in 2023. This year, we can expect a massive rebound, especially since the period of high inflation has passed, and economists forecast a noticeable GDP growth. EY Economic Analysis Team forecasts it will be 3.7% in 2024 and 3.1% in the following year. For several years, Poland has been a leader in economic growth, which constitutes a strong argument for foreign entrepreneurs.
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The warehouse real estate sector, attracted the bulk of capital accounting for 46% of transaction volume in 2023. The last year's leader - the office sector - saw a large decline of 17 percentage points, placing it only third with a result of 20% in the total number of investments. The retail sector is very steady, reaching 21% of deals concluded.
The real estate sector continues to adapt to socio-economic changes happening at the speed never recorded before. Emphasis on sustainability, a 15-minute city concept, repurposing and renovation of existing assets, growing use of technology across and changing life and work styles present the current roadmap for the sector's future.
1. Green or perish. Sustainability has become a key priority for Real Estate
As buildings are responsible for nearly 40% of energy consumption and 36% of GHG emissions, real estate players are taking steps to minimize negative effects of the sector on the environment by complying with ESG (Environmental, Social and Governance) regulations. Measures implemented in order to enhance the environmental performance of buildings can be applied through their entire life cycle and include i.a.:
- Eco-friendly and energy efficient construction and furnishing materials
- Interiors enabling soft & hard refurbishment
- On-site renewables
- Efficient waste and water management systems
- Smart A/C systems
- Green leases
This trend is bound to intensify in the years to come.
2. 3Cs: Close, compact and convenient. 15-minute City concept is gaining on popularity
The concept of a 15-minute city presents a major transformation in urban planning and has the potential to dramatically enhance living standards and lessen environmental impacts. This concept involves establishing neighborhoods where all necessities are accessible within a 15-minute walk or bike ride from residents' homes, including workplaces, schools, shops, recreational facilities, and healthcare services. The benefits of this concept include:
- Sustainable Living: A decreased dependence on cars results in reduced emissions.
- Boost to the Local Economy: The 15-minute city model can drive local business growth, as residents shop and use services in their immediate surroundings.
- Community Participation: The model encourages a sense of community, connecting residents to their local environments.
- Health Advantages: As the structure promotes walking and cycling, residents are more likely to incorporate these activities into their daily routines.
The effective implementation of this concept demands strategic planning, enhancements in infrastructure, and informed policy decisions. Urban planners may need to review land zoning laws to support mixed-use buildings and boost local businesses. Despite these challenges, the long-term advantages of this urban model make it a promising alternative for future city planning.
3. Looking for value. Investors and landlords are actively eying opportunities for redevelopment space conversion
In response to shifting tenant demands across all property types, investors and property owners are actively seeking opportunities for redevelopment and space repurposing. As hybrid work is becoming a norm, demand for office space has decreased. Consequently, some developers are converting vacant office spaces into residential units. The ongoing e-commerce growth is driving a higher demand for storage and distribution facilities, leading to the transformation of some retail spaces into fulfillment centers.
The refurbishment and repurposing of property have numerous advantages, such as reducing waste and supporting sustainability initiatives. Moreover, revitalizing a disused asset can stimulate economic activity and generate new jobs and services. However, barriers like zoning laws can hinder conversion and substantial investment may be necessary. Nonetheless, considering the potential gains, this trend is worth investigating.
4. AI in Real Estate
The infusion of AI in real estate is dramatically altering the sector. While there are challenges such as data privacy and protection or implementation costs and ROI, to be navigated, the benefits of streamlined processes, enhanced decision making, risk mitigation and improved client experience are undeniably great benefits.
5. neHybrid. Ways of working and living are evolving
Hybrid models are set to continue evolving, playing a pivotal role in shaping future work and living environments. The hybrid work model aids in attracting and retaining employees who seek flexibility and a work-life balance. However, it presents challenges to property owners who must adapt to changing tenant needs - including less need for space and shorter lease terms. This also implies a transformation of office spaces into more collaborative environments, fully equipped with a variety of amenities.
Amidst the pandemic, a noticeable demand for residential properties in suburban or rural areas was seen, with people now opting for larger homes suitable for remote work. Nevertheless, the demand for housing in urban areas remains high due to cities being the prime locations for job opportunities. The surge in the private rented sector (PRS) is significantly influenced by rising interest rates, which affect housing affordability.
Additionally, younger generations influenced are altering this sector as they are choosing to rent rather than own their homes. These younger tenants value flexibility and mobility and are hesitant to make long-term financial commitments.
On top of the general trends, there were a number of legislative changes introduced, which impact real estate sector. These included the introduction of a spatial planning reform, the possibility of acquiring land in perpetual usufruct by certain groups of perpetual users or housing cooperatives, and new regulations on acquiring shares in companies owning agricultural land. Additionally, the digitization of administrative processes in the construction sector was continued. Some of these amendments directly affect companies operating in the real estate market, while others may impact the business indirectly.
Summary
The Real Estate Guide Poland 2024 is a unique report created by the EY’s Real Estate Market Group experts, focusing on key trends and market forecasts across all sectors, along with an extensive presentation of the most important changes related to taxes, law, and auditing, affecting players in the real estate market.
This year's edition discusses the importance of sustainable development, modern technologies, space conversions in value creation as well as new ways of living and working.
Furthermore, it provides guidance on priority areas and risks related to the entire life cycle of a property. We hope the information contained will serve investors and corporate tenants in making business decisions.