Falling interest rates and market expectations
The interest rate cuts in the Eurozone and the US are beginning to have an impact on the Polish commercial property market. Investors had hoped for a compression of cap rates, but there is still a significant discrepancy between sellers’ and buyers’ expectations. This is particularly evident for Class B assets, which are still searching for their floor price. Many of these properties stand at a crossroads, offering potential for adaptive reuse or repositioning to better align with evolving market demands.The year 2025 will bring further recovery, but high financing costs will continue to limit transaction activity. Although Poland saw an increase in investment volume of more than 100% in 2024 compared to the standstill in 2023, the process of adjusting prices to the new reality will be gradual. The 140 transactions recorded show that the median yield is currently 7.4% for warehouses and 8.6% for offices, but actual transactions indicate that offices are selling at over 8.5% due to high modernization costs, especially in the context of ESG-related CAPEX requirements.
In general, following the sector’s very successful operating results, there is reportedly demand for hotel acquisitions – with the intention of investing in repositioning. And well-established assets, even in regional cities, are fetching market prices based on a cap rate of 6.5%.
Conclusions:
- The office sector shows the greatest volatility, suggesting that investors assess risk and return potential differently depending on the location and standard of the property.
- The retail sector is characterized by more stable cap rates, suggesting relatively predictable rental income streams.
- Warehouses – Cap rates for the best big-box assets and urban logistics suggest higher valuations and continued strong demand within the sector.
Changing investment sentiment – alternative asset classes on the rise
The Polish real estate market is undergoing a transformation, with investors moving away from traditional assets such as offices and retail and turning their attention to alternative segments. Key trends include
- Repositioning of older retail parks, which are being modernized and adapted to new market realities,
- The entry of HNWI investors into the retail park segment, which means greater diversification of capital,
- Increased interest in alternative assets such as student housing, senior housing, PRS, data centers and small business units (SBU).
The reduction in interest rates should make it easier for buyers and sellers to come closer to the market price consensus, however, preferences in the living and logistics sectors will remain key.. However, it is worth noting that the traditional segmentation of the market is beginning to blur, and investors are increasingly turning their attention to infrastructure transactions such as data centers and energy storage facilities—a trend that is likely to accelerate in the coming years..
The impact of armed conflict on investment decisions
Geopolitical uncertainty continues to affect investment. There have been instances of American capital withdrawing from transactions following the escalation of fighting in western Ukraine. In addition, it will be some time before demand from Asian institutional investors returns to our region.
On the other hand, the market is feeling the investment sentiment of Israeli investors, and there is growing interest, with more and more of them expressing a desire to do club deals in Poland.
At the same time, Polish private capital is also investing abroad. Spain, a popular investment destination for Poles, recorded almost €1.5 billion in transactions with Polish HNWI capital. This has had an impact on the slowdown in the domestic market for condominiums, hotels and apartments.
Office market – return to growth, but with a new dynamic
The best office locations, such as the CBD in Warsaw and the top facilities in the regions, remain a key indicator of the prestige of tenant organizations. In Warsaw, however, the supply gap created by the slowdown in investment in recent quarters is slowly filling.
Although the hybrid working model still dominates, there is growing interest in flexible office space managed by both specialist operators and building owners themselves. This is a sign that tenant expectations are changing, and long-term leases are giving way to greater flexibility in the spirit of hybrid working.
Summary and outlook to 2025
- Gradual interest rate cuts will improve financing conditions and will soon translate into lower yields.
- Increased market liquidity and lower interest rates will help bring sellers and buyers closer to the market price consensus.
- Alternative segments (PRS, senior housing, student housing, data centers, SBU) are attracting increasing amounts of capital at the expense of office and retail.
- Investor interest in the infrastructure segment (data centers, energy storage facilities) indicates a new phase of market development.
- In the office sector, challenges will remain with highly leveraged assets that may be subject to restructuring or change of use.
In 2025, Poland will remain an attractive market, but investors will be more selective. The greatest interest will remain in the residential, logistics and infrastructure sectors, while traditional segments such as offices and retail will require flexibility in valuations and new asset management strategies.
2025 will bring further market recovery, but the new investment reality will require greater adaptability and a strategic approach to real estate portfolio management.
