The commercial real estate market is in a wait-and-see mode now. We are monitoring the situation on global markets, tenants’ ability to maintain growth momentum and investors’ interest in individual asset classes, says Piotr Kaszyński, Managing Partner, Cresa Poland.
After three months of lockdown, the economy appears to be gradually returning to normal. How long will it take to overcome the current crisis? Is there any analogy to the 2008 slowdown? Should we draw conclusions?
Despite the brief spell of optimism and return to relative normalcy, we can’t rule out a second wave of the pandemic and another lockdown this autumn. Unlike the 2008 crisis, the financial system has not been paralysed yet, but some believe that the current slowdown will be deeper.
What’s the impact of the pandemic crisis on the commercial real estate market?
The commercial real estate market is very diversified. Its individual segments respond to economic shocks differently, so there is no one single answer to this question. The warehouse and industrial market appears to be the winner here. This sector was doing very well before the pandemic outbreak, growing by approximately 2.5 million sq m annually in the past three years. E-commerce is driving new demand which is therefore benefiting logistic operators, courier and parcel delivery companies. Companies in the food and pharmaceutical sectors are very active.
Online retailers are experiencing rapid growth during the pandemic. The question is: is it seasonal profit-taking or a long-term change?
E-commerce has been growing at a quick pace for several years. The pandemic has not triggered a new phenomenon, it has merely been a catalyst behind what has already been happening. Lockdown measures pushed many people to try online shopping and most of them were happy. But to answer your question, in my opinion it’s not just seasonal profit-taking - it's a long-term change that will strengthen e-commerce and accelerate transactions on the warehouse market. We must remember that what it takes in e-retailing is flexible response and the delivery time to the customer. This in turn has a knock-on effect on warehouse space. We have seen this trend before, but it will accelerate considerably now. In addition to the most sought-after big-box warehouses, there’s a growing demand for such formats as small business units or last mile logistics facilities close to large city centres.
As the economy is reopening, companies are of course returning to offices. Will demand for modern office space bounce back too?
The office market was at a historical high before the pandemic, powering ahead at full throttle. After a brief period of turmoil, ‘normalcy’ is returning to offices as well. As the experiment of remote work has failed in many sectors and companies, these organisations are the first to return to the workplace. Some clients have put on hold the search for office space commenced before the pandemic and are waiting to see how the situation will unfold. Others, including IT and e-commerce, are upsizing their offices. But nobody is making any sudden moves - rents are roughly where they were in the first quarter of this year.
Of all the real estate sectors, retail appears to be in the worst situation.
What’s happened has accelerated the transformation of the retail market, which is strongly polarised. Best-in-class shopping centres will quickly regain lost footfall; retail parks will also do well. It will be different with mid-sized retail schemes in regional cities which previously faced major commercialisation challenges and suffered from the lack of tenants’ faith in them.
The hospitality market is also burdened with a lot of uncertainty…
Unlike, for instance, in Germany, where domestic demand plays a major role, hotel occupancy in Poland is largely generated by international travellers: tourists, businesspeople and foreign nationals attending conferences. So, as long as the tourists stay away from Poland, this sector will find it hard to return to pre-pandemic profitability levels.
Are we going to see opportunistic acquisitions in the coming months?
Investment funds are watching the market and will certainly not miss out on any opportunity. I think that despite brief spells of turmoil, capital values of the most stable products in central locations will hold firm – discounts are unlikely in Warsaw in particular. Capital values are likely to experience a sharper fall in smaller cities and pricing will have to be adjusted to buyers’ possibilities and risk appetite. I also believe that some investment funds that have been historically targeting retail and offices may change tack and focus on warehouse and industrial facilities.
We will be keen to see what happens in the coming months. At the end of the year, when we have reviewed all data, we will be able to say a lot more about the condition of each market segment. I think that we will be able to say then which trends and new solutions on the commercial real estate market - created on the spur of the moment - are likely to stay with us for longer.