Polish appeal: Europe’s most dynamic country should be a focus for savvy investors - Cromwell Property Group
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February 15, 2023

Polish appeal: Europe’s most dynamic country should be a focus for savvy investors

Poland’s performance prospects are compelling. In our view it is being unfairly discounted by investors due to its proximity to Ukraine. We also believe that it is set for sustained occupier demand growth due to the strength of long-term fundamentals related to economic growth and demographics. A combination of rising occupier demand increasing rental potential, a lack of space suitable for modern businesses and a flawed perception of risk creates a powerful impetus for savvy investors to seize the chance today to acquire good quality real estate and benefit from superior performance tomorrow.

In the first article of this series, we explore why Polish investment prospects are so compelling. In future articles we will examine the performance opportunities presented by individual real estate sectors.

Risk perception: Extreme caution towards Poland is misplaced

International investors have shunned Poland since the Ukraine invasion given its proximity to the conflict and its high associated risk perception. Polish real estate investment volumes in H2 2022 were 35% down on the five-year average according to RCA (figure 1). Polish prime yields have moved out between 50-90 bps over the last year and it remains one of the highest-yielding European markets (figure 2).



Logical reasoning implies that this heightened risk perception is misplaced. Indeed, far from being an inhibitor of future performance, proximity to Ukraine is likely to be an accelerator of it.

Our baseline assumption is there will not be a horizontal escalation of the Ukraine conflict in which Poland is invaded. Given Russia’s battlefield setbacks, their inability to retain territorial gains and the assertive, unified position of NATO and the EU towards Russian aggression, we believe such escalation is highly unlikely. If such an escalation did eventuate, we would all have far more to worry about than real estate values in any case. In the medium-term (the next five years), we also assume that the conflict reaches a settled state and active combat ends. Accepting that, let’s turn to the real estate fundamentals.


Economics and demographics: Dynamism in leading occupier demand indicators

According to Oxford Economics, Poland will benefit from some of the strongest economic growth in Europe over the next five years (figure 3). Because such growth is a leading indicator of occupier demand, this bodes well for real estate performance. However, we believe that even these bullish growth assumptions may be too pessimistic as they fail to account for the full impact of Poland’s post-war relationship with Ukraine.


Poland has been a hub for shipping arms and aid to Ukraine over the last year. Post-war, it will be the conduit through which the reconstruction effort is funnelled. Given the damage Russia has inflicted – the reconstruction costs are estimated by the World Bank amount to €322 billion so far – that effort will be significant. There is talk of a new Marshall Plan, the American programme that turbo-charged Europe’s economic recovery after the second world war. Poland’s leading role in the reconstruction effort will be solidified by the international creditability it has gained by virtue of its resolute response to the invasion. This will translate into far greater foreign direct investment (FDI) from international capital once the risk perception declines.

Poland has been a haven for Ukrainian refugees, with 7.5 million fleeing across the border according to the European Investment Bank. Some 1.5 million are estimated to remain there today, many of whom are likely to settle permanently. The presence of so many additional people has caused some immediate tensions by exacerbating pressure on housing and social infrastructure. Short-term challenges aside, these immigrants will inject dynamism into Poland’s demographic profile by adding labour and population. The new arrivals tend to be younger and better educated than the average Pole. It will be an attractive destination for corporate occupiers seeking to tap that plentiful, affordable supply of skilled labour.

Current forecasts do not, in our view, fully account for the additional economic and demographic growth impetus associated with these factors which will directly translate into stronger real estate demand.


Conclusion: Unwarranted risk and solid fundamentals make Polish real estate an investment gem

In summary, we believe that the Ukraine-related risk of Polish real estate investment is over-estimated. We also consider that economic and demographic growth drivers will stimulate sustained occupier demand in the medium-term and long-term. Investors who access the market now can secure assets and development sites aligned to future demand and associated rental growth at higher yields than will be available once the Russian-Ukraine conflict settles. Exposure to capital and income growth potential will, if executed correctly, deliver out-performance. That is why we are so optimistic on Polish real estate.