During 2007, Poland has proven to be an important recipient of capital from the global real estate investment market. The largest number of transactions took place in Warszawa. But the regional markets are reducing the distance separating them from the capital city more and more rapidly. In 2007 there were still transactions in which the same real estate was traded several times a year and the resultant earnings were only due to the excessive demand compared with supply. In more recent years the Polish real estate market has been characterized by a significant drop in capitalization rates compared with the other countries in Central and Eastern Europe. Results from our research conducted in cooperation with the Urban Land Institute (Emerging Trends in Real Estate Europe, 2007) suggest that in the immediate future achieving relatively high rates of return on investments will be more difficult. According to some respondents the yields “don’t justify the country risk and everything which goes with it”. Indeed, yields have been converging so far that prime offices in Warszawa are now almost on a par with Western European capitals. It is likely that the ferocity and velocity of the Polish investment market will finally start slowing down to normalize and reflect the real market opportunities.

In order to remain in the relatively well-developed markets (big cities) investors will place more focus on urban regeneration and redevelopment opportunities. This means that projects including full technical and functional modernization will no longer be a rarity in the local markets. Such projects will require a tailored approach and involve closer cooperation with experienced financial analysts, property managers, urban planners and architects to evaluate the practical feasibility of each project. The homogenous nature of real estate investment in Poland will disappear, as investors begin to identify trophy properties in city locations for renovation and restoration.

Another trend that we anticipate will be to return to the basic measure of a real estate’s attractiveness, i.e. its location. Some investors have already purchased rights to land with obsolete buildings in top locations in city centres, solely for the purpose of replacing these buildings with new and more profitable ones. Most frequently, such investments involve replacing a block of houses or an industrial complex with a commercial building. However, the problem still remains, to find a new place for the former residents and often agreeing the new building structure with the heritage conservator (eg. in the case of old tenement buildings).

Investors who wish to avoid modernization or adaptation based investments, have also started paying attention to the local markets, i.e. small cities and towns, where the scale of investment is smaller, but the potential rates of return are higher than in major cities. A number of hybrid funds emerged in the last year, where the objective is to build a portfolio of similar properties, at higher yields, with the intention to hold and eventually sell as an entire portfolio at yields equivalent to larger sized properties.