In 2018, €12.57 billion was traded in the CEE, a record number which proved to be a 12% increase on 2017. Following this success, 2019 has gone on to be just as successful, with €5.45 billion being reached within the first half of the year. This number has surpassed the previous year’s record and has set 2019 on course for another outstanding result.
Offices have performed particularly well in the CEE region, being the top transacted asset in 2018 and the first half of 2019. Industrial and logistics remains an asset which investors continue to be very interested in, in the same way that hotels continue to bring in a steady stream of investment. Retail has not experienced the same fate, as uncertainty in the sector has led to investors taking a step back and approaching this asset class with much more caution. Meanwhile, alternative assets such as residential-for-rent and student housing have begun attracting interest, even if for the moment, the offering is fairly limited.
Domestic capital sources have previously been a key source of funds, particularly in the Czech Republic and Hungary but are likely to slow down a little in 2019. Asian investors however have shown a growing interest in Poland and Czech Republic, demonstrating the widening pool of investors interested in the CEE region.
Let’s take a look at each country
Poland clearly leads the way in terms of the volume transacted in the region, with €2.72 billion representing half of the volume transacted in the region in 2019
- The interest in the retail sector has diminished but there are still a number of key retail assets which continue to draw investor interest.
- Investor appetite remains strong for industrial and logistics assets, particularly when those assets are occupied by exceptional e-commerce operators.
- In Q2, the first student housing transaction was achieved for approximately €60 million.
The Czech Republic has for a while now been considered the most stable country in the region, with the lowest investment risk rating. In H1 of 2019, investment volume reached a healthy €1.7 billion, a year-on-year increase of 59%. Currently investor appetite is strong but with the number of products on the market dwindling, the results for 2019 might be affected.
- Offices were the most traded asset class (41%), sourced mostly by purchasers from South Korea
- The hotel and industrial and logistics classes have seen consistent investment
- Alternative assets such as mixed-use schemes and residential-for-rent asset have started to emerge on the market
We can clearly see the general trend in the CEE is positive in the mid-term, as long as there are no global or regional crises, the future looks promising both for owners and investors. This part of Europe has certainly become very attractive, especially for Asian investors, who are searching for diverse opportunities., The CEE region gives better possibilities for diversification of investment portfolios and remains on the radar for many large investors
Over the past few years Hungary has seen a significant boom in investment which has somewhat subsided in the H1 2019, with €720 million being traded.
- The biggest transactions were completed by REIF (Real Estate Investment Funds) but due to new government bonds that will shortly be coming into place with higher yields, this activity might see a slight slowdown
- Capital for H1 came mainly from German speaking countries, whilst Asian investors are beginning to show greater interest in the country
- Prime yields have compressed across all sectors over the first half of the year and are expected to decrease even further, particularly in the office sector
Romania provides investment options that are very accessible in terms of achieving a good cost/quality balance.
- The office sector in the capital of Bucharest and regional cities has been the best performing, closely followed by retail and industrial and logistics sectors
- A characteristic of the Romanian market is the preference for occupiers and investors to conclude sale & leaseback agreements which have become popular for industrial parks in top locations
- With a number of top assets being in an advanced stage of transaction (including offices and hotels) we are on the cusp of a new prime yield in Bucharest, with the introduction of a new breed of institutional investors
Against the backdrop of many global economic and political changes, the CEE continues to be a region that pulls in a significant amount of investment, buoyed by low labour costs, increasing amounts of infrastructure and a strong manufacturing industry.
As Michał Dybuła, Chief Economist BNP Paribas Bank Polska SA Chief Economist Central and Eastern Europe sums up, “Our base-line scenario for the region is that it will manage to keep growth afloat despite external headwinds. Moreover, we believe that Central Europe is relatively immune to additional outside risks materialising. The list of such potential risks is long, comprising a further escalation of trade tensions globally; a no-deal Brexit and its economic consequences for the UK and EU; and major stress on financial markets. No meaningful external and/or domestic imbalances in most Central European economies suggest that the region could cope better than most emerging markets and developed countries, were the global environment worsen by more than it is currently seen.”