Which markets, across emerging Europe, offer the greatest opportunities for property investors? A few days ahead of the world’s leading property market event, MIPIM, Emerging Europe talked to experts from large real estate consultancy firms. We asked them what property investors should look for in the region’s biggest markets, in 2016.
Managing Director and Head of Capital Markets
Given its size and strong economic performance, Poland remains the top target for investors in the CEE region. We expect 2016 to be another busy year and for Poland to weigh in with another strong investment performance.
This has already been confirmed by a transaction that was announced, on March the 1st, between Echo Investment and Redefine Properties. It’s the largest ever deal, not only in Poland, but in the entire CEE region (excluding Russia). A new investor, South African Redefine Properties, is taking a 75 per cent stake in retail and office assets owned by Echo Prime Properties – an Echo Investment subsidiary.
Clearly, investors in Poland will continue to seek new long-term investment opportunities, on top of one-off transactions such as this one. However this transaction is an illustration of the trust investors have in the strong fundamentals of the Polish economy, regardless of the political changes and their potential legal/tax implications for the real estate market.
In our view, in 2016, property investors will look at all asset classes in Poland, but we believe the appetite for retail property is likely to prevail. Retail product continues to be sought by investors and we think this will carry on being the case, regardless of any risks associated with the planned introduction of a retailers’ tax in Poland (which is likely to reduce the prices of retail properties, but not investor interest for retail).
We also expect higher year-on-year investor activity in the office and industrial sectors, but with a lower transactional appetite when compared to retail. Notwithstanding this, the ultimate investment turnovers in retail, office and industrial sectors will depend heavily on the availability of product, as well as the willingness of owners to sell. This is what will drive final volumes for each of the three sectors in 2016.
CBRE Czech Republic
The Czech economy is currently one of the fastest growing economies in Europe and is in very good shape. Many of the Czech economic indicators stand among the best rates in Europe; GDP growth, low unemployment rate, low government debt and 10-year government bond yields. In addition the forecast for next year is very favourable. This is reflected in the development of the real estate market amongst other things.
The Czech financial market is expected to remain at a very competitive level, next year, providing excellent opportunity for investors. We expect the total investment volume to decrease to €2 billion in 2016, with the retail and office sectors making up the largest share.
The 2015 investment volume was boosted by two large deals (Palladium and RPG Byty). However, we are also expecting a few €200+ million transactions to take place in 2016. It is still the case, that only assets in an excellent location and with a long-term lease will achieve prime pricing. The fight for prime product on the market has never been stronger.
At the prime end of the market, we believe investors will continue to reduce their return requirements and pay market leading prices.
Head of Investment Properties, CEE
Romania is enjoying strong economic growth which is also reflected in most property sectors. This is especially true for the retail and industrial sectors which are enjoying very strong demand despite a comparatively limited pipeline. Demand for office space is strong, as most occupiers are growing their space requirements. However the relationship between supply and demand is more balanced, thanks to a significant development pipeline.
The risk/return-profile for investments in Romania has also improved in the past 12 months. Yield compression was extremely limited in comparison to all other main CEE markets which increased the spread versus those markets. Romanian (leveraged) property returns have improved notably, after the significant drop in the cost of debt in Romania, and also because Romania’s outlook for rental growth remains positive in the retail and industrial sector; stronger, in fact, than in most other CEE markets.
It is expected that international investors will consider Romania more and more, but so far this year, there is a limited supply of investment product. A number of projects are in due diligence but few new opportunities are being marketed.
Director, Research & Advisory Department
The current business climate in Belarus has its own specific features. At the end of 2014, the Belarusian economy went into a crisis stage which was caused by internal problems and a crisis in the markets of its leading trade partners, such as Russia and Ukraine.
At the same time, over the period of 2013-2015, all real estate segments saw large numbers of new spaces come onto the market. This led to an over-saturation of the market and a sharp decrease in rental rates (by as much as 40-50 per cent) and a growth in vacancy. In terms of a one-time growth of hotel room supply, in recent memory, Minsk was without equal among the European capitals.
The present situation has a favourable sides for investors; for example, some properties (projects) are “on sale” for lower prices. Additionally, there are good opportunities for companies who are experienced in large-scale projects. Several industrial areas in Minsk (including the city centre) are being offered for the implementation of investment projects.
Despite the large supply volume, several niche areas are still available; there are no high-quality office buildings (A Grade) in Minsk, there are few modern shopping centres in Minsk (let alone the region), which comply with the requirements of international retailers.
The following are some examples of projects that might well be attractive to foreign investors: The developer and the Minsk City authorities are seeking a strategic investor for mixed-use development (5* hotel, business-centre and residential complex) in the centre of Minsk, on Nezavisimosti Avenue; “Minsk World,” involving the development of a 339.5 ha area of the city on the site of former airport; the Great Stone industrial park, an integral part of the Economic Belt of the Silk Road.