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Need for Liquidity Apparent in Investment Market

Deals

Will the perception of the Central European region as a relatively low risk, high yielding investment option survive in the current COVID-19 health and economic crisis, asks the Budapest Business Journal’s real estate editor Gary Morrell.

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“It depends if we still have liquidity on the market and available funds to invest in commercial real estate. CEE countries were always dependent on core EU economies, but those markets were always more expensive. As long as there is a recovery in markets, sooner or later the appetite will come back to towards CEE assets as well,” comments Adorján Salamon, CEO of Eston International, an international associate of Savills.

CBRE expects COVID-19 to have a negative short- and medium-term effect on the wider commercial real estate market in Europe, provided the outbreak is brought under control in a reasonable time frame.

“The shorter the shock lasts, the faster the recovery is. The economic fundamentals were healthy before COVID-19, it will all depend on how long the European economies will be shut down, how much time it will take to restart the engine,” Salamon agrees.

“Industrial and office assets with high WAULTs [weighted average unexpired lease terms] will still be considered safe investments, however, the number of retail and hotel transactions will most probably decrease significantly.”

Eston sees the industrial market as the least negatively impacted sector in Hungary; it has record low vacancy and no change in demand has been seen, although this could change if the crisis is prolonged. In spite of governmental public health measures and downsizing by manufacturers, client companies of the consultancy are continuing their long-term plans for acquiring development land.

The office sector is seen as the second least affected market, if the traditional long-term leases are taken into consideration. However, co-working/serviced offices could be put to the test with the current use of home offices. If companies and workers explore this approach, then it could change not only co-working, but the whole traditional office approach. However, clients seem to be advancing new lease plans; the only limiting factor is the difficulty of office viewings.

Disrupted Sectors

Retail is seen as a disrupted industry: fashion and comfort products are expected to suffer enormous decreases in footfall. The biggest impact, however, is on the hotel sector: many countries have closed their borders and so long as there is a lack of trust in traveling, Eston do not expect this to change. This is particularly bad news for Hungary, which had been seeing a hotel development boom and record tourism numbers.

According to Kevin Turpin, regional director of CEE research at Colliers International, the current situation puts both landlords and tenants in a very unfortunate predicament.

“This is indeed uncharted territory, as the pandemic and subsequent states of emergency are restricting ‘business as usual’ for so many individuals and businesses. Therefore, reaching a mutually ‘best of a very bad situation’ compromise is surely one way to help protect all of our interests in the long run,” he says.

On one hand, landlords will understandably want to collect their rents to protect their investments, while on the other, occupiers will want to focus on securing the future of their businesses and people.

In all real estate sectors, a future where properties have no businesses to occupy them and where businesses have no properties to operate from does not paint a very good picture for anyone.

“Loan repayment holidays and/or other financial measures, including government aid packages across the region are hopefully in the making and until these are more clear, it is essential that we find solutions that will work alongside these,” comments Luke Dawson, managing director and head of CEE capital markets at Colliers International.

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