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CEE Attracting Investors Despite Market Uncertainty

Office Market

Colliers worked on the recent R70 office transaction.

Colliers has recorded total investment for Central and Eastern Europe (Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia) for 2021 at around EUR 11 billion. EUR 1.2 bln of that was for Hungary, compared to EUR 6.3 bln for Poland and EUR 1.8 bln for the Czech Republic.

Lower investment levels are seen as being due to the lack of shopping center and big hotel deals in the region. However, office transactions for CEE are predicted to remain constant, while the industrial sector could see increases.

“The German funds are essentially on hold, although this could be a short-term hesitation,” comments Kevin Turpin, head of commercial real estate at Colliers. “In the CEE region, we are registering some investors returning to a wait-and-see approach before making investment decisions. Similarly, we have seen some leasing deals put on hold or completely withdrawn,” he explains.

“Some of these are claimed to have been related to Russian companies being involved and others due to the uncertainty of the war and its physical proximity. At the same time, there will always be those who continually look for and find opportunity, even in the most challenging of times,” Turpin adds.

The conventional wisdom is that despite the pandemic and now the war in Ukraine impacting the commercial property market, there is still a large amount of capital looking to be invested and Hungary and Central Europe are attractive investment destinations that offer an appropriate yield spread.

Colliers puts prime office yields for Budapest at 5.25% and stable, industrial at 5.75% and falling, and shopping centers at 6.5% and constant. Limited movement has been recorded in many markets in CEE due to the ongoing lack of transactional evidence to support further shifts.

Incorporating ESG

There is seen to be an increasingly urgent need to integrate environmental, social and governance factors into investors’ decision-making, especially given the variations in ESG benchmarking and implementation within the region.

Oana Stamatin, ESG chief officer for CEE & Romania at Colliers, comments that depending on whether you are buying, holding, or selling, you will perceive real estate transactions in quite different ways regarding this term. Conducting an ESG review during the due diligence process can help investors identify deal threats and key opportunities for improvement post-acquisition while highlighting deficient standards and identifying regulatory liability, she argues

“With the geopolitical and health-related crises, the global economic outlook continues to change frequently and is extremely difficult to predict. The current situation is highly complex, impacts on a broad spectrum of the economy, and is most likely to worsen throughout 2022 before getting any better,” assesses Turpin.

“The war in Ukraine and related sanctions, on top of pandemic and ESG drivers and disruptions, will impact property markets in terms of supply, demand and affordability. Not all of these impacts are negative, but they will differ between property sectors,” he says.

“However, it is both rising inflation and interest rates that are being very carefully monitored as they will bring an end to the long-running ‘low for longer’ period, which will not only impact the cost of debt and pricing but also multiple other costs for real estate investors, developers, occupiers and consumers,” Turpin concludes.

This article was first published in the Budapest Business Journal print issue of April 22, 2022.

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