CEE Investments Return to Pre-pandemic Levels in Q1

Office Market

At EUR 2.83 billion for the first quarter of the year, Central and Eastern European (Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia) investment volumes have returned to pre-pandemic levels, up by 33% according to Colliers. However, uncertainty around the war in Ukraine and economic headwinds could impact the predicted volumes for 2022 of more than EUR 12 bln.

Looking at the performance of individual countries, Hungary is down 46% according to year-on-year volumes, while Poland has increased by 23% and the Czech Republic saw a jump of 205% for the year, with a very good Q1 2022 measured against a poor Q1 2021.

Individual county volumes followed familiar trends for the first quarter with Poland the dominant investment destination at EUR 1.66 bln, followed by the Czech Republic with EUR 907 million. Poland secured 56% of total Q1 volumes. Hungary recorded EUR 124 mln for the quarter.

“The figure for Hungary is a little behind the 10-year average of EUR 210 mln, but the market sentiment for Hungary remains positive,” said Kevin Turpin, head of CEE research at Colliers.

“Provided we do not receive any further major shocks, we estimate yearend volumes could reach anywhere between EUR 1.5 bln to EUR 2 bln. This would mean they are certainly going back to being similar to Czech volumes,” he noted.

“Poland is also likely to record strong figures although economic headwinds such as high inflation and rising interest rates, may well impact negatively on global GDP performance in the second half of the year,” Turpin added.

Prime Yields Hold

Colliers have recorded few movements in prime yields for most markets in the region, particularly due to a lack of transactional evidence to support further yield shifts.

“Our current outlook also suggests there will be limited, or no further compression in the short term. Particularly as we expect the cost of debt and other financial instruments to increase, adding pressure on margins. The combined impacts of the pandemic and war in Ukraine are driving inflationary pressures and negative economic sentiment,” Turpin said.

With regard to the various sectors, industrial lost its leading position in the region in the first quarter to office and retail as the lack of available industrial product became more apparent. Office recorded 40% of investment volume, followed by retail with 36% and industrial with 12%

Notable big-ticket deals in the region were the acquisition of The Warsaw Hub by Google for EUR 585 mln. In another office deal, the CPI Group sold IGY in Ceske Budejovice in the Czech Republic for about EUR 215 mln. Retail volumes in the region rose due to the divestment by EPP (the largest asset manager of retail real estate in Poland in terms of gross leasable area) of 49% and 50% of its shares in the EPP and M1 portfolios, respectively, for more than EUR 650 mln. 

The Warsaw Hub deal brought the total of U.S. investment capital to more than EUR 1 bln or 38% of CEE market activity in five transactions. However, money from within the region continued to be very active with EUR 972 mln, representing 34% of investment activity in 30 transactions.

“With regard to the impacts of the geopolitical and global health-related crises, the region’s economic outlook is frequently revised. The short-term outlook in the context of a five-year forecast is most likely to worsen before getting any better, depending, of course, on how these crises develop. On top of the pandemic and ESG drivers and disruptions, the war and related sanctions are impacting property and consumer markets in terms of supply, demand and affordability,” Colliers notes.

This article was first published in the Budapest Business Journal print issue of June 3, 2022.

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