Outllook 2019 RE Investment Briefings.
CEE investment volumes reached new heights in 2018 as overall volumes increased by 7% according to Colliers International. However the rate of growth is slowing.
“The availability of cheap funding was undoubtedly a major factor in the strong performance of real estate markets in Europe and CEE in recent years,” commented Mark Robinson, CEE research specialist at Colliers International.
“It has triggered volumes in the CEE-6 [Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovakia] to new highs in 2018, with EUR 13.8 billion of flow, up 5% year-on-year. CEE-6 real estate’s increased liquidity has propelled it to new heights,” he told the event, attend by around 80 real estate professionals.
Hungary recorded a little more than EUR 1.8 bln for 2018, compared to EUR 2.6 billion for Czech Republic and EUR 7.2 bln for Poland, with 41% of total volume, the dominant CEE market. The office sector in the CEE-6 is seen as having staged a rebound last year with 59% of the total volume. At the same time, volumes in the retail sector have fallen and the industrial sector firmed.
“The development outlook for Hungary is very sound with reference to occupational rates, the ability to source finance and investment demand,” commented Noah Steinberg, chairman and CEO of Wing.
“Headline rental growth still looks likely in 2019 in office in the Visegrad-4 capitals [Bratislava, Budapest, Prague, and Warsaw] and across the spectrum in Hungary, even with gathering economic headwinds. 2020 may be tougher,” added Robinson.
Notable Feature
A notable feature of the Hungarian investment market is the role of local capital, which rose to 55% of the total volume in 2018. Czech and Slovak funds have also achieved significant roles in their respective markets. An exception to this trend is Poland, where there is currently no structure for overseas funds.
“This is a phenomenon that has not been seen before with local capital representing such a large proportion of investment volume. We expect that, moving into 2020, investment volume will be lower due to the limited supply of investment grade product,” commented Bence Vécsey, head of investment services at Colliers Hungary.
According to Árpád Török, CEO of TriGranit, from a positive perspective the growing significance of Hungarian capital gives stability to the market, but this is also a barrier to the entry of other investors; there are pros and cons of it for the market.
Hungary is the only country that is expected to see yield compression across all asset classes. Yields for prime assets stood at 5.75% for office, 7.5% for industrial/logistics and 6% for retail, as of the turn of the year. Elsewhere in CEE, further yield compression is expected in the Warsaw office market, where yields stood at 4.6% as of the end of 2018, in the Prague office market, where prime office yields were 4.75%, and Bucharest, where yields were 5.75%.
Despite the favorable market fundamentals, wider issues could impact the markets. “We believe investors in real estate in the CEE-6 have to be increasingly wary of other risks in this thinner air,” Robinson cautioned.
“These include an overheating development cycle, labor shortages, progress in the ease of doing business of competitor peers around the world, Brexit and related EU funding cuts, ‘populist’ CEE politics and asset taxation risk. E-commerce and ‘flex-working’ are longer-term disrupters. We see the CEE real estate cycle plateauing in 2019. On the positive, any slowdown will be more like 2000-2002 than 2008-9,” he concluded.
