CEE real estate market bolstered by overseas capital


The CEE real estate market is enjoying an unprecedented inflow of overseas capital ranging from South Africa to Asia, according to the latest CEE Investment Report 2019: Thriving Metropolitan Cities, a publication by Skanska, Colliers International, and Dentons.

The report says the region is expected to keep up the momentum, with a favorable economic situation and very good performance of CEE cities driving demand for new investments, including in the office market.

The office stock now totals 21.8 million square meters throughout the entire CEE, with forecasts indicating an approximately 20% growth by 2021, bringing it to 26.5 mln sqm. Last year’s investment in real estate markets in the CEE reached approx. EUR 13.2 billion, with more than EUR 5 bln invested in the office market.

At the same time, since 2013, the CEE region has accounted for less than 3% of all capital spent by Asian investors outside their home continent, the report finds. In 2019, that figure jumped to 9.5% in the CEE, and within Europe it has risen to 14.5%. The total value of Asian capital invested directly in the CEE since 2013 stands at EUR 7.7 bln, compared to the EUR 8.6 bln inflow of German capital.

“As the biggest office developer in the region, we’ve been observing the inflow of foreign investors with great interest, especially Asian investors looking for office assets in the CEE markets,” says Adrian Karczewicz, head of divestments at the Skanska commercial development business unit in CEE. “In 2018 we made the first transaction with a Philippine investor, whereas this year we’ve made a first and direct transaction with Korean funds in Budapest. Korean investors also often invest in European markets through asset management companies like CBRE GI in our deal in Prague.”

“Europeans, led by the Germans, used to be the biggest and core group of investors looking for A-class prime assets in our region. With new players, especially from South Korea, becoming more active in the CEE markets, this situation is changing. They know that in CEE they can find best-in-class, future-proof office buildings and higher returns on investments,” Karczewicz adds.

South Koreans lead the way

The trend is supported by data published in the CEE Investment Report 2019. The report says that South Koreans are currently the most active foreign investors in the CEE, playing an increasingly important role in the commercial real estate market. Findings confirm that in H1 2019, South Korean companies alone invested over EUR 1 bln in the entire region, which is more than what German firms invested.

“In the last year Asian investors have really made their presence known in CEE, particularly the South Koreans,” confirms David Dixon, a partner of law firm Dentons in Warsaw with a focus on cross-border real estate transactions. “Singaporean capital is also strongly represented and, while the Chinese have paused a bit as they digest the ramifications of the trade war with the U.S., the long-term Chinese Belt and Road policy initiative bodes well for their future investment. Favorable exchange rate considerations and higher yields in the CEE, coupled with the availability of first-class office buildings and logistics developments, should continue to stimulate Asian investment in the coming months.”

“Educated workforce is a point of attraction for many international investors and companies coming to Budapest,” adds Marcin Łapiński, managing director of Skanska Property Hungary. “Nowadays, the city has a greater percentage of workers with higher education (46.5%, aged 25-64) than the EU average (32.3%), and similar levels to those found in Madrid (47.2%) and Paris (49.4%).”

“With the future-proof and environment-friendly office buildings that Skanska is developing in Budapest, we aim to help companies in attracting the best workforce and to enable employees’ engagement. As our recent survey highlights, when changing job, working environment is the third most important point of consideration after salary and recognition,” Łapiński adds.

“For those of us that live and work within the CEE, the evolution of the capital cities over the past decade is both undeniable and inspiring. Quality of life has risen dramatically, domestic and international investments are increasing at a record pace, and our economies are now diversified and focused on the future,” notes Luke Dawson, managing director and head of capital markets in CEE at Colliers International.

“As real estate continues to globalize, we wanted to capture both the evolution and the opportunity with factual evidence and data,” explains Dawson. “More and more, international investors view their investment decisions based on comparing new opportunities against what they already know. By drilling down to the key components of what makes a city an attractive investment destination versus its peers, this report shows not only the differences between the key CEE cities, but also against established European counterparts. We believe that the region offers the best opportunities for stabilized growth within Europe, and the evidence clearly supports this.”

The report also describes extensively the development of CEE cities, which have gone through profound economic and social transformations. The full report is available here.

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