JLL forecasts that CEE regional investment volume will reach or exceed EUR 12 million, in line with 2016 and 2017 levels. In Hungary several assets of above EUR 100 mln are in due diligence or under marketing with closing expected in the second half.
With this pipeline, the annual investment volume for Hungary is set to reach EUR 1.7 billion-1.8 billion. A limited supply of investment grade product is continuing to act as a brake on investment activity, however.
The first half year volume for the Hungarian investment market reached circa EUR 490 mln, significantly below the EUR 1.1 bln H1 2017 level according to JLL figures.
“This disappointing volume is the consequence of the limited availability of core products of scale, as we saw only two transactions with a volume of above EUR 40 mln in H1 2018, namely Váci Greens D and Premier Outlet Center. Larger transactions are expected in the second half of the year,” said the consultancy.
For the full year, JLL expects around EUR 2 -2.5 bln for Czech Republic. The forecast for the dominant Poland market is that it will reach an all-time record of EUR 5.5 bln, based on the second half year pipeline deals that are committed, in due-diligence and at advanced marketing.
At the same time, the emerging Romania market is expected to reach the EUR 1 bln threshold. Sentiment is seen as improving as financing terms and conditions are getting closer to those in the core Central European markets.
“Poland still has high investment volume whilst other markets are showing lower levels of activity, which is predominantly driven by a lack of product,” says Kevin Turpin, head of CEE research at JLL.
In Hungary, office was the leading asset class with a 58% share of the total volume, followed by retail with 31% and industrial with 10%. In Czech Republic, office was the again the most favored investment destination with about 50% of total investment volume, followed by retail with 38%.
Back in Hungary, Erste Asset Management has completed the acquisition of the 25,000 sqm Promenade Gardens from Horizon Development, reflecting the role of local money at the high end of the Budapest investment market.
“Erste Real Estate Fund is always on the quest for top technical quality buildings in our home market. Promenade Gardens stands out among our recent acquisitions,” comments Balázs Pázmány, president of the board at Erste Asset Management. This is the completion of a deal agreed earlier, however, and goes into 2017 investment figures.
Local capital provides added security for the markets when it comes to any potential downturn. With regard to the breakdown between investors, domestic capital has been most active in Hungary and Czech Republic, with a record share of volume according to Turpin.
“Of interest is the growth of domestic capital in Czech Republic and Hungarian markets where domestic volumes are growing year-on-year and for H1 2018, make up 67% and 43%, respectively,” he says.
The yield spread between Hungary and Czech Republic and Poland is 100-150 basis points depending on the asset class and this is not compressing. Despite the perceived solid fundamentals of the Hungarian market, assets are still priced at a significant discount compared to Poland and Czech Republic, where financing is cheaper according to Benjamin Perez-Ellischewitz, head of capital markets at JLL Hungary.
“The region continues to offer an attractive yield profile and the outlook for the remainder of the year is continued activity as investor demand is certainly not reducing,” concludes Turpin.