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tinations of cross-border funding within the region over the last five years, while Hungary’s domestic flows have soared recently. In Poland, the share remains much lower at just 2%, but the report forecasts this could change in 2017.
“The further distance we get from 1989, the more developed the CEE markets become and the less reliant on outside investors we are. This can be observed not only in the real estate sector, but in the whole M&A market,” says CMS part- ner Wojciech Koczara.
Capital is also arriving, however, from other emerging markets. Colliers and CMS forecast that large portfolio-type deals involv- ing Asian investors may become more common in CEE’s real
“Brexit’s full consequences are not yet known and some might even end up as a positive for CEE”
estate sector, which would most likely keep deal values at the same level as in 2016 or even higher. Within the last three years, interest from Asian investors has grown considerably, and total investments from the continent reached €2bn in 2016.
Meanwhile, South African investment reached a record €2.4bn in 2016; as bne IntelliNews reported in March, there are now at least 10 South African listed REITs directly or indi- rectly active in CEE. The report warns, however, that invest- ment may not remain at the same level in 2017, although it expects some level of dealmaking to continue.
But others may join the hunt, the analysts suggest. “If oil and commodity prices sustain at present levels, we should also expect to see more interest from Turkey, Brazil, Russia and MENA countries in 2017,” said Luke Dawson, Colliers’ manag- ing director and head of capital markets, CEE.
However, while new sources of investment are emerging, Western Europe has remained the main source of invest-
ment in the market, albeit with its share in the total halved from 44% in 2011 to just 22% in 2016. Higher returns and solid prospects for rental growth in CEE are likely to encour- age Western Europe and US capital flows to continue at a simi- lar level to the €4.9bn reached in 2016, the report forecasts.
The healthy performance of the real estate sector in the CEE6 – Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia – is evident across the office, retail and indus- trial and logistics segments of the market.
The office segment has been going strong for several years, and the expanding economies in the region will continue to underpin demand over the next two years, even though sup-
ply has tended to keep pace with demand leading to rising vacancy rates in Bucharest and a number of Polish cities.
Meanwhile, healthy consumer demand and wage growth is continuing to drive the retail sector. It is “very clear that in this economic cycle in CEE, the consumer is certainly playing a more prominent role than in the last major cycle that ended with the deep regional recession in 2008-2009”,
the report says.
In Budapest, Prague and Warsaw, occupancy in the main shopping centres is at or very close to 100%, and demand will remain high since fresh supply of new developments looks relatively limited, CMS and Colliers forecast.
The industrial and logistics segment has become a rising star of the region, and is expected to continue booming in 2017. Prospects for manufacturing space demand look promising, while GDP growth in CEE and across Europe are set to stimu- late demand for logistics space. Nonetheless, this will not continue indefinitely, and the report warns of the risk to the sector posed by wage pressure, in particular in Hungary.
In general the picture looking ahead is a positive one, given the steady increase in investment and the strong GDP growth forecasts for most of the region. However, the risk of global economic slowdown, perhaps triggered by higher bond yields or China’s debt pile, hangs over the region. Added to this is the political uncertainty surrounding the UK’s impending exit from the European Union; the UK currently accounts for around 7%-9% of investment in the CEE real estate sector.
Nonetheless, major business hubs, in particular Warsaw, could benefit if there is an exodus of financial services and other firms out of London. “Brexit’s full consequences are not yet known and some might even end up as a positive for CEE,” says Mark Robinson, senior researcher for CEE at Colliers.
“Our CEE colleagues have already reported several real estate players relocating to Poland”
“The outcome of the referendum, and the uncertainty that stems from it, has led some London-based companies to announce that they would reconsider alternative locations outside of the UK for some parts of their operations. Brexit therefore may have some positive effects on the investment volume in real estate in Central and Western Europe, in partic- ular in Germany, Belgium, France, Poland and non-Eurozone Nordics,” says Mark Heighton, head of UK real estate at CMS.
“Our CEE colleagues have already reported several real estate players relocating to Poland,” adds Heighton.
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