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What’s making the CEE real estate market tick in 2020?

Check out article by Emerging Europe
https://emerging-europe.com/business/whats-making-the-cee-real-estate-market-tick-in-2020/

What’s hot on the emerging Europe real estate market in 2020? And what are the trends investors need to be aware of when they look at the region? Ahead of MIPIM 2020, the world’s premier property market event, we asked experts from leading real estate consultancy firms, CBRE, JLL, Cushman and Wakefiled, and Colliers, for their opinions on the opportunities and challenges they see in the markets.

Joanna Mroczek
Head of CEE Research & Marketing at CBRE Poland 

Poland maintains a very strong position in the region. The country is favoured by stable macroeconomic indicators with good forecasts for the future, an excellent geographical location and availability of qualified employees, with still relatively low employment costs. Poland attracts investors from around the world. They are mainly Europeans, but also Asians or Australians, who most often invest capital in the area of office and warehouse buildings. It is in these sectors that transaction volumes and real estate valuations are reaching record levels.  
The office market is developing the most dynamically. Expert forecasts indicate that this will not change in the near future. Most new offices are being built in Warsaw, but it is clear that large regional cities are catching up fast. Warehouses have been growing at a stable pace for several years, which strongly supports the rapid development of e-commerce. Interest in retail and hotel markets continues, although changes in approach are evident – retail parks located outside city centres have become more popular than large malls, and three- and four-star hotels have become the most interesting investment facilities on the accommodation market.  
The main driver for the new developments is a constantly growing demand for a different kind of commercial space. Every year a new record is registered in terms of office and industrial take-up. The main interest for new offices is generated by international corporations and their back offices, consolidations in banking and insurance, new concepts like co-working, growing healthcare and education sector. Last year result put Warsaw among top five capital cities in Europe in terms of office demand. E-commerce and manufacturing are the main source of warehouse take-up.  
The continuing economic development, better transport conditions and qualified employees allow us to forecast the maintenance of positive trends and further development of the commercial real estate market in Poland. 

Andrei Vacaru 
Head of Capital Markets, JLL Romania

Romania offers a great risk return profile for investors in Central and Eastern Europe, through a combination of attractive yields and favourable financing conditions, allowing double digit returns even for prime assets.   Taking into account the ongoing deals across all asset classes, Romania’s real estate investment market, in 2020, may very well register a post-2008 crisis record transaction volume. There are many opportunities in Romania. Depending on the investor profile, I believe either core offices, hotels or less typical value added projects are worth a close look. The forecast for the office sector is healthy and the market will have a robust pipeline — major transactions are expected, especially in Bucharest. The hotel investment market, although still relatively young in Romania, is exciting. The fundamentals are strong with demand constantly increasing which is reflected in great performance indicators of hotels. With a growing economy and a stable macro environment, Romania also offers value add opportunities with amazing upside potential for those investors willing and able to put in the work and creativity. 

Richard Hogg
Head of Valuation & Advisory, Cushman & Wakefield Czechia

The Czech real estate markets have performed exceptionally well over many years with sustained occupier demand driving high levels of development across all sectors. The market evolution is perhaps best reflected in the strong levels of investment which have characterised the sector for a number of years. But the story of the market’s evolution is not only quantitative. Developers (who must take significant credit) have continued to drive product quality, delivering assets across all sectors which now reflect the highest global standards of design and construction. But such growth and product evolution will bring greater challenges, and as an established European market place, the Czech property sector must now compete as such. In this respect developers must continue to drive standards, landlords must continue to invest in their portfolios, and all stakeholders across the market must embrace and support evolution. We are not just building a market anymore, we are working together to make one which is sustainable and competitive in the long term.  

Iglika Yordanova
Managing Partner, Colliers Bulgaria

The overall outlook of the Bulgarian investment real estate market is still looking positive. The total value of investment deals for 2019 was 270 million euros. Acquisitions of development land dominated the market activity, followed by offices, hotels and retail. More than a half of these transactions were with income-generating assets. Yields preserved stable levels in the three major real estate market segments – offices eight per cent, retail – 7.25 per cent and industrial 9.50 per cent. Domestic investors have been the most active during the last year and we expect this to continue in 2020. Companies from Eastern Europe and Israel are anticipated to grow their property portfolios in Bulgaria. If Bulgaria starts procedures to enter the European Monetary Union, this may lead to a higher credit rating and investment rates. ERM II participation on top of the low country currency risk could further improve the environment. Nevertheless, investment volumes are unlikely to reach the close to record-breaking levels of 2017 and 2018.  

Santa Rozenkopfa
Managing Director, CBRE Baltics

The Baltics investment market for real estate showed a new turnover record again last year, exceeding 1.2 billion euros of investment volume. While industrial volumes doubled last year, the office and retail sectors dominated the market (with around a 65 per cent share). Lithuania has taken the leading position attracting 50 per cent of all investment which flowed into the Baltics for the last two years. Newly developed offices constituted 60 per cent of all Lithuanian investment. The transaction yields in the core CRE sectors are higher compared to other European markets. The prime yield of between 5.85 to 7.25 per cent represents recent transactions.
European, Nordic and Baltic investors were the key players in the Baltic market in 2019. Given the higher liquidity and opportunity to achieve higher returns, CBRE Baltics expect more new market entrants, not only from the Nordics or Western Europe, but from Asia or the US as well. Large and recently developed business centres will continue to dominate the Lithuania investment market.  This is partly driven by the global business service centres that are increasingly recognising the attractiveness of Vilnius and Kaunas and constitute a substantial part of the office take-up volume.
Riga is the top destination for tourists with superb access and improving KPI’s for hotels. Due to the fact that investors are widening their criteria, hotels could also become a demanded asset class, evidencing more deals in the sector in Latvia and elsewhere in the Baltics.

Nina Kipiani
Head of Country,  Cushman and Wakefield Georgia

The Georgian real estate market has experienced incredible growth over the last decade. Aided by the westernising influences and the growing interest of foreign investors, the sector has evolved and matured and is markedly contributing to the economy. 

The market is ripe with opportunities for investment in such areas as residential real estate. Swift development of tourism has similarly created demand for hospitality infrastructure. Today, the hospitality and residential markets are perhaps the most active areas of investment with medium to high yields and countrywide success stories. Retail and office markets however face the challenge of oversupply and increased competition for respective tenants. 

The wider Caucasus region is on a similar track of development. Baku, Azerbaijan has experienced the greatest economic and infrastructural boost; Armenia has yet to undergo a transformation similar to that of Georgia and Azerbaijan.  

In terms of future advancement, stakeholders in the region are focusing on such matters as integration of progressive IT-solutions, optimal utilization of space and a commitment to eco-friendliness and efficiency. 

Klara Matić
Head of Investment Valuation and Advisory Services, Colliers Croatia

There are many opportunities in the Croatian market. From the investment perspective, the main drivers are attractive yields, ranging from 6.5 per cent to eight per cent for prime properties across all commercial property sectors. Yields for non-prime commercial properties or opportunistic properties also have very attractive risk premiums.  
The main challenges in the market are lower liquidity of commercial real estate than in Western Europe and Croatia’s slow bureaucracy and judiciary system.  
However, there are ample investment and development opportunities in most property sectors supported by strong property market fundamentals. For example, there is a shortage of hotels in Croatia and diversity in hotel brands and concepts. Hotels make up less than 20 per cent of the total tourist accommodation stock in Croatia.
Zagreb’s office stock is quite outdated (more than 80 per cent of the total stock is more than 10 years old) and the vacancy rate is below five per cent. Opportunities in the retail market can be found in secondary and tertiary cities and neighbourhood schemes. The logistics sector lacks speculative development and although there is a very high tenant demand, the existing stock is fully occupied; mostly owner-occupied and quite old.  

The residential market is predominated by domestic developers, new supply is still not meeting the high demand and there is a lack of new concepts in new build apartments. In addition, there are no or very few branded and/or serviced apartments and no luxury segment in general. Furthermore, there are huge market gaps (and opportunities) in alternative sectors such as student accommodation, senior housing and assisted living. 

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