Investor success in CEE will only come from trust

At a club meeting in warsaw, members discussed the need for trust in the sector.

October 18, 2019Real Estate

In a growing market like CEE where in-migration is common and offices in Warsaw and Bucharest are attracting Fortune 500 companies, the need for new office and residential developments across the region has never been higher. However, the support from institutional investors remains inadequate to satisfy demand. They act as the primary source of capital when it comes to office, but residential projects almost entirely rely on private investment - something that poses an obstacle that may hinder further development of the real estate market. 

This was discussed at a recent club meeting on the 15th of October in Warsaw. GRI Club CEE members joined in a collegial, living room setting to discuss with other senior developers, investors and operators how to approach the current trend. The discussion, titled “Offices & Residential investment attractiveness: disparity or alignment?” debated the main issues in the sectors. 

Members acknowledged and agreed that institutional investors weren’t comfortable in betting on residential alternative assets in the current state of cycle. One obstacle is the currency risk as the different regions adopt different ones, often making it hard for investors to make accurate predictions on returns. Members agreed that investor confidence is set to bounce back in the sector. 

Having said this, it was agreed that Poland is one of the better performing regions. Office premiums are around 4%, resi 3.5%, and as these rates are stable across the CEE markets, make the market attractive for new investors entering the market. What smaller investors in the current stage of the cycle do not want to take on additional risk by entering a project where the exit strategy is not clearly defined and liquidity is not assured. This is why they usually go on quickly built, quickly sold projects. They need liquidity - as do the developers. 

Members agreed that build-to-rent was guaranteed to ‘take off’ in Poland; the only question was how soon? Demographics seem to decide this. The younger generation to not have the money or even the inclination to own their own home. For them, flexibility and affordability is a bigger commodity than ownership, which brings liability. 

 

GRI Club is hosting specialised and tailored discussions on subsectors, including offices and residential for the most senior players in the real estate. GRI Offices 2019 and GRI Residential Europe 2019 take place on 19-20 and 26-27 in London, respectively.

Article by Matt Harris