GRI
English

Is CEE ready to be institutionalised?

2 MIN READMay 30, 2019
The annual C-level conference CEE GRI 2019, real estate investors, lenders and developers, gathered in Warsaw to discuss candidly where to find value in CEE real estate markets, the current and future status of the region as an investment destination and whom to partner with in order to achieve sustainable returns.

Continued interest from Asian capital, but is CEE ready to be institutionalised?

The majority agreed that CEE was enjoying an upswing in terms of Asian investment in the region; relatively low risk, established liquidity in core commercial real estate were contributing to this. Korean investors particularly are closely monitoring CEE, favouring the returns and considering CEE as a developed market. One domestic seller remarked that Korean investors tend to buy at the top of the cycle, which reflect positively on core opportunities in the CEE. However, some cast doubt as to whether how long the capital might flow. Could an escalating US/China trade war be providing opportunities for CEE and consequently how this might impact the long term institutional investment outlook for the region? 

Poland prices compared to CEE secondary cities

Common sentiments remarked that the macro view of CEE is still positive for debt financing, however regulatory swings across Europe might cause price/risk adjustment strategies for bigger ticket deals. The increased direct competition between debt funds and traditional senior debt lenders was also debated, especially risk profiling and financing new developments where most agreed pricing might be too high to satisfy the current supply across the region. Poland was seen by many as the clear king of where to invest in and unlike many other european gateway cities, yet to realise its full potential, yet SEE caused excitement by some opportunistic investors as a way of finding more aggressive yields.

BTR & Alternative Residential - High demand but lacking flexibility and liquidity

Many felt that the BTR market was in need of institutionalisation;demand for more flexible lifestyles and increased demand for rented, professional spaces is contributing to this huge need. Yet, the demand has not been priced by lenders and investors and the region, as a whole, was lacking scale. Confidence was rather cited in the ‘explosive’ student housing sector, with established liquidity to build big and with a great supply/demand imbalance to produce the perfect long term sustainable rental returns.

Supply/demand sensitivities for commercial real estate

On the current e-commerce onslaught hitting retail hard, it was discussed that CEE actually has its own dynamics, protecting bricks n’ mortar for the short to medium term and thus outlining modest opportunities for retail and shopping centres. For the long term, many felt that forecasting mixed use and experiences (restaurants, leisure, entertainment) into portfolios would sustain competitive rental values.
Logistics was seen as one asset class to get into, continuing e-commerce demand contributing to stable values however, currently the sector is currently suffering from cost volatility due to a supply imbalance and fragmentation of smaller assets. 

In lieu of tenant’s demands for flexible and community driven spaces, the future of offices remained optimistic for core and value add deals. The rise of co-working and serviced assets pointed to structural changes in the medium term, yet presently there is a conservative interest from lenders to such assets, due to a lack of track recordings to properly evaluate the ROI, yet many investors were happy to dive in to the high risk market in the hunt for high yielding rewards.

Conclusions

From the private, roundtable style discussions, the general consensus was that expectations for stable growth remains optimistic. Domestic lenders are aggressively underwriting the riskier alternative asset deals, backed by a strong performance of Poland’s consistent growth. Yet, for CEE to truly shake of its global image as the ‘value add bargain bucket’, the region is in strong need to be institutionalised. After all, the ongoing currency problem and the supply shortfall in different sectors, is what makes CEE currently so colourful (and certainly cheaper than most markets) and should be considered by all players in the real estate value chain; global and domestic. 

CEE’s real estate market and its place in Europe’s broader landscape will be discussed further at Europe GRI 2019, a dedicated event being held on 11-12 September in Paris, France. 
Related News
←  SHARE
Real Estate
GRI
X
Privacy policy and how we use cookies
We use cookies to give you the best experience on our website.
By continuing we'll assume you're on board with our privacy police
Accept and hide this message