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Where can investors find value in CEE real estate?

3 MIN READOctober 31, 2019
With much to be done in the offices sector, emerging opportunities in Prague and Bucharest, and inbound foreign investment at an all time high, there are very exciting things happening in the CEE. Today, the Hub spoke to two senior people from Colliers - Dorota Wysokińska-Kuzdra; Senior Partner Corporate Finance, and Piotr Mirowski; Director and Head of Investment Services, to share some insight on the quickly developing region. 
 

Could you give a general overview of the current CEE market? What trends are we currently seeing, and where are the best locations for opportunistic investors?

Dorota Wysokińska-Kuzdra, Senior Partner Corporate Finance, CEE: The CEE market remains very attractive for the whole universe of investors, in terms of country, asset class, expected returns and risk appetite. Different investors are approaching different countries for different asset classes with different risk-return profiles.

Poland as the biggest market and most developed attracts the major amount of investors and capital. Just behind is the Czech Republic and Hungary, where similar to Poland, investors are seeking mainly core offices and logistics portfolios nowadays.

As a trend we are seeing an increasing number of platform deals, including the acquisition of companies, which on one hand proves the maturity of the market, while on the other, investing in a company gives an investor an immediate footprint in the given market (country). Joint-ventures seem to become a good fit for many players as well.

Alternative asset classes are becoming more popular, including the private rental sector as well as purpose-built student accommodation. Retail is still not on the radar of investors, although the operational numbers of these assets are robust.

Opportunistic investors can look for opportunities across CEE, but I would like to point out Romania. In Bucharest you can purchase for example brand new office buildings with a yield not much lower than the development yield in Warsaw, without taking any development risk. Romania is also the second biggest market in CEE in terms of population, creating a robust internal market as well. In addition, the country  was recently up-graded by FTSE Russell from Frontier to Secondary Emerging country. A lot of development is taking place there, so despite some obvious risks, this country is a good place to invest. However, for an investor, the whole CEE market has a lot of opportunities in all real estate sectors, depending on return expectations.
 

We’re seeing a sizeable amount of foreign investment in the region, most notably from South Korea. Why is this? 

Piotr Mirowski, Senior partner, Director and Head of Investment Services: There are several factors that contribute to the substantially increased inflow of Asian capital into Poland. Poland’s economy continues to outperform the EU, which is due to sound fiscal policy, FDIs (also from Asia) and inflow of EU funds making it an attractive destination from a macroeconomic point of view. At the same time, Poland has been upgraded to “developed market” status by FTSE Russell (subsequently becoming the only country to receive such a distinction in the last 10 years) and by FTSE EPRA Nareit Global Real Estate Index Series (upgrade from Emerging Market), which widens the spectrum of investors, who are driven by ratings and are prohibited from investing in countries without an appropriate rating.

The ever-growing occupier market and its evolution in terms of depth and type of functions (BPO/SSC businesses already employ ca. 320,000 specialists), as well as parallels to major Asian BPO markets allows for easier investment underwriting and mapping out of further growth, while Chinese investors perceive Poland as a key element of its One Belt One Road initiative.

In addition, Poland has slightly more modern real estate product with long, institutional  quality lease agreements. This appeals in particular to South Korean investors, who prioritise security of income, whereas other Asian investors, who look for attractive yields, have access to modern assets that generate running returns of 200-300 bps more than in major western European economies in a system which offers a stable legal framework, EUR denominated income and increasing liquidity in a market that records €7bn in transaction value over 100+ deals p.a.

GRI Club is hosting specialised and tailored discussions on subsectors including light industrial, logistics, offices and residential for the most senior players in the real estate. GRI Light Industrial & Logistics Europe 2019 takes place on 6-7 November in Amsterdam, and GRI Offices 2019 and GRI Residential Europe 2019 take place on 19-20 and 26-27 in London, respectively.

Article by Matt Harris
 
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