BRIEFING: Intense competition between foreign and domestic investors in CEE

Foreign investors from many countries around the world, from South Korea to Canada and from South Africa to the Philippines, are deploying more capital in CEE and actively competing with domestic rivals for assets, delegates heard at Investment Briefings’ CEE and Europe Outlook Briefing, which was held in Warsaw recently.

‘We finally have a pool of diversified investors from various regions, from South Africa to Asia, it is no longer just Germany or the UK,’ said Anna Duchnowska, senior director asset management, Invesco Real Estate. ‘A large Japanese bank came to see me in December and they also want to invest in Poland. It is a very good sign.’

Asian investors, who had been looking at the region for a while, are now actually deploying  money and closing deals. They come from China and South Korea but also the Philippines. Americans are net sellers of retail assets, but they are buying logistics. South Africans have become a steady fixture of the market. Canadians and Australians are actively looking. The list goes on.

‘When you look at the make-up of capital now, it is wildly different from what it was five years ago and it has changed for the better,’ said Luke Dawson, Managing Director & Head of Capital Markets CEE, Colliers International. ‘We now have 5 or 6 pools of funds that are active in CEE. As we reach the top of the market, it bodes well that we have a wider and more stable investor base than we used to.’

Foreign investors still dominate the market in Poland and Romania, because there are no structures for locals to deploy capital, while in Hungary and the Czech Republic domestic investors have been increasingly active buyers, often outbidding cross-border rivals to get the best deals.

‘It is a pity that in Poland we have no domestic investors,’ said Duchnowska. ‘It is amazing to look at how quickly things have changed in the Czech Republic, to the point that now almost 50% of acquisitions are done by local investors. I really and truly believe it should happen in Poland, but without a change in the regulations it will be very difficult.’

In Poland over 90% of investments in real estate are done by foreign capital. ‘It is a huge problem for the country, as a lot of money is sitting in bank accounts instead of being deployed,’ said Janusz Dzianachowski, Attorney-at-law and Partner, Linklaters. ‘In the Czech  Republic it is another world.’

Unfortunately there is little prospect of positive change, he said. ‘The problem with Poland is that it has a lot of frozen capital and no structures to invest,’ Dzianachowski said. ‘We have talked about REITs for years and nothing has really changed.’

For the situation to improve ‘there would have to be new legal structures to help people invest in real estate but above all there would need to be a big change in lawmakers’ mentality,’ he said. ‘I am not sure anything will happen anytime soon. I am quite pessimistic.’

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