Offices have regained their status as investors’ favourite asset in Central and Eastern European countries, delegates heard at Real Asset Media’s CEE Outlook Investment Briefing, which was held in Budapest earlier this week.
‘We are seeing a return to prominence of the office sector,’ Mark Robinson, CEE Research Specialist, Colliers International, said in his keynote presentation. ‘Office volumes rebounded 59% last year in the region, and prospects for 2019 are positive as low vacancy rates will keep rents firm’.
Retail in second place slipped by 7% to E4.7bn, while the industrial sector saw a 20% increase, mainly due ‘to large portfolio transactions particularly from investors from Asia, showing strong interest and commitment to the region’, he said.
Asian investments increased by 9% last year, mainly large portfolio transactions but with some signs of more granular interest. ‘In Poland in particular we are now seeing transactions by investors from South Korea, the Philippines and Malaysia buying individual assets,
so they’re starting to diversify,’ said Robinson.
The CEE region continues to attract foreign investors but there is a changing of the guard underway, with more inflows from Asia and the Middle East and less from the US and Western Europe. Last year the US and UK were net sellers. ‘US private equity firms have made strong returns and are now cashing out, which is an interesting sign of where we are in the cycle,’ he said.
South Africans maintain a significant presence, accounting for 10% of inflows ‘mainly buying retail assets in Poland, Bulgaria and Romania’, while domestic and cross-border domestic investors increased their presence to a combined 30%.
Total flows to the CEE region were up 7% to E13.9 bn, but Robinson noted that the pace of growth has been slowing.
‘We are starting to reach the top of the mountain,’ he said. ‘When you are climbing at altitude you have to think about the amount of oxygen you have, you have to plan and think carefully about your next steps and that is the theme in these markets in the next 12 months.’
Climbing at altitude means the peak is near, we are close to the end of the cycle. Volumes are high and will not drop but caution is needed. Germany is the locomotive for CEE and its economy is slowing down, he said: ‘We cannot escape this inevitability, we face some deterioration’.
However, the ECB is helping, keeping interest rates at zero and funding rates low. ‘This is for me the major factor to think about in 2019,’ said Robinson. ‘Interest rates will stay very low which means the real estate cycle in this region will not experience a quick downturn, because gearing is not high and the yields are still relatively attractive’.
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