Prospects for real estate markets in Europe and CEE are positive, delegates heard at Real Asset Media’s European Outlook 2022: Focus on CEE investment briefing, which took place online this week on the REALX.Global platform.
“Our prediction is that 2022 will outperform 2021 in terms of investment volumes,” said Dorota Wysokińska-Kuzdra, senior partner, head of corporate finance & living services CEE, Colliers.
Colliers’ 2022 Global Investor Outlook survey shows a definite optimism among market players, with 81% positive about economic growth and 70% confident about market liquidity and rental growth. ESG is becoming a clear priority and 74% of respondents said they have already taken action to improve the environmental performance of their assets.
On a global level investors’ interest is equally divided between the three main regions – North America, Asia-Pacific and EMEA. The top three sectors they are targeting are industrial and logistics (69%), offices (57%) and multifamily or build-to-rent (40%).
Within EMEA the top destinations remain the UK, Germany, France and the Nordics, while the sectors most in demand are industrial and logistics (+48%) and hotels (+52.8%).
The CEE region, where investment volumes are expected to reach €11 billion in 2021, presents a rather different picture. The most active sector remains offices, which account for 40% of total investment volumes, with retail still at 27% and industrial and logistics at 22%.
“There’s a very healthy yield spread in offices, much better than in Western Europe,” said Wysokińska-Kuzdra. “Rental growth and good cash returns can be expected in the sector.”
However, European and global trends are definitely having an impact on trends in the region, said Wysokińska-Kuzdra: “There is a clear shift towards decreasing retail and increasing logistics investment. Demand from tenants continues to grow, so investment activity is set to continue and we can expect rental growth in both sectors.”
Pandemic fails to change pattern of capital flows
As to capital flows, the pandemic has not changed the pattern. Although Czech and Hungarian investors have been more active in the region, especially in Poland, 74% of capital still comes from international investors and 26% from domestic players. In Poland 98% of capital comes from foreign players.
“Most of the money comes from Europe and America but we have seen increasing interest from the Middle East, which has just overtaken Asia Pacific,” she said.
Looking ahead, the main challenges for 2022 are not exclusive to CEE. The main concern is the rise of inflation and in particular rising energy, labour and construction costs. Another common theme is the availability as well as the increasing cost of land.
As to sectors, industrial and logistics will continue to benefit from high occupier and investor demand and from the near shoring trend, but product is extremely limited and yields are dropping below retail or offices.
Residential is in great demand but “needs to develop quickly because we are virtually starting from scratch,” said Wysokińska-Kuzdra. Rising house prices are contributing to lower affordability and leading to record levels of demand for accommodation for rent, but the problem is lack of product.