Domestic investors more active in CEE as the slowdown starts

Domestic investors are coming to the fore in Central and Eastern Europe as international capital adopts a cautious attitude, delegates heard at Real Asset Media’s Trends 2023 – CEE Investment briefing, which took place yesterday in London at the headquarters of CMS in the City.

“Domestic buyers are growing in importance as a wait-and-see approach is beginning to be adopted by foreign investors, due to rising costs of finance and the uncertain macroeconomic and geopolitical backdrop,” said Kevin Turpin, regional director capital markets CEE, Colliers.

The average split now across the six CEE countries is 30% domestic/70% international, but the situation varies markedly from country to country. Poland is at one end of the spectrum with 98% foreign and only 2% domestic, while Hungary is at the other end with 49% domestic and 51% international.

“We’re seeing more and more activity by regional investors, especially Hungarian and Czech,” said Lukáš Hejduk, partner, head of CEE real estate and construction, CMS. “They don’t find much in their own countries so they cross the border to find deals in Poland and elsewhere, ready to jump when they see distressed opportunities.”

European investors have accounted for 32% of investments in CEE, out of a total volume of €70.1 billion in the last five years, followed by capital from the Americas (12%), Asia-Pacific (11%) and MEA (10%), all hovering above double digits.

Poland dominates CEE with a 51% share of the real estate market (€36.4 billion), followed by Czech Republic (€15.3 billion), Hungary with €7.9 billion, Romania with €5 billion, Slovakia with €3.2 billion and Bulgaria with €2.3 billion.

This year started on a high, with a robust Q1 followed by a slowdown in capital flows after Russia’s invasion of Ukraine and its myriad consequences.

The full year 2022 figure for the investment market should reach €9-€10 billion, according to Colliers, which is below the five-year average of €12.5 billion and the 10-year average of €10.3 billion. CEE, like the rest of Europe, is experiencing a slowdown.

“Interest rates have gone up, spreads to debt and other benchmarks are narrowing or disappearing rapidly,” said Turpin. “We expect a period of price discovery that could last 6 to 18 months. There could be a 15-30% change in terms of capital values but it will depend on the sector and the location.”

Investment flows are expected to decline as investors wait for prices to fall.

“We should be prepared for a decline in values,” said Justyna Kedzierska-Klukowska, head of Warsaw office, Berlin Hyp. “Valuations are not reflecting the changed environment yet.”