Outlook 2024: CEE on rebound could see start of a “gold rush”

This year could see the beginning of a new “gold rush” in Central and Eastern European countries, delegates heard at Real Asset Media’s European Outlook 2024: Focus on CEE, which took place last week in Warsaw.

“2024 will be the perfect time to acquire quality real estate at great prices”, said Kevin Turpin, Head of Capital Markets CEE, Colliers. “We’re seeing a lot more conversations taking place and deals are definitely being done, so we are reasonably hopeful that things will improve throughout the year”.

The region is in a “depressed state” after the macroeconomic and geopolitical headwinds of the last two years, but there is no distress to be seen. Valuations haven’t yet come down to the extent they have in other European countries, like Germany.

But as more people need to sell “there will be many opportunities to buy great assets”, he said. “Buyers will be looking for forced sales amid potential declining valuations, elevated interest rates and a wall of refinancing.”

Growth has slowed down in the CEE-6 (Poland, Hungary, Bulgaria, Romania, Czech Republic and Slovakia), but the recovery is expected to start this year as inflation trends down.

“The outlook remains robust and GDP per capita is catching up fast with developed economies”, Turpin said. “CEE-6 economies are some of the strongest-growing economies in the world and they are flexible and adaptable, as they have shown after the GFC and since, so they can bounce back”.

After the hit of 2020 and 2021, the two pandemic years, 2022 saw a rebound with investment volumes at €10.7 billion, in line with the ten-year average. Last year volumes were down 52%, the worst performance since 2012, but similar to that of other European countries dealing with the sudden spike in interest rates.

Even on a good year, CEE volumes are on average 15-20% of Germany and a similar size to Denmark or Sweden, so it is still a relatively small market with room to grow. Activity is pretty evenly divided between the three main sectors: offices (34%), retail (29%) and industrial & logistics (27%). Hospitality and residential are still small, but PRS is expected to accelerate, albeit at different speeds across the region.

Sources of capital in the CEE-6 are 34% domestic and 66% foreign, but the percentages vary greatly from country to country. At one end of the spectrum there’s Hungary, where 62% of investments are done by domestic capital, and Bulgaria (61%), while at the opposite end there’s Poland, where domestic capital only accounts for a paltry 2% of investments.

“The lack of a REIT structure is a large missed opportunity for Poland”, said Turpin. “You can see the difference it makes in other countries like Hungary or Czechia”. The hope is of a change in the system, especially now that Poland is being looked at favourably following the change of government after last year’s elections and more EU funds could be unlocked.

The Czech Republic is the most balanced, as investments are divided equally between domestic and international players.

“CEE investors are bridging the gap, along with family offices and wealthy private individuals, but we need international investors to come back”, Turpin said. “A lot comes down to perception: many still need to be educated about what the region can offer. There are great opportunities to be found”.