CEE Summit: Investment prudence will be needed amid recovery

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The region is forecast to return to growth quickly next year, but investors need to approach sectors and locations with care.

CEE countries will recover quickly from the Covid-19 crisis but investors must choose locations carefully, delegates heard at the CEE Summit organised by Real Asset Media and Poland Today.

“CEE still looks like a good investment to us,” said Sabina Kalyan, co-global head of research and global chief economist at CBRE Global Investors. “Now there’s a limit to capital flows from the US or Asia, but there’s no reason why they shouldn’t bounce back.”

Investors have shown their confidence in the market by staying and continuing with their projects. “There’s been no collapse this year so we don’t see a bounce back so much as a tremendous progression in 2021,” said Noah Steinberg, chairman & CEO of Hungarian office developer Wing and chairman of the supervisory board at Polish developer Echo Investment. “We’re expanding our regional footprint because we see a very positive scenario coming out of the crisis in all CEE markets.”

There’s interest in the capital cities but also in regional cities, especially in Poland. “We’re strong believers in regional cities,” said Marcin Juszczyk, member of the management board at Poland-based investor Capital Park. “Most of our portfolio is in Warsaw, but our pipeline is focused on the regions, places like Krakow, which is the accounting capital of Europe, or Gdansk and Katowice, which are very dynamic and fast growing.” 

‘We look closely at vacancy rates and we are very selective when choosing locations to invest in.’

Petra Blazkova, Lasalle Investment Management

There are great opportunities for investors with local knowledge and boots on the ground, but locations have to be chosen carefully to avoid problems in the future.

“CEE cities have a strong potential but the supply side is a challenge,” noted Petra Blazkova, head of Continental European research at LaSalle Investment Management. “The market is easily oversupplied, which means you can’t generate rental growth and rents could even decline when there is a crisis. So we look closely at vacancy rates and we are very selective when choosing locations to invest in.”

Financing boost 

In contrast to the GFC, recovery from this crisis is being helped by the availability of financing. “This is not a lending crisis and the banks this time are part of the solution rather than part of the problem,” said Hannes Wimmer, executive director, loan syndication, at Erste Group Bank. “Our institutional clients are still investing in the region and we support them. Institutional investors are in CEE to stay and so are we.” 

Future trends and trading patterns will benefit CEE. “CEE has continued to attract investment over the last few months, especially in logistics,” said Daniel Harris, principal, head of European investments, at real estate investor Cain International. “This puts the region in a very good position moving out of the crisis. I think there will be a very strong recovery next year.”

Logistics has performed well in CEE for some time and yields are as low as they are in Western Europe, Cain pointed out. It has been a winning sector throughout the pandemic and this is set to continue in the future.

‘Logistics has shown great resilience this year, but people are worried about what might happen next year.’

Sabina Kalyan, CBRE Global Investors

The nearshoring trend will benefit CEE and provide opportunities for logistics investors, while in the long term increased trade flow from China and the Far East will pass through the region and make it even more pivotal.   

“We like logistics and we’re heavily invested in the sector, but we also hear a lot of concerns,” said LaSalle’s Blazkova. “First of all, 40% of demand is still driven by retailers, which have been struggling, so there will be defaults and bankruptcies. Second, investments are difficult to justify if there is no rental growth.”

Caution is needed when investing in logistics, however, because it is easy to make mistakes, especially when there’s a rush to buy and a lot of capital is chasing a limited number of deals.

Blinded by success

“A lot of people are being blinded by the trend and need to be careful,” said Harris. “I agree that logistics is a bet on retail in the end. The other factor to take into account is the quality of the tenant, as it’s one thing to have Amazon and quite another to have a small retailer. When I see that prime yields in logistics are below prime office yields, I fear there’s a bubble.”

Logistics also finds itself in the opposite situation to most other sectors, as it’s been on a high throughout the pandemic and there are now fears the good times may end.

“The demand for warehouses has been brought forward and that’s why there is some concern,” said CBRE GI’s Kalyan. “Logistics has shown great resilience this year, but people are worried about what might happen next year. It’s the total reverse of retail, hotels or offices where things can get only get better.”