While geopolitical uncertainty pervades Europe, CEE’s commercial real estate markets have been booming – especially in the retail sector. Virna Asara reports
GTC, a CEE-focused developer and investor, says 2024 was a “breakthrough” year for the company, experiencing record-breaking operational results in the office and retail sectors. “We achieved the highest leasing levels in a decade and, additionally, our shopping centres recorded significant growth in both visitor numbers and tenant turnover,” says Agnieszka Ciupak, managing director of GTC in Poland.
GTC is one of several landlords in CEE which posted stellar results in 2024 thanks to the region’s strong dynamics in the commercial real estate sector. NEPI Rockcastle, a retail property owner with nearly €8bn of assets across eight CEE countries, also reported a record high net operating income rise last year largely thanks to high indexation and robust occupancy rates across its portfolio. The firm is currently looking for additional growth opportunities after bagging two of Poland’s largest shopping centres – Silesia City Center and Magnolia Park – for a total cash outflow of €760m.
“We are scanning the market for more assets of this size and quality,” CEO Rüdiger Dany says.
Nepi Rockcastle was able to finance its acquisition spree with a €300m equity raise and the issue of a €500m unsecured green bond which was six times oversubscribed. Dany is “hopeful” that the company will join the EPRA index by the end of the year. He says: “It was nice to see that we have gained a lot more attention from investors from Europe and the US, and were able to enlarge our shareholder base.”
Retail becomes the largest sector in CEE
CEE retail assets are outperforming their Western counterparts due to rising disposable incomes in a region largely under-supplied with modern retail space. As such, many international retailers are moving into the market to secure much-needed growth at a time when retail sales have flattened in Europe’s more mature markets.
“Old Europe is struggling and CEE has become the market to be for retailers. Here, there is still potential for growth,” Dany adds. “This is why the occupancy rate in our portfolio is so high.”
The company is looking to expand through both acquisitions of existing assets and new developments, with a pipeline of some €790m, which includes the 60,500sqm Promenada Plovdiv greenfield development in Bulgaria’s second-largest city and the 62,400sqm Galati Retail Park mixed-use project in Romania.
Another major regional property owner, CPIPG, is also more than satisfied with the performance of its retail property portfolio, particularly retail parks. “Retail is doing great,” says CEO David Greenbaum. “It is the part of our portfolio where we see values are really starting to increase. Consumer spending is returning to strength and the sector is benefiting from a lack of development and very low retail density,” he explains, adding that the company sees an opportunity in expanding its retail park portfolio into Croatia.
Last year retail grew to become the largest real estate investment sector in CEE, accounting for a 32% share of total investment activity, surpassing offices and logistics. The market is forecast to accelerate further this year thanks to a healthy supply of new assets coming to the market.
Landlords Nuveen, Neinver, Union Investment and CA Immo are all mulling sales in the region to capitalise on the strong occupational dynamics. Neinver and joint venture partner Nuveen, in particular, are understood to be preparing the sale of their factory outlet portfolio in Poland in what is expected to become the country’s largest retail sale of the year. The package, encompassing 107,000sqm, consists of five factory outlet centres and is expected to fetch some €400m.
In Prague, Union Investment is planning to sell the €700m Palladium shopping centre which it bought in 2015 for €570m.
Prime commercial assets for sale are expected to meet with strong interest not only from international investors but also from local family offices, particularly now that Poland is close to introducing a real estate investment trust structure.
“As and when this happens, we expect to see tremendous growth of activity by domestic investors, which currently represent less than 5% of the investment market whereas in most Western European and even Central European markets, domestic capital represents at least 50% of activity,” says Sean Doyle, head of investment CEE at advisor CBRE.
Under the new government, headed by Donald Tusk, Poland is pushing ahead to introduce the new tax-efficient investment structure by the end of the year.
“The passing of this legislation could unlock huge pent-up liquidity – due to the significant accumulation of funds in individual bank accounts which at the start of 2024 was estimated to be over PLN2.1trn (€502bn) – while giving retail investors an opportunity to participate in the highly lucrative commercial property market which has been predominately foreign owned,” says Doyle. “Until the legislation is passed, it represents a once in a cycle opportunity to invest for institutional investors and family offices.”
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