Investment volumes for Q2 and H1 2023 across CEE markets were some of the lowest levels on record, in line with European results, according to Colliers' H1 2023 Investment Scene report.
Significant interest exists, but there is a significant gap between buyers' and sellers' expectations. Poland accounted for around 42% of regional volumes, but overall activity was slow. The Czech Republic followed with a 34% share, with Bulgaria the only market to record a year-on-year increase, while the others all had drops in volumes ranging between 42% and 87%.
High interest rates, the cost of risk, and a shaky global economic backdrop are all negatively impacting countries in the CEE region. Inflation remains a challenge, although the so-called "core inflation", which strips away components like energy and seasonal food items, is dropping.
Silviu Pop, director of research for CEE and Romania, explained: ‘Economic growth faltered in the CEE-6 region at the start of 2023, with three countries - the Czech Republic, Hungary, and Poland - seeing negative annual GDP growth as of Q1 2023, despite Romania and Bulgaria recording the best performances after their economies expanded by over 2%. Ahead of the second quarter GDP results, due mid-August, we can note that the weak streak is set to continue, at least over the short term, as high-frequency indicators are still not up to par for quite a few of the countries.’
Kevin Turpin, regional director of capital markets, CEE, commented: ‘Volumes for Q2 and H1 2023 across CEE were some of the lowest levels on record. At €2.02 billion, the first half of 2023 saw CEE investment volumes decline by around 64% year-on-year. According to preliminary results, this is unfortunately in line with European and global results. Given the current conditions, particularly in relation to the cost of debt, predicting market activity for the remainder of the year remains challenging, but we estimate it could reach €5.0 billion or above at the current trajectory.’
Colliers expects that refinancing, maturing bonds, ESG compliance, and other specific sector or country-related themes may have an impact on hold strategies for some investors.
Kevin Turpin added: "With all-in financing costs currently somewhere above 5.5%, driven by significantly higher interest rates, as well as the costs of other financial tools such as interest rate swaps. In addition, the spread to other investment strategies has largely disappeared and in some cases are starting to look like compelling alternatives to real estate, putting further pressure on buyers' expectations of pricing."
Office investment volumes have dropped significantly, accounting for just 29.5% of CEE volumes in H1 2023. The retail sector, including shopping centres, sees increasing demand and marked a 35% share of activity at the end of H1 2023, including the only transaction over €100 million in Q2, a shopping centre in Pardubice, Czech Republic.
CEE-6 domestic capital accounted for a 59% share of total regional volumes, with Czech capital securing the highest volume overall (40%).
