Poland is powering ahead and attracting even more investment this year, while the other CEE countries are standing still or are slightly down, delegates heard at the PropertyEU CEE Investment Briefing, which was held on Wednesday at Colliers International’s London offices.
Poland accounted for €5 bn of the €9 bn of investment that the CEE region attracted in the first nine months of 2018, which represents a 14% increase on the same period of 2017. If the year ends on a high note as expected, the annual CEE figure could overtake the €13.1 recorded in 2017, which was the best figure since before the financial crisis.
‘Poland is really strong and it’s carrying the rest of the region,’ said Mark Robinson, CEE Research Specialist, Colliers International. ‘The dynamics of the market are very positive and economic growth is underpinning real estate investment.’
The figures show the close correlation between the two: Poland’s GDP is up to 4.6% and the country recorded a 110% growth in investment volumes. By contrast, the Czech Republic’s GDP growth declined from 4.5% to 3%, largely because of the slowdown in the German economy, and investment volumes fell by 52%.
Office beats retail for the first time
For the first time this year the office sector has attracted more investment than retail, which is a ‘back to normal’ sign after a period when the figures were skewed by some large South African investments in shopping centres.
‘South African capital is starting to be replaced by new sources of capital from outside Europe,’ said Piotr Mirowski, senior partner, director, head of investment services, Colliers International. ‘What is driving investment is the depth of the Polish market and the strength of the economy, with GDP growth likely to hit 5% this year.’
Justyna Kedzierska-Klukowska, head of Warsaw Office, BerlinHyp, said that ‘we are looking at the regional office markets in Poland and they are interesting, we are happy to lend but we are being very selective. We do not fund development, we leave that to the local banks.’
The demand for offices is leading to a development boom and active construction as a percentage of total stock in the office sector has risen.
Developers must be cautious, said Lila Pateraki, chief investment officer, Zeus Capital Management: ‘We have seen a lot of construction, but office rents haven’t followed so it’s got to the point where it doesn’t make sense to do development. But I do believe in offices. There are great opportunities in the capital cities, where liquidity is good.’
There needs to be more discipline from the developers, said Gordon Black, senior managing director, portfolio management, Europe, Heitman but ‘in the office sector it is still possible to identify neglected properties and work the assets with strong asset management.’
Local capital in pole position
Domestic and local capital is playing a bigger role in the CEE region, with a combined 30% of all investments, which is a very healthy development, said Robinson: ‘It shows there is a changing of the guard. It creates liquidity and gives confidence to foreign investors.’ US and Western Europeans investors have been net sellers this year, but Asian institutions have started to deploy capital in the region.
‘Having local players being active really helps with the perception of the market,’ said Pateraki. ‘We are seeing it in Bulgaria and Romania as well and it is a very good sign.’
Local capital’s involvement creates interesting dynamics, said Robert Martin, founding partner, head of Central Europe, Europa Capital: ‘We are struggling to compete with the locals in Czech Republic and Hungary, but their presence gives stability to the market. In Poland there is no local capital, so if all foreign investors were to leave it would be a problem.’
Things are looking up in a region where liquidity has been the biggest issue, said David Allen, founding partner, Chayton Capital: ‘We are fund-raising from markets in the region, not from the US or elsewhere. The HNWIs know their region and are very keen to invest. We see real traction.’
