Political concerns can sometimes discourage investment decisions, but opportunities can be found in countries where others prefer to wait for issues to be resolved before committing, delegates heard at the PropertyEU CEE Summit, which was held in Warsaw recently.
One example is Hungary, which until recently had been the Cinderella of the region. ‘Despite the political climate in the country, in the last couple of months we have observed a trend of increasing interest in Hungary,’ said Pawel Debowski, Chairman, Real Estate Group Europe at Dentons. ‘We have received instructions on five large transactions, which makes it five more than in the whole of 2015. It is now an extremely dynamic market.’
The office market is an obvious place to invest, as nothing has been built there for many years. Rents are at an historical low and they are expected to start increasing.
Perceptions among investors are already changing, said Ioannis Ganos, Senior Investment Manager at Bluehouse Capital: ‘In 2012 we did the only institutional investment in Hungary and everyone thought we were crazy. Last year we sold the asset and made a very good profit. It is a risky market because of the political situation, but the reality is not as dramatic as portrayed in the press. You could say that both Poland and Hungary now are a calculated risk, not a reckless one.’
Calculated risk
One calculated risk that has paid off was the decision by a consortium led by Morgan Stanley RE Investing to buy a portfolio of office buildings and shopping centres in Budapest in August 2015 in what was one of the biggest transactions in Hungary in recent years. ‘They were ahead of the crowd and made a very good investment,’ said Debowski.
Investors’ perceptions can change quickly, Martin Erbe, Head of International RE Finance for Continental Europe at Helaba Landesbank Hessen-Thuringen, pointed out. ‘Look at how sentiment on Spain has changed from totally negative to excessively positive. In some CEE countries sentiment has turned because of politics and negative reporting, but it can change back.’
At a time when many foreign investors look at cities rather than countries, the attractions of Hungary’s capital are also being noticed. ‘There is evidence Budapest is picking up,’ said Walter Hampel, Head of RE Finance CEE at Deutsche Pfandbriefbank. ‘There is a significant change in international investors’ attitude towards the city. Real estate as an asset class is really sought after and allocations are increasing.’
Investors are also attracted by the yield spread in Hungary compared to Poland, Debowski said: ‘People are buying because of the yield compression, it has been over 100 bps in 12 months. There are opportunistic investors who have no fear of politics but there are also conservative investors. Believe me, Hungary will be this year’s big story.’
