A strong economy is driving interest in offices, logistics and retail in Central and Eastern European countries, but as the market matures investors are also exploring alternative asset classes, experts agreed at PropertytEU's recent Outlook 2018: Europe & CEE Investment Briefing.
'Retail is a hot sector across the region,’ said Gijs Klomp, investment director at Johannesburg-listed NEPI Rockcastle, told the briefing which was hosted by Colliers International in Warsaw.
'Good shopping centres are in demand and the market is liquid not just in Poland but even in Bulgaria. In Czech Republic and Slovakia demand is such that there are multiple investors pursuing the same deals. We see a lot of competition for retail assets everywhere.'
Poland has had another strong year with retail accounting for around 50% of transactions, but investors’ interest spreads far and wide to other countries and secondary and tertiary cities. A factor supporting retail in lesser-known locations is that e-commerce has virtually no presence there, so shops and shopping centres have a more important role to play.
The most popular sector after retail is offices. Economic growth is expected to lead to an increase in demand despite issues like a shortage of skilled labour in the region and double-digit wage growth in some countries. ‘Some cities are evolving into business hubs and workers need to be lured in from elsewhere, so everything will become more centralised,’ said Luke Dawson, managing director & head of capital markets CEE, Colliers International.
‘There has been a lot of demand for offices,’ said Lila Pateraki, chief investment officer, Zeus Capital Management. 'We see two distinct patterns, with core capital looking for core offices in the capital cities at one end, and at the other end opportunistic capital that needs better returns for investors and is looking at distressed markets.'
Logistics has been so in demand that product is extremely scarce and competition fierce, experts agreed. ‘Last year we put most of our money in logistics, buying two Amazon fulfilment centres, and we keep looking for more opportunities in the sector,’ said Anna Duchnowska, director of asset management, Invesco Real Estate Poland.
‘Retail, logistics and offices have been dominant these past few years, but the interesting development is that alternative asset classes are now getting more traction and interest from investors,’ said Piotr Mirowski, partner/director, CEE investment services, Colliers International. ‘As time goes on the alternative sector will become more institutionalised.’
Alternatives
CEE is still lagging behind Western Europe when it comes to alternatives, said Dawson: ‘There is no footprint yet, but people are starting to talk about the lack of student housing. Developers have not taken buy to let on board, they would rather build and sell as there is such strong demand in the market.’
Legislation for the residential sector in Poland is ‘not bad at all’, said Wojciech Koczara, partner, head of CEE real estate, CMS, and this is supporting investor interest: ‘The residential market is booming.’
Invesco, like other big institutional players, wants to keep diversifying and add alternatives to the mix, said Duchnowska: 'In the next 12-24 months we will definitely do something in Poland on the residential front, and I know of at least two US institutional operators who are willing to invest. The market is evolving and in time the residential and student housing sectors will develop as well as senior housing because of demographic changes.'
In all sectors Central and Eastern Europe is now 'approaching the status of credible, mature market,' said Mirowski. 'Our prediction is that 2018 will be a strong year and the CEE star will continue to shine bright.'
