Cross border capital driving investment activity in CEE commercial real estate market

Savills has recorded that last year almost €12bn was invested into commercial real estate across Central Eastern Europe (CEE), a yoy increase of 7% and an uplift of 19% above the volume recorded in 2007.

Eri Mitsostergiou, Director, Savills European Research, comments: “All CEE economies are growing at above EU average rates and strong market fundamentals are continuing to underpin investor demand. These markets are offering attractive opportunities for developers and investors who were prepared to invest in these relatively smaller yet established markets which are continuing to show improved future value growth opportunities.”

According to Savills, Poland received the largest amount of investment into commercial real estate (42%), followed by the Czech Republic (30%). Hungary and Romania accounted for 15% and 10% respectively, however they showed the highest annual upward trend yoy as Romania grew by 54% and Hungary by 14%.

Capital inflows from outside the region increased by 9% last year with South African investors the single biggest inward investors, accountable for a 18% share of activity, followed by Germany with 11%. Notably, intraregional flows of capital remained significant at 18% of the total activity.

Jakub Gajdos, Senior Investment Consultant, Savills Czech Republic, comments: “Interregional investors continue to show confidence in the mature markets of the CEE region such as Poland, Czech Republic, Hungary and Romania. We have also witnessed a growing appetite for good quality assets in the historically smaller but growing markets of Slovakia and Romania.”

Eri Mitsostergiou adds: “South African and German capital in particular have contributed to more than €6.5bn investments over the past five years, almost a quarter of the total turnover. Capital inflows from Asia have also been on the rise, especially Chinese and Singaporean players who invested almost €1.9 bn in the region over the past two years.”

In terms of sector activity, Savills confirms that retail captured the highest share of activity (46%) followed by offices (30%). Average prime office yields were at recorded at 6% on average in Q4 2017, 35bps below the previous year and this makes them the highest in Europe, with the rest of the European markets averaging at 3.7%.

Activity in the industrial and logistics sector has significantly increased with its share reaching 15%, compared to 4% a decade ago. Jaroslav Kaizr, Head of Agency, Savills Czech Republic, comments, “Despite rising labour costs, the CEE countries remain the cheapest in Europe and will maintain their attractiveness as shared services, manufacturing and distribution destinations. The geographical position of the region and the competitive labour costs have supported demand for industrial space and regional logistics hubs, even more so since the infrastructure in these countries has been improving, and the growth of ecommerce and regional consumer spending will continue to drive this demand.”

“We expect the region to remain dynamic this year due to competitive yields and positive market fundamentals,” says Eri Mitsostergiou. “We predict that prime yields in Hungary and Poland are likely to compress across sectors and the Czech Republic is likely to see a 35bps yield shift for prime offices. As the traditional asset classes grow, investors will turn their focus to alternative asset classes where there is less competition. We anticipate the total investment volume in the CEE region to exceed €12.5bn this year.”

Read full Briefing note report - CEE investment markets