Investment volumes for CEECs should reach 10 billion euros

The Váci Greens Building “D”, the final phase of the development of six Váci Greens office buildings, has been sold by developer Atenor to GTC. The transaction is expected to close in the second quarter of 2021

As the pandemic continues to negatively influence capital markets, investment flows for CEECs (Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia) are down almost 48% compared to the first quarter of 2020 to around 2 billion euros. However, longer-term forecasts for investment volumes are favorable, with an anticipated post-pandemic recovery.

“Despite a slow start, we currently estimate that ECO 2021 end-of-year volumes will accelerate to similar levels through 2020, of around € 10 billion. EMEA preliminary volumes are estimated to be down around 32% year-over-year, ”says Kevin Turpin, CEE research director at Colliers International.

The total volume of investments in Central and Eastern Europe reached 10.4 billion euros for the success of COVID 2020, compared to the peaks of 2018 and 2019 recorded by the consultancy firm of 14.4 billion euros and 13 , 8 billion euros, respectively.

All countries in the region experienced year-over-year volume declines compared to the first quarter of 2020, with the exception of Hungary. Despite this, investor sentiment points to a strong recovery in activity in the second half of the year, subject to progress with pandemic measures and the opening of travel, according to Colliers.

In the first quarter, Poland accounted for around 65% of the total volume, followed by the Czech Republic (14%) and Hungary (11%). This means around 1.3 billion euros of investment for Poland, 300 million euros for the Czech Republic and 230 million euros for Hungary.

Regarding sectors, the office provided 50% of the total volume of transactions, followed by industry and logistics with 28% and retail with 11%. Prices have remained relatively stable overall, but further squeeze in the industrial sector is expected throughout the year, subject to transaction activity, which in turn will depend on product availability.

World-class returns

Colliers places the performance of the Budapest offices at 5.25% against 4.25% in Prague and 4.7% in Warsaw; Budapest continues to offer attractive returns for high quality products. The consulting firm saw minimal movement in premium returns, mainly due to the continued lack of transactional evidence to support further changes.

“We remain of the view that while some changes are inevitable, core and performing assets should hold up well, with more pressure on the secondary product. Due to the strong investor interest in logistics assets, we anticipate further squeeze in this asset class, ”explains Turpin.

As for the origin of the money, funds from Western and Northern Europe dominated the first quarter of 2021, accounting for 50% of volumes, with capital coming mainly from the UK and Germany, accounting for 32 % of total transaction volume. The CEEC investors constituted 28% of the total volume.

“National investors from CEECs, composed mainly of Polish, Czech and Hungarian capital, have also remained very active, especially in their respective domestic markets. As travel restrictions challenge the ability of many investors to see opportunities and reduce investment volumes, capital from Singapore and South Africa has managed to unfold, ”says Turpin.

Provided the pandemic is brought under control and allows economies to operate with fewer restrictions, the ECO is expected to begin a recovery through 2021 and 2022, at an average rate of around 4.3% per year.

This article first appeared in the print issue of the Budapest Business Journal on May 21, 2021.

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