GRILocal investors to drive CEE real estate market forward?
Cross border investment, retail boom, office resurgence, logistics evolution were amongst key themes at CEE GRI 2018.
March 23, 2018Real Estate
This year’s CEE GRI highlighted the fact that the region remains the fastest growing in the EU in terms of medium to long term outlook.
GDP growth factors include; a stable macro environment, attractive business climate, high quality of human capital, low labour costs, receptiveness to trade and investment, and economic integration with the EU.
All these aspects contributing to a healthy real estate environment as constituents congregated in Warsaw for numerous absorbing and stimulating discussions.
The growth of cross border investment in the region, the continuation of retail as the leading asset class, the expected resurgence of the office market, the ever-evolving logistics market and innovation and growth of niche asset classes were amongst the key themes highlighted at the CEE GRI.
Global capital flows in the CEE region continue to be dominated by flows from Western Europe and South Africa, outside of cross border investment in the region. However other big talking points centred around the maturation of the local investor market and if Asian money would lead to the next boom in the region.
In stark contrast to the situation that existed only 5 years ago, financing in the CEE region is now readily available with numerous options. However, some members feel that the silo approach of some banks in the region is proving to be a stumbling block due to long timelines. While this is an opportunity for private lenders, it could in turn create a ripple effect forcing riskier lends from banks as competition increases. Despite a cloud of political uncertainty hanging over the region, general consensus indicates it is unlikely that interest rates would increase over the next few years.
Asset classes
In terms of asset classes in the region, the retail market continues to lead the way despite threats like eCommerce, attendees concurred. But in order not to be left behind, stakeholders in the sector have been forced to adapt and to add increasing value for consumers like Click&collect, which currently dominates online shopping in CEE.
Participants expect a revival of the office market in CEE despite challenges like the rising cost of construction and labour scarcity in some countries. The shared economy concept and the rise of co-working in CEE, currently only at 1% of the office market, is expected to grow as perceptions slowly change. A trend that was previously seen as only for start-ups, is now also seeing big corporates take up co-working space. However, it was hotly debated how the co-working model would hold up during a downturn in the market.
No other sector in the real estate industry has seen as much change over the past few years as the logistics sector. The shift towards flexibility was highlighted as a focal point in the market, but it was agreed that there is still has a long way to go.
Although occupiers are turning more to technology and automation as robotics is reshaping the industry, there is still a massive need for manpower and lower labour costs as 95% of business is not eCommerce. Tenant demand continues to be driven by labour costs. The general feeling is that the CEE region is the leader in many respects in terms of logistics, even ahead of Germany in many instances like logistics and production.
Student housing in CEE is seen as having enormous potential as an asset class, with little competition in comparison with many Western European nations. A major advantage agreed by participants is that the product is hassle free in terms of being inflation linked.. However, it was clearly illustrated that the region can't be seen as a one size fits all as each city has a different story. A shortage of operators in the region was also emphasised as a concern for some. While lenders in the region remain apprehensive to this asset class it is felt that lenders from countries like Germany and Austria who have gone abroad, understand the product better.
A disputed opening keynote drew attention to a number of risks representing concern for investors in the region like EU funds, labour scarcity and political risk that could significantly undermine current growth. However, amongst the audience overall sentiment was that EU was seeing a momentum shift from west to east which is expected to continue. As countries like Poland, the Czech Republic, Hungary and to a lesser extent Romania, Slovakia and Bulgaria come to the fore.
GDP growth factors include; a stable macro environment, attractive business climate, high quality of human capital, low labour costs, receptiveness to trade and investment, and economic integration with the EU.
All these aspects contributing to a healthy real estate environment as constituents congregated in Warsaw for numerous absorbing and stimulating discussions.
The growth of cross border investment in the region, the continuation of retail as the leading asset class, the expected resurgence of the office market, the ever-evolving logistics market and innovation and growth of niche asset classes were amongst the key themes highlighted at the CEE GRI.
Global capital flows in the CEE region continue to be dominated by flows from Western Europe and South Africa, outside of cross border investment in the region. However other big talking points centred around the maturation of the local investor market and if Asian money would lead to the next boom in the region.
In stark contrast to the situation that existed only 5 years ago, financing in the CEE region is now readily available with numerous options. However, some members feel that the silo approach of some banks in the region is proving to be a stumbling block due to long timelines. While this is an opportunity for private lenders, it could in turn create a ripple effect forcing riskier lends from banks as competition increases. Despite a cloud of political uncertainty hanging over the region, general consensus indicates it is unlikely that interest rates would increase over the next few years.
Asset classes
In terms of asset classes in the region, the retail market continues to lead the way despite threats like eCommerce, attendees concurred. But in order not to be left behind, stakeholders in the sector have been forced to adapt and to add increasing value for consumers like Click&collect, which currently dominates online shopping in CEE.
Participants expect a revival of the office market in CEE despite challenges like the rising cost of construction and labour scarcity in some countries. The shared economy concept and the rise of co-working in CEE, currently only at 1% of the office market, is expected to grow as perceptions slowly change. A trend that was previously seen as only for start-ups, is now also seeing big corporates take up co-working space. However, it was hotly debated how the co-working model would hold up during a downturn in the market.
No other sector in the real estate industry has seen as much change over the past few years as the logistics sector. The shift towards flexibility was highlighted as a focal point in the market, but it was agreed that there is still has a long way to go.
Although occupiers are turning more to technology and automation as robotics is reshaping the industry, there is still a massive need for manpower and lower labour costs as 95% of business is not eCommerce. Tenant demand continues to be driven by labour costs. The general feeling is that the CEE region is the leader in many respects in terms of logistics, even ahead of Germany in many instances like logistics and production.
Student housing in CEE is seen as having enormous potential as an asset class, with little competition in comparison with many Western European nations. A major advantage agreed by participants is that the product is hassle free in terms of being inflation linked.. However, it was clearly illustrated that the region can't be seen as a one size fits all as each city has a different story. A shortage of operators in the region was also emphasised as a concern for some. While lenders in the region remain apprehensive to this asset class it is felt that lenders from countries like Germany and Austria who have gone abroad, understand the product better.
A disputed opening keynote drew attention to a number of risks representing concern for investors in the region like EU funds, labour scarcity and political risk that could significantly undermine current growth. However, amongst the audience overall sentiment was that EU was seeing a momentum shift from west to east which is expected to continue. As countries like Poland, the Czech Republic, Hungary and to a lesser extent Romania, Slovakia and Bulgaria come to the fore.