|The Prague market has traditionally been characterized by a high percentage of buy-to-hold investors|
The past six months, however, have seen a dramatic widening of investors’ horizons. While Poland is still attracting substantial interest, and is on course for its best year since 2006, the rest of the region is finally starting to play catch-up.
In the first half of the year, just 50% of flows into CEE went into Polish assets, according to Jones Lang LaSalle (JLL). A further 25% went to the Czech Republic – including, but no longer limited to, Prague – while Romania and Hungary attracted 15% and 8% respectively.
According to Jos Tromp, head of CEE research and consulting at CBRE, this expansion of interest has been driven by a combination of the improving economic performance of countries such as Romania and Hungary – both of which, along with their real-estate markets, suffered badly in the financial crisis – and a shortage of investment opportunities in the most popular locations.
“Poland has been the investment sweetheart of central Europe in recent years, particularly for equity-driven investors, and as a result it has become increasingly difficult to acquire good quality assets,” he says.
Also skewing the imbalance between supply and demand, say analysts, are the high levels of liquidity spilling over from western Europe into CEE in search of yield – “there is more equity in the market now than there was at the peak in 2007,” says Tromp – and the growing proportion of assets in the region held by long-term investors.
|Real estate survey 2014:|
The Prague market has traditionally been characterized by a high percentage of buy-to-hold investors, but this trend is now expanding to include the rest of CEE. The shopping-centre industry has seen most of its top assets snapped up by long-term buyers, while a similar process is now under way in the industrial and logistics sector.
This, in turn, reflects the changing nature of the investor base and investment strategies in the region, says Troy Javaher, head of capital markets CEE at JLL.
“Whereas two years ago, investors were looking for prime, risk-averse opportunities on a much smaller scale, now the focus for many funds is on acquiring portfolios or ideally entering into a partnership with a proven platform, and doing it on a scale that allows them to rapidly get a footprint in several countries,” he says.
Gaining scale, he adds, also gives investors the opportunity to consider different types of exit – a consideration that is particularly important to the increasing number of big North American funds getting involved in CEE.
These include, most notably, Blackstone, which has been on a shopping spree in the region this summer, buying more than €540 million of assets in three transactions through its European logistics platform Logicor.
Fellow US funds BlackRock and Lone Star have also moved into CEE, as have Canadian pension behemoth PSP Investments and the Canadian Pension Plan Investment Board, and the region has started to attract interest from further afield.
Javaher reports that the €1.6 billion CTP industrial/logistics portfolio, being marketed by JLL, has caught the eye of buyers in the Middle East and Asia as well as North America.
|The terms are not great, but they are improving, and we |
were seeing very little new lending even 18 months ago
On the debt-finance side, market participants report similar trends, in terms of the volumes on offer and the markets for which funding is available.
“Debt financing has always been very solid in Poland and there is also a fair amount of liquidity in Czech Republic, but we are starting to see banks returning to real-estate lending in Romania and Hungary,” says Javaher. “The terms are not great, but they are improving, and we were seeing very little new lending even 18 months ago.”
Robert Sztemberg, head of corporate finance at JLL Poland, adds that, while banks remain relatively conservative in terms of loan-to-value and maturities, ticket sizes have been increasing in the past 12 months and single-bank loans of €100 million or more are not uncommon.
He also notes that non-traditional investors, such as debt funds, are stepping in to fill the gap in countries – such as Romania and Hungary – where some banks are still reluctant to lend.
In Russia, meanwhile, the effects of the economic slowdown and Ukrainian crisis have yet to make a substantial impact on the real-estate market, say analysts, due to the predominance of local – including Commonwealth of Independent States – money in the investor base.
A fall-off in flows has been seen. Whereas last year Russia accounted for 52% of the total CEE investment market, according to CBRE, compared with 30% for Poland, in the first half of this year the two countries have seen roughly equal levels of investment.