According to Cushman & Wakefield investment activity in the core Central European markets of Poland, Czech, Slovakia, Hungary and Romania increased marginally to € 536 million in Q3 2012. This is ahead of the € 435 million invested in Q2, however, volumes are significantly down on previous years, despite strong underlying activity in several markets.
Year to date, € 1.90 billion has been invested in the core CE markets, a mere 40.7% of the previous year’s € 4.66 billion but in line with the volume invested for the same period in 2010.
Commenting on the outlook for 2012, Charles Taylor, Partner at Cushman & Wakefield added “Whilst the top line investment figures are disappointing and a result of fewer transactions and an extended timeline to reach closing, the underlying trend remains positive, at least for Poland and the Czech Republic where investor demand remains robust. There are significant deals in the pipeline suggesting a strong Q4, but our year end forecast for the region is just over € 3.5 billion, some way behind last year’s record level of € 6.1 billion.”
Poland continues to lead, with € 1.15 billion invested, ahead of the Czech Republic with € 452 million. There was negligible activity in Hungary, reflecting investors’ concerns that the Hungarian Government has yet to strike a deal with the IMF / EU. Slovakia, with its more promising economic outlook, has yet to see a major deal close this year, despite investor interest. Romania experienced its strongest quarter since Q1 2011, with € 140 million invested in the last quarter, with retail investment dominating.
Significantly, investors preferences across Central Europe have moved to the office sector from retail, with the share of investment volumes at 53% and 36.5% respectively. Industrial fell further behind accounting for just 8% of investment volumes.
As the CE markets settle from the recent upheavals across Europe, new realities are emerging and investors are forming strategies to move forward. Owners are considering to “re-price or reinvest” as they better understand the extent to which pricing has moved out and assess the cost and risks of continuing to hold assets. Against a background where the chances of price increases in the next two years are at best slim, this is likely to result in additional product coming to the market over the next 6 months. Further buying opportunities are expected to materialize as a number of property funds mature and begin divestment, not to forget the liquidation of certain German open ended funds.
On the demand side, whilst investors in Europe and indeed globally are still heavily focused on core markets, there is increasing demand for income and value and some mild increase in risk taking may be seen as a result. Previously overlooked, smaller markets such as Romania and Bulgaria have experienced increased interest, but for 2013, the CE region is expected to see an upswing in investor demand, albeit largely limited to new grade A stock.
Commenting on CE market sentiment, Taylor added “Expo Real is upon us and will be an important barometer. There is a clear element of frustration in the market. Investors remaining cautious and unwilling to seize the opportunities out there, and vendors are procrastinating over pricing gaps that exist between their expectations and what the market is prepared to pay. Everyone is hoping for significantly more activity in Q4 and into 2013”.