Property investment volume slightly down in the CEE region, but recovery expected in the coming quarters
Investment volume boosted by small and medium size transactions
Investment into Central and Eastern European (CEE) countries (excluding Russia) for Q1 2016 registered a slight decrease (6%) compared to same period of last year, reaching €1.84 billion. Expectations are that for the entire year, investment volumes will reach and exceed the record volumes of 2015, with all CEE countries expected to perform strongly.
The quarter was dominated by a multitude of small and medium size transactions, for all core real-estate sectors. The average transaction price in Q1 2015 was over €45 mil in across less than 50 transactions within the region. This is compared to Q1 2016, where the average transaction price was €24 mil, from more than 110 closed transactions. While trophy assets are still on the radar for a number of investors, smaller, but attractive products are on the investors’ purchasing list, more so, if part of a regional portfolio.
Compared to full 2015, when US investors accounted for 30% of investment into the region, at the start of the year those most active in the first quarter have been German investors, followed by local / regional investors (Polish, Czech or Slovak investors). South African funds have restated their interest for the region with record breaking transactions in Serbia and Montenegro, with more investments expected in other CEE countries over the course of the year.
Throughout the region prime yields have mostly remained stable compared to Q4 2015, with two major exceptions: Czech Republic and Poland, where compression of 25 bps was recorded for office sector which is now priced at 5.50%; a record low level for this current economic cycle. This comes on the back of high levels of interest from investors for core assets, of which there is a shortage of available product.
Russia registered a stellar q-o-q increase, with Q1 volumes reaching almost 60% of full 2015 volumes. The main driver for investors interested in Russia now is the potential of asset value recovery on the back of the market correction. Despite the uncertainty in the market, investors see the benefits of investing at market bottom and the advantage over other investment opportunities in the form of value retention in the long term.
Following a positive start to 2016, where investment volumes across the CEE region have been broadly in line with 2015 numbers, we expect to see another strong year of investment inflows in the Czech Republic. The retail sector is experiencing strong interest from investors, particularly at the core end of the market and with banks becoming more aggressive, we expect that there is further scope for yield compression for the best properties.
CBRE Group, a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2016 revenue). The Company has approximately 75,000 employees and serves real estate investors and occupiers through approximately 450 offices worldwide (excluding affiliates). CBRE offers a broad range of integrated services including project management; property management; investment management; valuation; property leasing; strategic consulting and research and consulting. In the Czech Republic, CBRE has almost 350 employees and manages nearly 70 commercial premises with a total area nearly 1.2 mil. sq. m. Read more at www.cbre.cz.