CEE Investment Market | H1 2018

30 July 2018 • Real estate

CEE Investment Market | H1 2018

18 July 2018 Kevin Turpin Head of Research CEE, JLL

The CEE region continues to be a key target for both international and domestic investors. The CEE region's macro-economic story, encouraging retail performance levels plus very strong office and industrial occupational markets, together with an attractive yield profile provides for a very positive story for investors.

There are minor differences across the region itself with Poland still demonstrating high investment volumes whilst other markets are showing slightly lower levels of activity which is predominantly driven by a lack of product. Of interest is the growth of domestic capital in the Czech Republic and Hungarian markets where domestic volumes are growing year-on-year and, for H1 2018, make up 67% and 43% respectively.

The outlook for the rest of the year is continued activity -investor demand is certainly not reducing and if anything we see stronger demand for core prime assets with secondary assets in poorer locations beginning to suffer to a certain extent.

At ca. €5.93billion, regional volumes for CEE in H1 2018 recorded a 6.3% increase over H1 2017 (€5.58 billion) The first half year breakdown saw Poland record a significant regional share of 54%. This was followed by the Czech Republic (18%), Hungary (8%), Slovakia (8%), SEE markets (8%) and Romania (3%).

Romania Highlights

TheH1 2018, the property investment volume for Romania is estimated at circa €205 million, a value almost half the one registered in the same period of 2017 (€481 million). However, there are a number of transactions in different stages of negotiations that will most likely be concluded during the remainder of 2018. The number of transactions decreased, however, the average deal size increased, standing at approximately €40 million.
Bucharest accounted for over 78% of the total investment volume, mainly due to a very large office transaction which was closed in Q2. Market volumes were dominated by office transactions (88%), while retail accounted for ca.12%.

The largest transaction registered in first half of 2018 was the acquisition of Oregon Park, a 68,500 sqmoffice park in the FloreascaBarbuVacarescusub-market in the north of Bucharest by Lion’s Head Investment. This is the first acquisition of the fund created by the joint-venture between South African investment fund Old Mutual Property and AG Capital in Romania, after previous investments in Sofia, Bulgaria.

Other notable office transactions in Romania were the acquisitions by HagagGroup of two historic buildings on CaleaVictoriei, the main high street of Bucharest for €10 million, which they plan to reconvert into office buildings and the acquisition of Maestro Center in Cluj-Napoca. The latter is the first office transaction in Cluj-Napoca in the last 5 years which involved an international, institutional buyer. The 6,400 sqmoffice building was bought by First Property Group for €9.3 million.

The largest retail transaction of the year was the acquisition of the Festival Shopping Center project of Primavera Development in Sibiu by NEPI Rockcastle for €21 million. This is the second acquisition of the South African group in Sibiu after they bought an existing asset, Sibiu Shopping City in 2015.

The other retail transaction, closed in Q1 2018, was the acquisition of Magnolia Brasov by a local investor from Miller Developments. The 7,500 sqmshopping center, opened in 2006, was sold for €4 million.

The macro-economic forecast for Romania continues to be positive, despite some recent concerns. The country was the EU’s top performer in 2017 (with GDP growth estimated at 6.9%) and is expected to hold this position in 2018 as well, with GDP forecast at over 5.0%. On the financing side, terms and conditions are getting closer to what can be expected in the core CEE markets. Consequently, sentiment is strong, with a total volume for 2018 estimated to reach the €1 billion mark.

Prime office yields are at 7.50%, prime retail yields at 7.00%, while prime industrial yields are at 8.50%. Yields for office and industrial are at the same level as 12 months ago, while retail yields have compressed by 25 bps over the year. There is a very soft downward pressure on yields.

If you want to read the entire report you can find it here.

JLL’s country by country review of the real estate investment markets and transactions across the CEE region in H1 2018.

Source: JLL

Photo source: Advisor Hub