Investment trends in six central Eastern European property markets

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INVESTMENT IN central Eastern European (CEE) Real Estate in 2017 is likely to surpass a record-breaking 2016 year, according to a report published by Colliers International and CMS.

The sources of investment flows into the CEE region are expected to remain diverse in 2017, with Asian and CEE investors becoming increasingly active in the real estate market.

The report examines key trends in six Central Eastern European countries (Bulgaria, Czech Republic, Hungary, Poland, Slovakia and Romania) since 2012 and looks ahead to 2017.

In Q1 2017, preliminary real estate investment in the CEE-6 markets has seen a 41 per cent and 45 per cent increase compared with Q1 2016 and Q1 2015 respectively. Preliminary indications also suggest continued local investor activity in Hungary and the Czech Republic and the entry of Thai investors to Poland and Czech Republic.

‘The growing maturity of the CEE region may help combat the specific risks affecting Western Europe, specifically ’Brexit’ and its consequences which are not yet known but might even end up as a positive for CEE,’ says Mark Robinson, senior researcher, CEE, Colliers.

Higher returns and solid prospects for rental growth in CEE are likely to encourage US and Western Europe capital flows to continue at a similar level to the €4.9bn reached in 2016.

Western Europe remained the main source of investment in the CEE real estate market last year but marked shift took place in 2016 with South African (20 per cent), Asian (16 per cent) and CEE investments surpassing those from the G10. This is predicted to continue in 2017, with Asian and domestic/CEE sources continuing to drive new investment.

As Asian investment increases in the real estate sector, this may result in more large portfolio type deals, matching or even exceeding last year’s results interest from Asian investors, particularly in Poland and Hungary, has grown considerably, with total investments reaching €2bn in 2016.

South Africa’s activity meanwhile reached a record level of €2.4bn in 2016. While 2017 might not match this, with over 10 of the domestic REITs committed to the CEE region either directly or indirectly, deals should still be executed.

Cross-border and domestic flows have more than doubled in last five years, reaching €2.6bn in 2016. The Slovak and Czech markets were both the largest origins and destinations of CEE cross-border flow in 2011-16, while Hungary’s domestic flows have grown most rapidly in the recent period.

‘The further we get from 1989, the more developed the CEE markets become and the less reliant on outside investors we are – not only in the real estate sector, but in the whole M&A market,’ says Wojciech Koczara, partner at CMS. ’The spread of Warranty & Indemnity insurance across the CEE markets is another sign of growing maturity in the region as well as the increased level of sophistication in the structuring of large real estate deals.’

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