The first quarter of 2023 saw CEE investment volumes decline by ca. 57 percent YoY. This is marginally better than European results where the decrease was 62 percent YoY. Predicting market activity for the remainder of the year, given current conditions, is challenging but could reach €5.0 -6.0 billion at the current trajectory estimates Colliers in its latest “Q1 2023 Investment Scene” report.
Kevin Turpin, Regional Director of Capital Markets, CEE, explains: “Volumes across CEE were some of the lowest levels recorded since the GFC. Poland still secured a 50 percent share of Q1 2023 volumes, followed by the Czech Republic with 31 percent. Interestingly Romania and Bulgaria both had a better start to the year than in 2021 and 2022”. A meaningful recovery still rides greatly on an improved inflationary and interest rate environment to close the pricing mismatch.
Q1 2023 prime yields
“With a lack of evidence in the market, it remains a challenge for all market players to pinpoint where yields currently are. This then leads us to provide a more sentiment-based, in-house view, taking current market conditions into account. Amongst other things, these need to address the various elephants in the room, such as interest rates, ESG compliance and structural changes to occupier markets, for some sectors,” adds Turpin.
All-in financing costs are currently somewhere between 5.0 and 6.0 percent driven by significantly higher interest rates from just 12 months ago, as well as the costs of other financial tools such as Interest Rate Swaps. In addition, the previously generous spread between other investment strategies, such as bonds, has diminished and also caused investors to pause and reassess their portfolios and strategies.
CEE flows by sector
Industrial and Logistics reclaimed its leading spot over Offices and Retail in Q1 2023, as activity cooled off and the lack of product being marketed became more apparent. Major transactions included Panattoni disposing of over €300 million in assets in Poland. In the retail sector, Trei divested its supermarket portfolio across CZ & SK for over €200 million.
CEE flows by the origin of the buyer
Despite the reduced levels of activity, the dominance of domestic capital prevails with CEE capital being responsible for 53 percent of volumes, most notably Czech (41 percent).
International capital is still seeking opportunities in the region; however, the combination of fewer opportunities being openly marketed, and the widely discussed macro and financing challenges are currently causing many to put decision-making on hold. As a result, we can expect to see a similar trend for the remainder of the year.
Economic Indicators and Drivers
The global outlook remains quite mixed: while we are starting to have more clarity on inflation, this does not necessarily mean more clarity on rates or the threat of a banking crisis and a potential credit crunch in advanced economies. Other geopolitical and COVID-related crises remain in place, which explains why the global economic outlook, along with the CEE-6’s outlook worsened a bit compared to a few months ago. That said, as long as no external event is driving a material downward shift in economic activity in the Eurozone, we would expect the CEE to continue to outgrow their Western partners over the long term thanks to EU funds and an attractive business backdrop.