As the global pandemic progresses across borders and within countries Cushman & Wakefield’s local CEE market research colleagues shared what they are seeing on the ground in their countries.
Shortly after the first confirmed cases in the Czech Republic at the beginning of March, and prior to many other countries in Europe, the Czech Government gradually introduced strict measures to prevent an outburst of COVID-19, including obligatory wearing of face masks, closed borders, schools and most shops. Subsequently, the number of patients among the most vulnerable elderly people as well as the number of dead is still relatively small, and the Czech healthcare system seems to cope with the challenge well.
The Government has provided relief and compensation for Czech businesses. The Czech Republic had one of the lowest levels of public debt and unemployment in the EU before the crisis which promises a comparatively fast recovery for the Czech economy after the crisis.
However, many companies are able to continue their business: the office based professions have successfully moved to the home office and e-commerce operators report up to four times the turnover they normally see this time of a year. We are witnessing an unprecedented social cohesion in the whole Czech Republic with the common motto “We can do it together”.
Hungary has been in lockdown since 28 March. Car manufacturers including Audi, BMW, Mercedes and Suzuki have temporarily closed production. Most office occupiers have shifted to home office.
Social distancing measures are in place and shopping hours for seniors was introduced. By decree, leisure and entertainment venues have all closed and people are only allowed out to shop for groceries, do basic errands or obtain medical supplies, and exercise in the open.
Whilst the Government has not enforced non-essential shop closure, as a result of a dramatic decline in sales, many retailers have opted for voluntary shut down in recent days. Most shopping centres are open but operate under tightened opening hours.
The Hungarian Government has announced a Financial Aid Package, and more is expected to follow this week. It includes:
A blanket moratorium on loan repayments for all companies and private borrowers until the end of the year.
Measures to defend jobs, including payroll tax cuts for the most heavily affected sectors, such as tourism and entertainment among others.
In the meantime, the National Bank of Hungary has left the base rate unchanged and will increase the available liquidity of the banking system by HUF 2,600 billion.
Since 14 March all shopping centre operations have been limited to stores only selling essentials or providing essential services, including grocery stores, pharmacies and launderettes.
On 25 March Poland went into full lockdown with the public banned from leaving homes except for essential reasons. Restaurants are only allowed to offer delivery or take-away meals. Standalone DIY markets remain open. The Polish Government adopted the assumptions of an ‘anti-crisis shield’ according to which lease agreements in shopping centres should be suspended for stores that are not allowed to operate. Both tenants and landlords are taking the initiative to incorporate the interests of both parties in the new regulations.
We are currently observing adaptation processes in the warehouse market in Poland, especially visible on the demand side, as the development processes started last year are still ongoing.
Companies from the e-commerce, food, FMCG, pharmaceutical, hygiene or cleaning products sectors are looking for solutions to meet the sudden increase in consumer demand. Tenants are increasingly interested in short-term leases, due, in part, to the bullwhip effect thanks to recent consumer stockpiling.
In the first quarter of 2020, tenant activity in the Polish office market was at a relatively stable level. Nonetheless, since mid-March approximately 5-10 percent of transactions are on hold due to general uncertainty caused by COVID-19. Currently there is no legislation limiting construction works in Poland and most of the office construction sites continue.
Total investment volume recorded by end of March 2020 in Poland exceeded €1.1 billion and it has been mostly driven by the industrial sector (€800 million). We can observe that deals in advanced stages are still pushing ahead and closing, however most investors have taken a ‘wait-and-see’ position. We expect further slowdown of investor activity as we come into Q2.
Credit activity has partially slowed down. Banks are taking a different approach to financing specific sectors, with most optimism directed at logistics property.
Russia is climbing up the exponential curve. The first week in April has been announced a holiday and we are anticipating tighter quarantine measures in April.
The warehouse sector is booming as food retailers hurry to secure storage capacity to meet peak demand of basic foodstuffs. Online retail growth is also contributing to the unprecedented demand for logistics space.
The office sector is stable so far with low vacancy and tight supply. However, we expect increase in vacancy and some rent softening in Q2. The flexible workplace market is doing well as some tenants turned from a standard office lease towards flexible space to get through the uncertain times.
Retail is in the biggest trouble. Shopping centres are most likely to remain closed through the whole of April and maybe even May. The Government is discussing measures to save F&B and non-food retail, but obviously the consumer market will take the major hit.
Against the backdrop of the pandemic, Russia is facing 20 percent devaluation of national currency and 5 years of consumer market stagnation.
However, since 2015 supply growth was limited and rents were under pressure across all sectors, we therefore do not expect any significant repricing in Ruble rents (apart from shopping centres).
The new Slovak Government will help companies and sole traders maintain jobs with measures that will cost €1 billion per month (around 1 percent of Slovakia’s annual GDP) and bank guarantees for €500 million per month. This business relief is conditional on the beneficiaries undertaking not to lay off their employees.
The state will provide contributions to sole traders and employees in whose businesses have been forced to close as well as their direct suppliers. The sum of the Government’s contribution will depend on how far sales have dropped. The state will also reimburse 55% of gross wage to workers on quarantine or nursing leave.
In addition, the Government has agreed to conditionally postpone the payment of taxes and levies and the application of tax losses from previous periods.
The commercial real estate sector is witnessing the postponement of both investment transactions and rental contracts. Most existing construction projects are postponed for later periods as well. We are yet to see a change in pricing in connection with the pandemic. The retail sector however expects an already anticipated prime rent and yield correction in relation to retail saturation reaching a peak in the Capital.
Over recent days, the global spread of COVID-19 is having a dramatic impact on people, communities, and businesses in Turkey. The outbreak is expected to limit Turkey’s 2020 GDP growth to 1.7 percent, reduced from 2.8 percent, as indicated by Oxford Economics, while Moody’s has forecast a 1.4 percent contraction in Turkey’s economic growth.
The real estate industry in Turkey is being affected by social distancing, working remotely, defacto shut down of physical retail and strict travel restrictions. As self-distancing is being tested in Turkey in line with global recommendations, many companies have started working remotely. This will lead to a reconsideration of workplace strategy including working remotely on a long-term basis or flexible office space with a clear focus on health and safety concerns.
Following the Government’s decision to close down all social gathering areas related to entertainment/leisure – ‘non-essential’ – almost all shopping centres have been forced to close their doors. Many Turkish and international brands temporarily closed their stores both in shopping centres and on high streets.
The physical retail market is expected to face major challenges regarding uncertainty in lease agreements., These remain in place and shopping centre owners are under pressure to allow ‘rent holidays’ with the exemption of store operating costs for the non-operational period. Notwithstanding, online retail is rapidly increasing, but limited to grocery shopping for the time being, resulting in a high level of demand for home delivery.
iO Partners, JLL’s preferred partner, has opened a new office in Belgrade, Serbia. The new business, which will cover Serbia and neighbouring countries including Croatia, Slovenia and Montenegro, is...