During the first half of 2023, CEE investment activity remained low due to increased financial costs and an uncertain outlook. As a result, there was a need for more price discovery across all sectors, says JLL. The rise in interest rates has had a significant impact on transaction valuations and investment activity, leading to a challenge in determining the size, speed, and duration of price adjustments. JLL experts present the analysis of investor activity in Poland in comparison to CEE countries.
Market players chose to adopt a “wait and see” approach to understand how the current economic environment and changes in sourcing strategies would impact tenant decision-making processes. As a result, only €2.31 billion was transacted in CEE in H1 2023.
“Although certain global players are adopting a cautious “wait and see” approach, investors from CEE are actively engaging in the market. Currently, unleveraged buyers are particularly competitive. Additionally, there are initial indications of improvement, including reduced interest rate volatility, declining inflation rates, and stabilized property values. These factors are expected to increase lender confidence and activity, ultimately driving market growth throughout the year,” says Dmytro Havrylenko, Head of Capital Markets, JLL.
The biggest transactions in the CEE region
The largest transaction by volume came from the Czech Republic from the retail sector and was represented by Trei Portfolio of supermarkets and retail parks across which Trei Real Estate sold to Star Capital Finance Group for approx. €200 – 205 million. It is also worth noting that this transaction involved both Czech and Slovak properties. Another significant transaction from Poland from the industrial sector was an acquisition of Campus 39 by P3 for nearly €140 million. One of the key transactions was Palác Pardubice sold by G City Europe to Redstone for €120-125 million. Also worth mentioning is the most meaningful office deal in the region – Wola Retro. This office complex, developed by Develia in 2019-2020 was sold to the Hungarian investor Adventum International for approx. €70 million. This confirms the increased activity of CEE investors in Poland.
Analysis of the situation in the markets of Central and Eastern Europe
The Poland investment volumes during H1 2023 reached approx. €0.87 billion, down 70 percent on H1 2022 when the market witnessed a conclusion of the record-breaking sale of Warsaw Hub. Nevertheless, this was the lowest 6-month performance since 2010.
In the Czech Republic, the first half of 2023 provided transactional volumes of €800 million. This represents a 37 percent decrease in comparison to the same period last year and a 72 percent increase against H2 2022. Most of this volume was generated by activity in the first quarter of 2023.
The uncertain outlook and the further elevated borrowing costs triggered a very cautious and delayed decision-making process by purchasers in Hungary, visible in the transaction activity. The H1 2023 investment volume amounted to less than €250 million, the lowest H1 volume since 2013, indicating a softening of ca. 60 percent year-over-year.
In Romania, the property investment volume in H1 2023 was €181 million, which is 44 percent lower than the one registered in H1 2022. Investment volumes were dominated by industrial transactions, with approx. 33 percent of the total, followed by transactions in the office sector (29 percent).
Investment volumes in Slovakia in the first half of 2023 reached over €210 million, a y-o-y decrease of over 80 percent (excluding Penta Alto deal) and the lowest number since 2017.
CEE Prime Yields
In Poland, the moderation of bidding intensity led to a further upward movement in office yields. As of the end of H1 the yield for prime Warsaw assets, with lease agreements exceeding five years, was expected at approx. 5.50 percent. The lowest prime office yield was observed in the Czech Republic at 4.90 percent. On the other hand in Hungary, Slovakia and Romania, capitalization rates were estimated to be respectively at approx. 6.25 percent, 5.95 percent, 7.50 percent.
Although in our country there is still no recent retail transactional evidence in Warsaw, based on the overall market sentiment, JLL estimates the Q2 2023 prime shopping centre yields at 6.15 percent. In the Czech Republic, yields for retail were at the lowest among other cee countries and reached a value of 5.75 percent. In Hungary, Slovakia and Romania capitalization rates for retail properties were respectively at: 6.75 percent, 6.50 percent, and 7.50 percent.
At the end of June 2023 in Poland prime warehouse yield for multi-tenant schemes with five-year lease agreements was estimated to be at approx. 6.40 percent. As for the lowest yield, it was in the Czech Republic at 5.00 percent. In Hungary, Slovakia and Romania capitalization rates for the warehouse assets were respectively at: 6.50 percent, 6.00 percent, 7.50 percent.
The yields quoted are estimates only, JLL has not witnessed a new prime transaction and therefore does not have a new benchmark.