The volume invested in real estate assets in Romania, Poland and Slovakia increased in 2021, while the Czech and Hungarian markets witnessed a downturn when compared with 2020.
At regional level, the total transacted volume reached 9.98 billion euros, a 4.3% decrease compared with the previous year, says Cushman & Wakefield Echinox.
The Polish market registred a growth of 8.3%, while the transacted volume in Slovakia was 54.2% higher in 2021 than in the previous year.
On the other hand, Czechia registered a 36% drop in transactions pertaining to income-producing assets, while the volume in Hungary declined by 18.2%.
In Romania, 54 transactions with real estate assets were completed last year, twice more such transactions in comparison with 2020.
Total investment volume in Romania reached 916 million euros, up 0.2%.
Romania almost doubled its share in the region’s turnover over the previous year and entered the big league, after Poland and the Czech Republic, but before Hungary, Slovakia and Bulgaria.
In a year severely affected by the pandemic, in which Poland, Czech Republic and Hungary all saw year on year declines in volumes, Romania, Slovakia and Bulgaria all saw positive trends.
Overall, volumes in 2020 declined by 24% compared to 2019 with the year closing at about 10.4 billion euro.
Poland remained leader in the region, with investment volumes accounting for 51% of the overall CEE6 total with a total value of investment transactions worth 5.2 billion euro.
Czech Republic followed with a 26% share, thanks to a large residential portfolio sale.
Romania completes the top with a 8.5% share and a volume in the area of almost 900 million euro (up by about 40% over 2019).
The transaction completed by NEPI Rockcastle, advised by Colliers, involving the sale of four office projects to AFI Europe accounted for almost a third of the local investment market in 2020.
The office sector was dominant all over the region in 2020 in terms of transactional activity, with a share of 41% of the total volume of investments, followed by industrial and logistics spaces sector (32%) and away from the more challenged retail and hospitality sectors (12%).
Bucharest, highest yields in the region
Bucharest has some of the highest yields in the region for the office sector (7%), compared to at most 4.25% in Prague, 4,65% in Warsaw or 5.25% in Budapest.
Going forward, rents will remain relatively stable, with prime headline still around 18 euros per square meter in the office sector in Bucharest (and an average in the region of 14 euro per square meter).
The total CEE investment volume in 2020 reached a total of over €9.7 billion, representing an almost 32% decline from 2019, JLL reports.
Poland continued its dominance with 57% of total CEE volume and notably a strong year in logistics. Q1 was very active with roll-over deals from 2019 but as the year progressed volumes declined compared to previous years with a country total of €5.6 billion.
This is a 30% decline from 2019, but still the 3rd highest volume on record.
Czech Republic registered the largest deal in its history with the Residomo transaction of €1.3 billion
Excluding this transaction, the Czech market saw a 52% decline in volumes. Investor demand remains strong for core product but there were limited core office transactions – notably only Churchill Square and Rustonka, both in Prague.
Investment volumes declined by 32% in Slovakia
In Slovakia, despite a very promising start to the year and expectations of 1bn, investment volumes actually declined by 32% as a result of Covid-19.
Investor demand remains in strong for core and core+ industrial product as the occupational market recovered in Q4 2020.
CEE Investments Volumes / Data gathered by JLL
In 2020, prime yields saw some upward pressure in comparison to 2019, with the most visible decompression in the office and retail sectors. The logistics sector is expected to see some small compression as 2021.
In Hungary there was a smaller decline of 25% with a market dominated by the office sector representing 65% of investment volume.
The previous high dominance of domestic capital in 2019 has been reversed back in 2020 to an equal split between foreign and domestic capital.
Romania, the only country in the region to show an increase
In Romania, 2020 started with a large pipeline of transactions; several high-profile office deals were in advanced stages of negotiation.
While the outbreak of COVID-19 had a significant impact on the investment market, the total transaction volume for 2020 represented a significant increase from 2019.
The only country in the region to show an increase, driven mainly by the large NEPI Rockcastle portfolio acquired by AFI.
In 2019, 468.3 thousand real estate transactions were recorded in Poland. The majority of real estate purchase/sale transactions took place in urban areas, 61.1% of the total.
The number of real estate purchase/sale transactions recorded in 2019 was by 0.4% lower than in 2018 and the total value of concluded transactions increased by 0.5% compared to 2018.
The average usable floor area of residential premises sold on the primary market in 2019 amounted to 56.8 m2 and on the secondary market to 53.2 m2.
The average usable floor area of commercial premises amounted to 75.4 m2, of office premises – 92.3 m2 and of garages – 34.6 m2.
In 2019, the prices of residential premise were by 8.7% higher than the year before (in 2018 – by 6.5%). The growth in prices occurred both on the primary market and on the secondary market (by 6.7% and 10.4% respectively).
The average price per 1 m2 of usable floor area of residential premise sold on the primary market amounted to PLN 5,752 and on the secondary market – PLN 4,840.
In 2020, the total volume invested in real estate assets in Romania reached €914 million, a 28% increase compared 2019, according to Cushman & Wakefield Echinox.
The most active segment was by far the Office sector, with estimated transaction values of approximately €784 million, representing 86% of the total investment value.
The Industrial segment attracted 9% of the capital, while the remaining 5% were split between the Retail and Hospitality sectors.
In total, a number of 24 income-producing properties were transacted in 2020, an average of €38 million per property, one of the highest such values in the last decade on the local real estate market.
Biggest transactions of 2020
The six largest transactions pertained to office projects, including the disposal of NEPI Rockcastle’s office portfolio to AFI Europe. The transaction consisted of four office buildings in Bucharest and Timisoara totaling 118,000 sq. m GLA, which were sold for €307 million, the largest office deal ever signed in Romania.
Moreover, the €100 million threshold was exceeded by a number of other office transactions, the most relevant for the market being the purchase of Floreasca Park, a landmark 38,000 sq. m GLA office project, by a joint venture between Zeus Capital Management and Resolution Property (Fosun), marking the entry of Chinese investors on the Romanian office market.
Over the period 2010 until the third quarter of 2020, rents increased by 14.6% and house prices by 26.8% in the European Union.
When comparing the third quarter of 2020 with 2010, house prices increased more than rents in 16 EU Member States, Eurostat data shows.
House prices increased in 23 Member States and decreased in four, with the highest rises in Estonia (+105.1%), Hungary (+92.2%), Luxembourg (+90.5%), Latvia (+83.6%) and Austria (+81.3%).
Decreases were observed in Greece (-31.0%), Italy (-15.5%), Cyprus (-7.7%) and Spain (-4.5%).
Different pattern for rents
When comparing the third quarter of 2020 with 2010, rent prices increased in 25 EU Member States and decreased in two, with the highest rises in Estonia (+136.6%), Lithuania (+106.9%) and Ireland (+62.2%).
Decreases were recorded in Greece (-25.2%) and Cyprus (-4.5%).
Real estate investors in Europe are increasingly targeting large cities and assets minimally disrupted by the health crisis which ensure stable incomes, such as logistics and residential, according to the Emerging Trends in Real Estate 2021 report produced by PwC and the Urban Land Institute.
Other segments that can benefit from relatively stable demand are data centers, buildings with life sciences facilities (pharmaceutical, biotechnology and medical device companies), new energy / infrastructure, industry and communications towers.
Top real estate assets in 2021
Given the strong growth in remote working and ongoing uncertainty around how that trend may play out over the longer term and the future role of the workplace, no office sectors feature in the top ten this year.
For 2021, the ”flight to safety” for many investors involves technology, so three of the top four property types are likely to benefit from the increased pace of digitalisation around the globe, as boosted by responses to COVID-19, including data centers, communication towers and logistics facilities.
The residential market remains highly favoured by investors, with three sectors in the top ten representing some form of residential real estate.
Top cities targeted by investors
The city rankings in this year’s report reflect both the caution and opportunities driving the market, with a focus on cities believed to offer liquidity and stability.
Berlin tops the list as the overall favourite for prospects in 2021, with investors encouraged by the relatively strong performance in tackling COVID-19 by Germany as a whole. In fact, three German cities appear in the top 10.
London has climbed two places to second as investors see it as providing good long-term value. Paris remains in the top three.
Overall ranking
City
1
Berlin
2
London
3
Paris
4
Frankfurt
5
Amsterdam
6
Hamburg
7
Munich
8
Madrid
9
Milan
10
Vienna
The industry sees the merits of small- and medium-sized cities, provided they are well connected, with transport connectivity overwhelmingly considered the most important factor in assessing cities.
Other forecasts for the European real estate market in 2021
Security of income in non-core assets is causing concern, but 55% of investors expect to be net buyers of real estate in 2021.
The survey shows a marked decline in business confidence for 2021, with almost half the respondents expecting a fall in profits and a quarter anticipating job losses.
Domestic investors are expected to come to the fore across Europe in 2021. About a third expect European investors to increase their commitments in 2021.
Real estate executives were cautious about the overall outlook, resulting in a marked decline in business confidence, with 28% foreseeing a decrease in business confidence, compared with 13% in 2019. In addition, 44% anticipated a fall in profitability, compared with 15% in 2019.
Almost two thirds (62%) of real estate investors confirm interest for acquisitions of new projects, both in Bucharest and regional cities, and are currently ready to buy at more favourable conditions, given the new economic context generated by the Covid-19 epidemics, according to a survey conducted by Colliers International on the investment market among nearly 50 real estate companies representing investment funds, developers, asset managers and banks.
Investors continue to show the most interest in industrial and logistics projects, with optimism increasing since April, when Colliers conducted a similar survey.
The share of respondents stating they want to better understand the situation before making a move has dropped from 67% in April to 30% in October.
Moreover, the percentage of investors ready to ”buy at more favourable conditions” has increased from 23% to 62%.
The share of market participants looking to expand their portfolios both in Bucharest and regional cities far outweighs that of those seeking an exit, according to another positive chart in the report.
Around 57% of respondents with assets/focus in Bucharest are looking for opportunities, as are 32% of respondents with assets in regional cities.
Regarding the financing availability, there are some improvements since the April survey conducted by Colliers, though the majority of investors (55%) still expect a short-term worsening, versus 74% in the April survey.
Meanwhile, investment volumes on the local real estate market reached nearly 820 million euro in Romania in the first three quarters of the year, up by 45% versus 2019’s same period and 27% more than in all 2019, making the best three quarters in the last decade, with office assets accounting over 90% of volumes.
While there is some inertia at play, it is encouraging that the year’s biggest deals – the sale of the NEPI Rockcastle office portfolio for over EUR 300mn to AFI Europe and the sale of Floreasca Park to the Fosun/Zeus JV for over EUR 100mn – were both finalized in August, in spite of the pandemic.[HA1]
A recession with a much swifter recovery
The investors are still looking at a recession with a much swifter recovery than that of 2009, with the real estate segment being resilient against this backdrop.
The main issue on the mind of real estate market participants is the uncertain global economic backdrop (51% of answers), followed by concerns about Romania’s fundamentals, like its fiscal imbalances (40% of answers) and uncertainties about real estate in general (38% of answers). This suggests a fairly difficult backdrop for conducting deals, but it appears that general concerns weigh a bit more than Romania’s specific problems.
Many households have experienced steep falls in their disposable income during the current coronavirus pandemic, due to e.g. unemployment, furlough, reduced working time or less clients or turnover.
Housing costs are generally fixed in the short term, and will inevitably leave less for other costs when the household’s income falls.
The housing cost overburden rate for the EU was 9.6% in 2018
However, there were large differences between the different EU Member States. In 11 Member States, less than 6.0% of the population lived in households being overburdened by housing costs.
It was particularly rare to experience such problems in Malta (only 1.7% of the population) and Cyprus (2.0%).
In contrast, the housing cost overburden rate stood at 10% or more in Romania, Germany, Denmark and Bulgaria.
The overburdening was most widespread in Greece, where 39.5% of the population lived in households spending more than 40% of the disposable income on housing.
These differences may, at least partially, reflect differences in national policies for social housing or public subsidies and benefits provided for housing.
In its latest global sentiment survey among its researchers around the world of the impact of Covid-19, Savills says that the outlook has improved slightly, with 19% of countries reporting a severe negative impact on their real estate markets due to the pandemic – an improvement compared to 29% in its previous survey.
Sentiment in China is now ”slightly positive”. China has seen some real estate activity resume as infection rates have been brought under control: retail and office leasing activity rose moderately in the first half of April.
Utilisation rates have also increased as more offices and shops are open with people in them, although rates remain below normal levels as social distancing continues. South Korea and Vietnam, also benefitting from rapid decreases in infection levels, both reported ”neutral” market sentiment.
Rental values
Rents remain unchanged across 60% of sectors and countries globally, rising to 71% of countries in the case of offices, supported in part by the extensive use of concessions.
Retail tenants have been the greatest beneficiaries, with 80% of countries reporting retailers receiving some form of rent relief. Deferred service charges and changes in payment structures are the next most common, with 40% of countries reporting their use by retail landlords in each case.
Occupier demand
Occupier demand altered virtually overnight in many markets. But with early indications that many countries are now at the peak of the epidemic, signs of stability can be seen in some sectors.
Demand for offices is reported to be stable in 42% of countries, while 55% reported moderate falls in occupier demand. This is a significant improvement from the 70% that reported moderate falls at the end of March.
Capital markets
The survey indicates that transaction volumes are down but no longer falling as sharply as in March. In the first half of April, 44% of countries noted no change in transaction volumes.
In the office market, nearly half of the countries surveyed reported no change in transaction volumes since the end of March, whereas earlier 73% of countries were reporting moderate or severe declines in volumes.
Capital values
Capital values continue to be largely unaffected with 63% of countries surveyed reporting values in their markets to be unchanged, albeit on thin volumes.
Unsurprisingly, logistics and healthcare continue to fare well, with 87% and 95% of countries respectively reporting unchanged or increased capital values.
Both sectors will continue to be in high demand for the foreseeable future, which should help support values. Over two-thirds of countries report offices and residential capital values to be unchanged.
Government assistance
Government intervention, such as reduced property taxation or temporary bans on evictions, were reported in 59% of the countries surveyed.
