PropertyEU at CBRE for CEE Investment BriefingDigital Manager
Innesco’s newest Analyst from the USA, Bryan DeVries, reports back on PropertyEU’s latest CEE Investment Briefing held this morning at CBRE’s UK Head Office in London.
This morning’s commercial real estate investment discussion was both informative and a benefit to help get to grips with Eastern European investment from a real estate perspective.
The expert panel at the CEE Investment Briefing this morning included, Martin Sabelko, Managing Director CEE, CBRE Global Investors, Martin Erbe, Head of International RE Finance, Northern & Central Europe, Helaba, Mike Atwell, Head of Capital Markets, CEE, CBRE and Gordon Black, Senior Managing Director, Co-Head of Europe Private Real Estate Equity, Heitman.
There were several key discussion points to pick up on, but the headline debate focused on Central and Eastern Europe both continuing to experience capital growth despite investor concerns over the Ukraine crisis.
European GDP Growth from 2014 to 2016 looks optimistic, with the UK and Germany leading the way. There is also a sizeable amount of capital going into a commercial real estate market where Romania, the Czech Republic, and Hungary are beginning to gain traction. It should be noted that for prime office investment though, Prague is the only Czech city of recognisable value as secondary cities struggle to generate demand and supply.
Russia is expected to see a decrease in economic activity, but it is important to acknowledge that Russia’s Q1 performance was fairly strong compared to historic trends. Additionally, yesterday it was announced that U.S. Bank Goldman Sachs has invested $100 million in a Russian real estate firm for a 6% stake. This comes as a surprise because tensions between Ukraine and Russia have escalated severely in recent months. Despite a rather solid Q1 there has been a substantial amount of foreign direct investment coming out of Russia.
The panel discussed how the property investment trends of Central and Eastern Europe are fundamentally positive and have not been following those of Russia, which is considered to be in a state of recession due to the substantial drop in retail sales.
On the debt side of the European commercial real estate market equity is still the driving force. Bond rates are expected to go up after a delay meaning there is a 12-24 month window of opportunity for Central and Eastern Europe property investment before yields compress. This region of Europe has already seen a somewhat substantial rise in pure equity buyers and that trend is expected to continue. There are many attractive property investment options but perhaps the largest area of opportunity in property investment is the retail sector of secondary market cities.
The Ukraine issue so far seems to be more of an emotional issue than anything else as the same amount of capital is still coming in to Central and Eastern Europe. Experts expect the conflict to settle down by Q2 or Q3. Currently, the crisis has had no quantitative negative effect on the property market in the rest of Eastern and Central Europe. But, if tensions continue to rise without resolve, it is very possible that the European countries west of Russia and Ukraine will experience sizeable adverse economic effects.
Bryan DeVries, Analyst