Despite COVID-19 impacts on markets, flow volumes remain relatively healthy for the first 3 quarters of 2020 at circa €8bn. Poland attracted €4bn which represents 50% of all volumes in this period. Average transaction sizes are up 31.5% and the number of transactions are down 32% according to “The CEE Investment Scene Q1-Q3 2020” report released by Colliers International.
Andy Thompson, Head of Investment for Czech and Slovak Republics at Colliers, said: “Real estate cycles typically reflect and follow economic cycles. It is inevitable, therefore, there will be some fall-off in investment activity in the current climate. That said, it is worth noting that the market is behaving very differently compared to the last slowdown. Investors remain genuinely active in this cycle in both the Czech Republic and the wider CEE region. Transactions are progressing. Real estate remains a very attractive investment opportunity given the spread between prime yields and the risk-free rate. The market is also now much deeper, investors are much more sophisticated and real estate itself has performed well over the last cycle and is expected to perform well in the future in CEE.”
Since Q2 we have recorded very little movement in prime yields, primarily due to the lack of transactional evidence to support further shifts. Our view remains that while some shifts are inevitable, core, well-performing assets should hold up well, with more pressure expected on the secondary product. Due to the shift in interest of investors to logistics, we can also expect to see prices react accordingly. The office sector again dominated in the first 3 quarters of 2020. Understandably, Retail and Hotels are down considerably on last year, with logistics significantly up and greater volumes held back only by the shortage of supply.
Western European funds have been most active during the first 9 months of 2020, although volumes were supported by Sweden’s Heimstaden Investing into a €1.3bn residential portfolio in the Czech Republic. CEE domestic investors, consisting of mainly Czech and Hungarian capital, have also remained in acquisition mode, investing both in their own markets and cross-border within CEE. Capital from Asia, particularly Singaporean and South Korean, has continued to secure opportunities in the region.
Globally and in CEE, economies are expected to take a hit in 2020 but rebound rapidly from 2021 onwards. Unemployment rates are also expected to increase, and the combination will put downward pressure on retail sales.