According to CBRE, investment into Central and Eastern European (CEE) countries (excluding Russia) for Q1 2016 registered a slight decrease (6%) compared to same period last year, reaching €1.84bn. Expectations for the year are that investment volumes will reach and exceed the record volumes of 2015, with all CEE countries expected to perform strongly.
The first quarter was dominated by a multitude of small and medium size transactions for all core real-estate sectors. The average transaction price in Q1 2015 was over €45m across less than 50 transactions within the region. This is compared to Q1 2016, where the average transaction price was €24m from more than 110 closed transactions. While trophy assets are still on the radar for a number of investors, smaller but attractive products are on investors’ purchasing lists, more so if part of a regional portfolio.
Compared to 2015, when US investors accounted for 30% of investment into the region, those most active in the first quarter of this year have been German investors, followed by local/ regional investors (Polish, Czech or Slovak investors). South African funds have restated their interest for the region with record breaking transactions in Serbia and Montenegro, with more investments expected in other CEE countries over the course of the year.
Throughout the region prime yields have mostly remained stable compared to Q4 2015, with two major exceptions: the Czech Republic and Poland, where a 25bps compression was recorded for the office sector, which is now priced at 5.5%; a record low level for this current economic cycle. This comes on the back of high levels of interest from investors for core assets currently seeing a shortage of available product.
Russia registered a stellar q-o-q increase, with Q1 volumes reaching almost 60% of 2015 volumes. The main driver for investors currently interested in Russia is the potential of asset value recovery on the back of market correction. Despite the uncertainty in the market, investors see the benefits of investing at market bottom and the advantage over other investment opportunities in the form of value retention in the long term. Taking into account the volume of deals in Q1 2016 and current deals under negotiations, CBRE upgraded their forecasts to €4bn from a previous €2.5bn.
