Most countries in central and eastern Europe can expect relatively strong economic growth and remarkable improvements in their commercial property markets in 2016, with both the Occupier Sentiment Index and the Investment Sentiment Index registering a positive value across all sectors in Bulgaria, the Czech Republic, Hungary and Romania.
According to the RICS Commercial Property Monitor for Q4 2015 private consumption is expected to grow in most countries. Last year proved fruitful for the likes of Bulgaria and the Czech Republic with expected GDP growth for 2015 expected to show an increase of 3% and 4% respectively, exceeding expectations on both fronts. The sharp rise in economic growth in the Czech Republic – up 2% from 2014 – was partly driven by a temporarily increased drawing of EU funds, private consumption has also increased robustly in recent quarters and is expected to accelerate.
“There is a lot of equity on the market. With the cheap debt available as well we have seen record activity for the Czech real estate. With comparison to other asset classes, real estate still offers interesting returns attracting new investors previously investing within other segments. However, not many professionals expect the yield compression to be bottomless. With pessimistic news from the share markets recently, investors remain cautious with focus on the product fundamentals”, added Karel Klečka MRICS, Patria, member of KBC Group, director, real estate investments.
Moving forward, net trade and government spending in Bulgaria are anticipated to remain the principle driver of growth, while domestic expenditure will be weighed down by sluggish wage growth. Also, soft private consumption trends are set to hold back investment in the near term.
The Hungarian economy is estimated to have grown in 2015 by 3%, down from 3.7% in the previous year. In 2016, private consumption and exports are expected to be the key drivers of growth with increasing nominal wages, low oil prices, weak inflation and a 1% cut in the flat personal income tax rate all likely to further stimulate consumer spending.
Final GDP figures are expected to show that Romania’s economy expanded close to 3.5% in 2015. Strong wage growth, rising disposable income and loose monetary policy are all driving consumer spending, while falling oil prices and low inflation are supporting households’ spending power. Going forward, the 4% cut in the rate of VAT is expected to stimulate private consumption which should, in turn, lead to a further acceleration in overall GDP growth in 2016.
The Occupier Sentiment Index climbed to a record high in both Bulgaria (+28) and Hungary (+55), while it also sits in positive territory in the Czech Republic and Romania. The strongest reading was posted in Hungary where occupier demand has increased sharply against a backdrop of declining supply. Across the other three national markets, availability is still rising but this is being outstripped by growth in tenant demand in each case.
Occupier demand increased in all sectors in the Czech Republic, Hungary and Romania. The increase in demand was especially strong for office space in Hungary and the Czech Republic, while in Romania offices and industrials saw the most significant increase. In Bulgaria occupier demand increased sharply in the office sector, at a solid rate across industrial space, but fell marginally in the retail arena.
A positive value was also recorded for the Investment Sentiment Index (ISI) in each country, demonstrating that conditions in the investment market picked up across the board. The index climbed to a record high in Hungary (+37) and reached a four-year high in the Czech Republic (+35), pointing to an acceleration in the pace at which investment market dynamics are improving in these two countries.
Investment enquiries, both from domestic and foreign buyers, continued to rise significantly across the board in the Czech Republic, Hungary and Romania. In Bulgaria, however, investment enquiries only rose in the office sector and at a more modest rate in the industrial sector, while investor demand in the retail sector fell slightly.
“Since the sentiment index is in a strongly positive territory for Bulgaria we expect growing interest for acquisitions of income generating properties during 2016. The SEE region and Bulgaria in particular, show great potential to attract real estate investors supported by the lower cost of bank financing and the increasing occupier demand in all market segments. Due to the increasing rents our expectations are for further yield compression but the local market continues to offer higher return than the more developed ones”, commented Michaela Lashova MRICS, CEO of Forton, alliance partner of Cushman & Wakefield for Bulgaria and Macedonia.
