The CEE investment market: competition intensifies asquality product diminishes
Of all the countries in the region, the Czech Republic was the most popular destination for funds, who spent over zł.2.4 billion (€500 million) there, which was evenly distributed across the office, retail and logistics sectors. In 2002 it was Poland who led the pack, overtaking Hungary, having attracted around zł.2.89 billion (€600 million). These three countries, still however, dominate investment activity in the region.
The capital cities of Warsaw, Budapest and Prague, have continued to benefit from investor interest but there have been a number of retail portfolio transactions, involving shopping centers in the regions, and in Poland and the Czech Republic particularly.
Investment volumes in all three main sectors grew throughout Central and Eatern Europe, though offices remained the most popular, accounting for around 65 percent of total volume. Several retail and industrial acquisitions also occurred, however, and office investment's share of total volume has been shrinking since 1999. This is partly due to "the relative scarcity of suitable office investment stock in the major regional cities", according to the report. Investment in retail has, on the other hand, grown strongly since 2001. Rodamco's purchase of a fifty percent stake in GTC's Galeria Mokotów in Warsaw in 2002 and GE Capital/Heitman's acquisition of two major portfolios in Poland and the Czech Republic, in 2002 and 2003 respectively, are highlighted by the report as indicators that the retail sector is increasingly attracting investors' money. In the industrial sector, there were a number of large investments, which was a change from previous years, when few had taken place. Limited development activity had resulted in little choice for investors. In 2003, however, Europolis purchased a further two buildings at the Menard Doswell-developed Alliance Logistics Center outside Warsaw, for example.
Austrian capital became the biggest source of investment in the region during 2003, replacing that from the USA. Investors from Austria spent just under zł.1.93 billion (€400 million), of which zł.1.45 billion (€300 million) was invested by Europolis. They and the American investors GE Capital/Heitman have amassed portfolios which total over zł.2.89 billion (€600 million) each, amounting to approximately thirty four percent of the total investment volume into the region. Irish investors accounted for ten per cent of the transactions on the market and emerged as a force, and the German fund Sachsenfonds arrived on the market to spend zł.699 million (€145 million) on two prime acquisitions in Warsaw and Prague.
In Warsaw, prime office yields are in the range of around 9.5 percent, compared to Budapest and Prague, where they are 8-8.5 percent. Even with a fall of around two percent over the past two years, yields in Warsaw are notionally in a range of one to two percent higher, which reflects a less stable rental situation and mainly perpetual usufruct titles.
Competition has increased and now over twenty different funds or companies have concluded transactions, with a similar number exploring possibilities, but "hardening yields are making it difficult for potential buyers to find product in line with their investment criteria," according to the report.
In Warsaw, the fall from the high rental levels of 1998-1999 has led to a corresponding drop in capital values, although they are still higher than in Budapest and Prague. "The difference in yield," the report however states, "between Warsaw and the other two cities, suggests that investors are factoring the probability of further rental decline."
Compared to the previous year, 2003 was a relatively uneventful one for Warsaw and Poland. 2002 had been exceptional, however, with around zł.2.89 billion (€600 million) million transactions occurring, including zł.964 million (€200 million) shopping center portfolio acquisition by GE Capital/Heitman. 2003 began slowly with just two deals completed by the middle of the year but over zł.1.2 billion (€250 million) million had been spent by the end of the twelve months, by far most of which was invested in office buildings. Europolis' two further acquisitions in the Polish market brought its total investment in the country to almost zł.1.45 billion (€300 million) and the German funds Sachsenfonds and DGI were involved in the biggest deals at the Focus and Brama Zachodnia buildings in Warsaw, but U.S. investors had a quiet time of it, with Pricoa/Prudential's purchase of a secondary office building, being their largest acquisition. Investors from Ireland bought two secondary office buildings in Poland in 2003 for around zł.48-72 million (€10-15 million) million, as well as an owner-occupied mixed-use scheme.
In its 'Market Outlook' the report remarks that portfolio transactions "have been a growing feature of the investment markets in the CEE region. This has been an important factor in the robust growth in aggregate transaction volumes recorded year on year."
It goes on to mention the growth of local investment funds, which have typically evolved from their banking parent companies. One such is Poland's CAIB Fiz Sectora Nieruchomości. "They now compete," says the report, "with the foreign investors who have dominated the market to date."
Two factors continue to limit investment activity in Central and Eastern Europe: the first is the small number of investment-grade buildings available for sale, and the more subdued development and leasing in the region since 2001. But as more activity in leasing is forecast to 2004, more investment-grade properties are expected to arrive on the market.
This relatively low supply of institutional-grade product for sale has meant that investors have been on the look out for properties in other markets in the region, such as Romania and Russia. The former's capital, Bucharest, witnessed its first two institutional investments and a groundbreaking institutional deal occurred in Moscow. Investors might also actively seek 'sale and leaseback' opportunities, phase their purchase of partially-leased buildings, take on more leasing risk or engage in forward funding. "The dearth of institutional product has also encouraged the fast growth of secondary markets. There is a great deal of investment in high-yielding non-prime product," concludes the report.
The capital cities of Warsaw, Budapest and Prague, have continued to benefit from investor interest but there have been a number of retail portfolio transactions, involving shopping centers in the regions, and in Poland and the Czech Republic particularly.
Investment volumes in all three main sectors grew throughout Central and Eatern Europe, though offices remained the most popular, accounting for around 65 percent of total volume. Several retail and industrial acquisitions also occurred, however, and office investment's share of total volume has been shrinking since 1999. This is partly due to "the relative scarcity of suitable office investment stock in the major regional cities", according to the report. Investment in retail has, on the other hand, grown strongly since 2001. Rodamco's purchase of a fifty percent stake in GTC's Galeria Mokotów in Warsaw in 2002 and GE Capital/Heitman's acquisition of two major portfolios in Poland and the Czech Republic, in 2002 and 2003 respectively, are highlighted by the report as indicators that the retail sector is increasingly attracting investors' money. In the industrial sector, there were a number of large investments, which was a change from previous years, when few had taken place. Limited development activity had resulted in little choice for investors. In 2003, however, Europolis purchased a further two buildings at the Menard Doswell-developed Alliance Logistics Center outside Warsaw, for example.
Austrian capital became the biggest source of investment in the region during 2003, replacing that from the USA. Investors from Austria spent just under zł.1.93 billion (€400 million), of which zł.1.45 billion (€300 million) was invested by Europolis. They and the American investors GE Capital/Heitman have amassed portfolios which total over zł.2.89 billion (€600 million) each, amounting to approximately thirty four percent of the total investment volume into the region. Irish investors accounted for ten per cent of the transactions on the market and emerged as a force, and the German fund Sachsenfonds arrived on the market to spend zł.699 million (€145 million) on two prime acquisitions in Warsaw and Prague.
In Warsaw, prime office yields are in the range of around 9.5 percent, compared to Budapest and Prague, where they are 8-8.5 percent. Even with a fall of around two percent over the past two years, yields in Warsaw are notionally in a range of one to two percent higher, which reflects a less stable rental situation and mainly perpetual usufruct titles.
Competition has increased and now over twenty different funds or companies have concluded transactions, with a similar number exploring possibilities, but "hardening yields are making it difficult for potential buyers to find product in line with their investment criteria," according to the report.
In Warsaw, the fall from the high rental levels of 1998-1999 has led to a corresponding drop in capital values, although they are still higher than in Budapest and Prague. "The difference in yield," the report however states, "between Warsaw and the other two cities, suggests that investors are factoring the probability of further rental decline."
Compared to the previous year, 2003 was a relatively uneventful one for Warsaw and Poland. 2002 had been exceptional, however, with around zł.2.89 billion (€600 million) million transactions occurring, including zł.964 million (€200 million) shopping center portfolio acquisition by GE Capital/Heitman. 2003 began slowly with just two deals completed by the middle of the year but over zł.1.2 billion (€250 million) million had been spent by the end of the twelve months, by far most of which was invested in office buildings. Europolis' two further acquisitions in the Polish market brought its total investment in the country to almost zł.1.45 billion (€300 million) and the German funds Sachsenfonds and DGI were involved in the biggest deals at the Focus and Brama Zachodnia buildings in Warsaw, but U.S. investors had a quiet time of it, with Pricoa/Prudential's purchase of a secondary office building, being their largest acquisition. Investors from Ireland bought two secondary office buildings in Poland in 2003 for around zł.48-72 million (€10-15 million) million, as well as an owner-occupied mixed-use scheme.
In its 'Market Outlook' the report remarks that portfolio transactions "have been a growing feature of the investment markets in the CEE region. This has been an important factor in the robust growth in aggregate transaction volumes recorded year on year."
It goes on to mention the growth of local investment funds, which have typically evolved from their banking parent companies. One such is Poland's CAIB Fiz Sectora Nieruchomości. "They now compete," says the report, "with the foreign investors who have dominated the market to date."
Two factors continue to limit investment activity in Central and Eastern Europe: the first is the small number of investment-grade buildings available for sale, and the more subdued development and leasing in the region since 2001. But as more activity in leasing is forecast to 2004, more investment-grade properties are expected to arrive on the market.
This relatively low supply of institutional-grade product for sale has meant that investors have been on the look out for properties in other markets in the region, such as Romania and Russia. The former's capital, Bucharest, witnessed its first two institutional investments and a groundbreaking institutional deal occurred in Moscow. Investors might also actively seek 'sale and leaseback' opportunities, phase their purchase of partially-leased buildings, take on more leasing risk or engage in forward funding. "The dearth of institutional product has also encouraged the fast growth of secondary markets. There is a great deal of investment in high-yielding non-prime product," concludes the report.
