Investment in Central and Eastern Europe returns to Pre-Pandemic levels in the first quarter of 2022
Volumes in Central and Eastern Europe at the end of 2022 may exceed 12 billion euros, but the uncertainty caused by the war in Ukraine and the oncoming economic winds may affect this forecast, reveals the latest report by Colliers.
"Individually, most countries are still lagging behind before the pandemic. Only Poland grew by 23% year on year and accounted for 56% of total investment in the first quarter of 2022. After a slow start last year, the Czech Republic had a good first quarter in 2022, the signals for the rest of the year are mixed, with a number of challenges but also opportunities, ”explained Kevin Turpin, Regional Director of Capital Markets, CEE at Colliers.
Return on first-class assets for Q1 2022 and 12-month forecast
"We are registering a weak movement in premium property yields for most markets in the region, partly due to the continuing lack of data on transactions to support further change. Our current forecast also suggests that in the short term the additional contraction in profitability will be marginal or non-existent. Especially given that we expect the cost of debt and other financial instruments to increase, which will increase the pressure on margins. The combined impact of the pandemic and the war in Ukraine has stimulated inflationary pressures and negative economic attitudes," added Kevin Turpin.
Georgi Kirov, Partner, Director of “Capital Markets” for Bulgaria confirms: “The levels of return in Bulgaria remain at the levels of the end of 2021, namely for office space - 7.75%, retail space - 7.75%, industrial space 8.5 % and living space - 5%. In the short term, the levels of profitability in office and industrial space are projected to shrink further, while in retail space no change is expected."
CEE INVESTMENT VOLUMES BY COUNTRY 2018 to Q1 2022 (€ BILLION)
Investment flows in CEE by sectors
In the first quarter of 2022, the industrial and logistics sector gave way to the office and retail segments as the lack of available product became increasingly apparent. The volumes of the retail sector increased significantly thanks to the sale by EPP of 49% and 50% of the shares in two of its portfolios, respectively EPP & M1, for well over 650 million euros.
Flows in CEE by origin of the buyer
US capital had a large impact on the volume of investments in the first quarter of 2022 with over 1 billion euros (38%) in five transactions, the largest of which was the acquisition of The Warsaw Hub by Google for about 585 million euros. Other significant deals include the acquisition of retail portfolios by EPP, the Group from South Africa and Pimco from the United States for a total volume of more than 650 million euros. Otherwise, the capital from CEE remained extremely active with 972 million euros (34%) in 31 transactions.
Economic indicators and driving forces
Given the continuing impact of geopolitical and global health crises, the economic prospects in the region are often reviewed. In the short term, in the context of a five-year forecast, they are likely to deteriorate before improving, depending on the development of these circumstances. The pandemic, driving forces and disturbances in the ESG, the war in Ukraine and related sanctions are affecting real estate markets and consumers in terms of supply, demand and affordability. "According to Oxford Economics, average inflation for the Central and Eastern European region is currently expected to peak at around 9% in 2022, while many believe it could reach 15%. Although it is very difficult to predict, CEE's economic growth is currently projected to average 3% over the next five years, but there are very real risks of a recession creeping in," Kevin concluded.
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