Cushman & Wakefield reports that strong investment activity continued in the first quarter of 2015, with investments totaling €1.3 billion ($1.4 billion USD) in the core Central European markets of Poland, the Czech Republic, Slovakia, Hungary, and Romania. This closely resembles the volume of transactions during the same time period in 2014. The desire of investors and their active participation, however, point to rising investment volumes for the coming year that will surpass those of 2014.
James Chapman, Partner and Head of CE Capital Markets at Cushman & Wakefield, commented on the activity in Q1 2015, saying, “Core markets with sustainable demand and growth will be given even more attention, with Poland taking the lead. Investors have continued to be drawn to high-quality properties in smaller cities throughout Slovakia, the Czech Republic, and Poland as well as driving demand in Budapest and Bucharest. All industries stand to gain, but retail will experience the biggest shift from the previous year as rising consumer demand drives the sector.”
With €800 million in transactions in the first quarter (a 228% increase year over year), primarily in the retail and industrial sectors, the Czech Republic displayed exceptional performance. The majority share of the Palladium shopping center in Prague was purchased by Union Investment for approximately €570 million, making it the largest real estate transaction to ever take place in the Czech Republic. The second-largest Q1 CE transaction was the industrial purchase of Prague Logistics Park by the AEW Europe LOGISTICS Fund for €150 million. The plan includes a standalone distribution warehouse that is currently under construction and has been fully pre-leased to Amazon and will act as a new hub for its European Fulfillment Network.
Poland had the highest investment activity in the region in the first quarter with 12 transactions, but the volume was only €430 million, down 52% from the previous year due to the moderate average deal size. This does not, however, include the purchase of a controlling interest in the multi-sector ECHO Investment platform. Griffin Real Estate’s purchase of Green Horizon in Lodz for approximately €65 million was the largest single-asset transaction. In the first quarter of 2015, Hungary saw €44 million in investments. Budapest is once again attracting investors, and 2015 is expected to see an increase in purchasing activity across all commercial sectors. €29 million was exchanged in Romania.
With €762 million in sales in Q1 2015 (a 66% increase year over year), the retail sector led all other industries in Central Europe. The industrial sector came in second with €382 million (a 200% increase year over year), continuing its impressive growth. Only €147 million in investment capital was attracted by offices, an 80% decrease from the prior year.
“2015 investment volume is expected to total €7.5 billion. With Q1 recording only 18% of the anticipated volume, there is a sizable pipeline of deals ahead for this year. Over the next five years, commercial real estate investment is expected to surpass €10 billion in the core CE countries. Nearly half of this activity will come from Poland, 25% from the Czech Republic, and the remaining 25% will come from Hungary, Romania, and Slovakia “James Chapman continues.
Capital is increasingly migrating eastward in Europe from the UK, France, and Germany to the notably greater benefit of Central Europe. This is a result of both strong pull and pushes factors, including exceptional GDP and consumer spending growth, record occupational take-up rates, and the opportunity to purchase best-in-class assets at a discount to western Europe. Push factors include extreme pricing, a lack of quality stock, and, in some cases, weaker occupational markets. The emergence of CE as a tech hub is one of the new factors driving occupational demand.
More money is being spent on Central Europe than at any other time in the previous seven years. The recent hegemony of North American capital is beginning to be replaced by new important sources of core capital from across Europe. As a result, yields in Warsaw, Prague, and other Polish regional cities are still under downward pressure. In search of returns, value-added and opportunistic capital is now looking into standing investments and development opportunities in Hungary and Romania. It is anticipated that this pattern will continue into 2015 and 2016.