Czech Republic takes the lead with investment volume growth rates in CEE region in 2019 YTD

Flow volume into the CEE-6 commercial real estate markets picked up in Q2 2019, registering a cycle-high EUR 3.3bn for the quarter. Following on from the weaker Q1, H1 2019 volumes at EUR 5.5bn were thus just -3% down on H1 2018’s record. The Czech Republic leads the way in terms of investment volume growth rates in 2019 YTD, with growth of 83%.

Colliers International releases CEE H1 2019 Investment Scene infographic and presents flows by sector and origin as well as tracking the pulse of the markets, looking at the levels and outlooks for capital city prime yields, vacancy rates and rents.

Hungarian flow was the second highest in the region in 2019 YTD, up 35% in H1 2019 compared to a year ago. Money into Poland is still lagging (-20%) versus a strong H1 2018. Romanian, Hungarian and Slovak purchase numbers all picked up in Q2 after a weak Q1.

In terms of sectors, office continues to dominate the CEE region in 2019, up 43% year-on-year. Volumes improved in Q2 in industrial (+26%). Hotel deal flow (+320%) remained very robust. Strong but moderating GDP growth is helping these sectors presently. The weakness is in retail, which recovered a little from the very poor first quarter but is still -69% down compared to this time last year. In terms of origin, Asian purchase flows rose at the expense of CEE players in H1 2019. CEE cross-border purchases and domestic flow in Poland in particular are very weak. US funds remain net sellers while UK and Western European money turned net buyers in H1.

Looking at vacancy rates we foresee a continued compression in Prague, continued moderate compression in Warsaw and a reversing compression in the Bratislava office market in the next 12 months, whereas in Bucharest we expect continued increases. This is broadly positive for valuations.

“With continuously low vacancy, lack of supply and increase of construction cost we also expect increase on rental levels. The size of current office stock is not allowing for an increase equal to rise of construction cost and therefore the increase we predict to be at approximately of 5%,” says Petr Žalský, Partner and Director of Office Agency of Colliers International in the Czech Republic.

Our teams in the region remain with the opinion that we will see rent rises in certain categories in the next 12 months. Rent growth in the key office sector looks likely in Prague and Budapest, rent decreases more likely in Bucharest and Bratislava.

“CEE figures appear generally positive for the first half of 2019, in line with the last two years. This contrasts somewhat with the slowdown in wider EMEA where volumes are c. 17% down year on year, largely as a result of Brexit which has created a concern for investors, particularly those buying into the UK. Retail is also struggling as the sector currently out of favour, with every European country reporting activity levels below their 5yr averages. This aversion to retail has also impacted CEE – just over 1/6th of the 2018 full year retail volumes have been traded by the 6 month mark despite a relatively healthy consumer background backed by continuously improving real wages in the region,” says Andy Thompson, Director for CEE Investment Services at Colliers International.