CBRE Global Investors have been one of the most active buyers on the CEE investment market recently. Having closed the off-market acquisition of a logistics/light industrial portfolio in the Czech Republic, Robert Snincak, Head of Investment Operations CEE talked to Property Forum about CBRE Global Investors’ investment strategy for the region.
CBRE Global Investors have been really active in Central Europe recently. How would you summarise your investment strategy for the region?
We are actively looking for retail and logistics investment opportunities across the risk spectrum (core/core+/value add) in the Czech Republic, Slovakia, Poland, as well as Hungary. In addition, we are continuously monitoring core office opportunities in Prague, Bratislava and Budapest.
You have been particularly active in the Czech Republic. Would you say that it is the most attractive investment destination within the region?
The Czech Republic is an investment destination offering very attractive risk/return outlooks within the CEE region, with a very stable and predictable (political) environment enhanced by rapid GDP growth and growing consumer purchasing power.
Investors’ demand for retail assets is strong which has resulted in significant yield compression mainly for prime shopping centres as well as prime high street assets. Over the last two years we have witnessed a change in ownership of many retail projects. The new owners are mostly long-term investors and there are practically no new retail centres under construction. Given that the availability of retail stock is limited, we could expect to see the core office sector becoming more active next year.
We have found good value for our clients in the logistics sector in the CEE region and secured high-quality logistic assets with solid income and rental growth potential. Some of the assets are state of the art, some offer a diversified lease expiry profile, some are in the development stage but what they all have in common is that they sit alongside a key logistics corridor in Europe – in Germany Poland and the Czech Republic. With our skilled teams on the ground, we are well placed to source assets that fit with our clients' requirements. We were particularly pleased to have obtained this portfolio from Stage Capital off-market.
Do you think that financing conditions have improved significantly in the recent period?
Financing conditions remain relatively favourable in CEE. However, we continue to see distinct patterns in lending across market tiers. There is strong competition from lenders towards prime assets in major markets. When it comes to secondary markets in Hungary or Romania lenders are more selective on what they will finance and financing is heavily focused on amortisation and exit value. Loan-to-value ratios remain low by historical standards but average margins rise. The negative deposit facility rate of the European Central Bank is foreseen as a determinant factor in increasing borrowing opportunities and spurring investor appetite. There is a consensus among the banks that the most important criteria for obtaining financing for a project are a strong business model and the quality of the asset. That’s why banks are much more active in management of the assets which they finance. Banks require more and more property performance indicators and analysis in order to monitor the challenges and opportunities faced in the real estate sector. Due to strict regulations banks are also more demanding on the “Know Your Customer” process. Competition among the banks is strong and we are able to leverage our experience and tender the financing to secure the most attractive and competitive terms for our projects.
What is your outlook for 2018 on the CEE investment market?
Our extensive investor base gives us the opportunity to target a wide range of investment prospects, both well performing core/core+ assets and interesting value add assets. We have an appetite for assets that require active asset management with local know-how to improve performance via e.g. refurbishments in shopping centres, but also for assets with long expiries providing excellent sustainable income returns.
We are ready to react very quickly if an asset fits our investment criteria. We expect the market to become more competitive due to intensive turnover of good properties during the last few years and therefore we assume some slow-down in investment activity, mainly in retail, essentially due to limited offer. We believe the demand for logistic assets is going to continue as it is driven by a growing economy and developing e-commerce.
We are carefully investigating opportunities in student accommodation, senior living and other real asset classes and are reviewing alternative investment approaches to our prime investment focus which is retail and logistic.
The Czech Republic, Poland and Slovakia remain our key countries of interest in the CEE region. We are also increasing our attention to Hungary for retail and logistic. For the office sector we remain conservative only looking at core assets in capital cities in CEE countries.
