Real estate investments have proven their qualities, especially in times of crisis and uncertainties. Therefore, they will remain an attractive investment possibility, says Jan Rydl, Country Manager Czech Republic at Arnold Investments. He talked to Property Forum about investment market trends.
How did Arnold Investments perform in 2022?
We are a European broker and the year 2022 brought a fundamental change in the market environment for real estate investments. Nevertheless, the Arnold Group brokered more than €700 million.
The right strategy is key, data is the basis of any investment decision. How does the Arnold Group evaluate the market performance and what are the main numbers for the CEE region in 2022?
We are a top player in the segment of real estate investments, not only in the CEE region but all across Europe due to our steady expansion strategy. Therefore, among other things, we set up our own Market Analysis department last year and we know from our data that around €12.7 billion was transacted on the Central and Eastern European real estate investment markets in 2022. Year-on-year, this represents a decline of around 11% due to a strong first half year. Focussing on the last quarter of 2022 we see that the transaction volume was around 57% lower than in the previous year.
And if we take a closer look at the Czech Republic?
Generally, the demand from local equity investors seeking to hedge inflation results in comparably gentle price adjustments of Czech real estate.
In 2022 the transaction volume in the Czech Republic amounted to around €1,4 billion, representing a decline of approximately 21% compared to an already restrained 2021. The most substantial decline was on the back of industrial and logistics schemes where volumes declined by around 57% to €333 million.
What is your outlook for this year?
In the fourth quarter, investors adopted a quite strict wait-and-see approach which resulted in an investment volume of €244 million. The preliminary data for Q1 points out that market activity has not picked up in terms of closed investment transactions so far. On the other hand, in recent weeks, we have again noticed significantly higher interest from both sellers and buyers to actively participate in sales processes. Right now, we are curious about learning if and how this strategy continues in 2023. In my opinion, giving an outlook for this year is very hard given the uncertain micro- and macro-economic conditions. But I may say as much: real estate investments have proven their qualities, especially in times of crisis and uncertainties. Therefore, I expect that they will remain an attractive investment possibility, especially for international investors looking for attractive yields and therefore investing in the CEE region.
What makes the Czech Republic attractive to investors and how do you capitalize on it?
The Czech Republic is a strategic location for investments, especially in logistics, industry, office buildings and retail. With its rich history, Prague offers residential apartment buildings in the historic centre additionally to its range of commercial properties.
As one of the first foreign branch offices of the group, open now for over 10 years, we could prove two decisive investment factors: continuity and stability. Subsequently, we are getting more and more relevant, especially for foreign international investors.
From a broader view, we assume that the CEE real estate investment markets, including the Czech Republic, will increasingly be in the focus of two types of investors in the course of 2023. On the one hand, there are local equity investors seeking to hedge against inflation, and on the other, there are euro investors who are increasingly forced to diversify their portfolios towards higher return opportunities.
We have both of them in our network of more than 48,000 investors, and we will keep offering them the right investment possibilities according to their needs.
Which asset classes are the most popular ones among investors?
It differs from investor to investor and depends very much on their approach and portfolio strategy. What we see from the numbers is that the investment activity for office properties evolved nearly stable in a year-on-year comparison, the retail investment volume almost tripled based on large portfolio and M&A deals.
Additionally to that, the prime initial yields for CBD and decentralized Class A office buildings in Prague moved out by 60 basis points since Q4 2021 and stood at around 4.80% and 5.90%, respectively.
What is the average share of cross-border deals and which investors are attracted by them in particular?
Cross-border represent more than 35% of deals across all asset classes, and even around 50% of commercial real estate deals – and the trend is an upward one.
As for investors, these tend to be institutional investors, family offices, project developers and also high-net-worth individuals. Our clients specifically appreciate the fact that we ourselves do not own any properties and thus have no self-interest to pursue. Our only aim is to maximise our clients’ returns – and this is what distinguishes us from others and what is highly valued among clients.
You have now been active in the Czech Republic since 2012. How would you briefly sum up your progress so far?
Right after the foundation of the company in Vienna in 2009, we were the first foreign office. This means our set-up generated learnings for the next ones and was used as a blueprint for the locations to come, which makes us quite proud.
Moreover, the team in Prague is quite mature compared to the newer locations. All Investment brokers here work for 5+ years for the Group. Through our office here, we handle all Czech transactions and we have strong ties especially with the offices in Berlin and Vienna because of the cultural similarities which in a lot of cases also are reflected in the investment strategies of our clients.
The Arnold Group is represented by branch offices in ten European countries. What are the advantages of this international orientation?
At an early stage of development, Markus Arnold, CEO and sole owner of the Arnold Group, recognized the trend towards increasing internationalization amongst investors. Investors who are on the lookout for higher potential yields, for example, also invest more frequently abroad. Properties that are currently in demand include solid logistics centres in Slovakia or Italy. We cover the whole range backed up by top-quality advice and our cross-border network enables our clients to access a large pool of around 48,000 international investors.
