Ervin Palfy, Country Manager Slovakia at Arnold Investments talked to Property Forum about CEE investment market trends and the growing popularity of cross-border deals.
How did Arnold Investments perform in terms of brokered deal volumes in 2022?
In 2022, the Arnold Group brokered more than €700 million. This development makes Arnold Investments a top player, not only in the CEE region but also in the European real estate market.
Despite the drawback last year, how do you evaluate the market performance of the CEE region in 2022?
As we know from our Market Analysis team, 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. Following the trend in nearly all European markets, at roughly €2.5 billion, the transaction volume in the fourth quarter was around 57 % lower than the year before.
And if we take a closer look at Slovakia?
Portfolio and M&A deals in combination with attractive yield levels boosted Slovak investment volume to a new high in 2022. Over the course of last year, prime yields for office buildings in Bratislava increased by 40 basis points to 5.70%, while prime shopping centre and logistics properties rose to 6.40% and 5.80%, respectively. So, compared to the whole region or Europe, Slovakia did quite well.
What is your outlook for this year?
Right now, it is hard to picture an outlook for this year, but we expect that real estate investments will remain an attractive investment possibility, especially for foreign investors in the CEE.
What makes Slovakia attractive to investors and how do you capitalize on it?
Due to its proximity and historical connections, Slovakia and the Bratislava region in particular are very attractive to companies operating in the Vienna region as well. For other international investors, it is the fact that Slovakia has achieved the same infrastructural standard as in the Western European markets but at the same time on average higher yields, especially compared to Austria and Germany. Furthermore, Slovakia offers investors a friendly tax and regulation framework with no transfer taxes and comparable registration fees.
From a broader view, we assume that the CEE real estate investment markets including Slovakia 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?
Strengthened by the pandemic, there is still a very high demand for logistics real estate. Investments in the residential sector always sell and are therefore still in unconstrained demand. Retail is still strong in the commercial sector. However, these properties do not have to be exclusively in central city locations. In particular, retail parks in rural regions are currently popular and, at the moment, hotels are also performing surprisingly well.
You have now been active in Slovakia since 2015. How would you briefly sum up progress so far?
We have grown to become an important part of the group, especially by capitalizing on our bridging function between Austria and Slovakia. Through our office in Bratislava, we handle all Slovakian transactions. The success is reflected in the fact that despite the immediate geographical proximity to Ukraine, we had the best business result since our foundation last year.
The Arnold Group is represented by branch offices in ten European countries. What are the advantages of this international orientation?
At an early development stage of the group, Markus Arnold, CEO and sole owner of the Arnold Group, recognized the trend towards increasing internationalization amongst investors. Slovak 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.
What is the average share of cross-border deals and which investors are attracted by them in particular?
Cross-border deals represent around 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.
