High inflation and rising interest rates pose a threat to the upturn in the economy which many expected following the pandemic. Dieter Knittel, Managing Director, Head of CEE at Deutsche Pfandbriefbank AG (pbb) talked to Property Forum about financing trends and shared his expectations for the upcoming period.
Dieter Knittel will be speaking at our upcoming CEE Property Forum 2022 in Vienna. Click here to check out the agenda.
How did your real estate financing portfolio perform in H1 2022? What is your outlook for the whole year?
pbb has always applied a very conservative risk approach, in CEE and all other markets where we do business in. Therefore, our real estate financing portfolio in CEE is performing well and we closed a number of new deals, mostly in Poland.
On a general note, many investors continue to follow a wait-and-see strategy during this period of increased uncertainty, but the long-term trend is likely to remain positive and most CEE countries are comparatively robust.
How is the high inflation environment coupled with growing interest rates influencing the funding potential for real estate?
High inflation and rising interest rates pose a threat to the upturn in the economy which many expected following the pandemic. Yields are expected to rise following increased interest rates but this will be partially compensated by rental growth.
How have your ESG criteria changed during the last two years? How do you think it will evolve going forward?
Environmental, social and governance factors are becoming increasingly important in the banks’ customer relationships and they are a very important element of our lending strategy. pbb is pursuing the goal of making its core business and refinancing sustainable by taking ESG factors into account. The bank’s business model focuses on “green” real estate. Currently, we are conducting an ESG survey of our lending portfolio and getting in contact with our clients. At pbb, we aim to be a transformation partner for our clients.
Which property segments stood out in your funding activity in H1 2022? Do you expect any changes in this over the next 12 months?
The office and logistics segments are the dominant asset classes, or in some cases a combination of both. We also see a lot of larger pan-CEE or pan-European portfolios with CEE exposure. Our bank is benefiting from a pan-CEE knowledge base which our team acquired over the last 20 years. Retail activity is picking up, but it is still finding it difficult to attract buyers at the pricing level expected by sellers.
Which is the most dynamic property market among the countries you operate in?
pbb is active across the CEE region but Poland is the dominant market with around 50% of real estate investment volume, followed by the Czech Republic, Slovakia, Hungary and Romania.
Is the war in Ukraine impacting funding conditions for projects in CEE?
2022 is certainly a year in which markets are influenced by many geopolitical events, including the war in Ukraine. However, despite this uncertainty, it has been a reasonably good year for the real estate investment market in CEE so far, with over €5 billion having been traded. The long-term investment trend remains positive and bank financing is available across CEE. However, clearly funding costs for banks have changed, and so have margin levels.
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