Solid economic growth and further expansion on investment markets are expected for 2017 and 2018 in the CEE region with interest rates unlikely to increase until 2019. But even though the short term outlook is highly positive, investors and developers need to be prepared for future challenges. Nearly 400 people from more than 25 countries gathered in Vienna for the fifth CEE Property Forum, co-organised by Property Forum and RICS, to analyse the CEE property market from a global perspective.
Overheated residential markets
In his keynote speech Dan Bucsa, Lead CEE Economist at Unicredit Bank AG in London presented a rather positive outlook for the future of European economies. European growth is and will be above potential with CEE economies having exceeded expectations in 2017. Bucsa also touched upon a question that is often being asked these days: are CEE residential markets getting overheated? Based on current market movements it is mostly Romania and the Czech Republic where the residential market seems to be getting overheated. Hungary also presents some symptoms of an overheated market but at the moment investors still have plenty of attractive opportunities.
According to Maarten Vermeulen FRICS, Regional Managing Director for Europe, Russia & CIS at RICS, the moderator of the first panel at CEE Property Forum, booming real estate markets in CEE need to face global challenges like every other market in the world. These global challenges include political uncertainty, technological changes, rising interest rates and climate change.
Frank Nickel, CEO at CA Immo also believes that we are currently in the expansion phase of the property cycle but there are risks to be aware of. The biggest risk is of geopolitical nature. While a couple years back political leadership in Hungary was considered a risk to stability, today the risk is much more global and is present in developed market as well.
Global political risks, such as the potential threat caused by North Korea, are affecting the real estate business. Still, real estate is still considered a relatively safe investment product. The way we asses risk has changed tremendously, a couple of years or decades earlier news like Brexit would have caused a much bigger turmoil on global markets than they do today, emphasised Prof. Dr. Alexander Goepfert, Partner and Head of the Real Estate Investments Group at Noerr, adding that a storm will come and it would be good to know when.
According to a poll conducted among the participants of CEE Property Forum, the majority of real estate professionals see political uncertainty within the EU as the biggest challenge to the CEE real estate industry. Members of the panel, however, did not agree with the audience’s risk assessment as they emphasised how changes in technology will be the key issue the property business will need tackle within the next five years.
Is Brexit the new Iron Curtain?
KPMG launched the Property Lending Barometer 2017 at CEE Property Forum. As explained by Pál Dános MRICS, Director of Real Estate Advisory at KPMG, one hundred banks from more than twenty countries completed the survey which aims to explore the financial prospects of the property market in Europe. According to the barometer, sentiment on the European property market is highly positive but political risks such as Brexit – dubbed the new Iron Curtain of Europe by Pál Dános – or major economic decisions made by the US or the Russian government can have a significant impact on European markets.
Solid economic growth and further expansion on investment markets are expected for 2017 and 2018 in the CEE region with interest rates unlikely to increase until 2019. But even though the short term outlook is highly positive, developers need long term strategies in order to complete sustainable projects. The members of the senior CEE investor and developer roundtable were asked by Noah Steinberg FRICS, Chairman of RICS in Hungary and CEO-Chairman of WING, to share their take on financing and the investment climate.
Robert Martin, Principal and Head of Central Europe at Europa Capital had a differing opinion regarding where we currently stand in the cycle. He believes that the fundamentals of the CEE market are not strong enough and we are quickly heading towards the peak of the current cycle. Capital is still flowing into the region and we have to hope that the current positive sentiment will keep us going for some time, he added.
The biggest challenges that CEE property business faces currently are labour shortage and rising construction costs, according to Luke Dawson, Managing Director & Head of Capital Markets CEE at Colliers International. In the last 10 years 7 million people have left the region and if at least of some this talent would return within the next 2-3 years that would have a tremendously positive impact on local markets, he added.
Piotr Goździewicz MRICS, Director of Capital Markets CEE at BNP Paribas Real Estate highlighted that he would not expect prime yields in Warsaw and Prague to compress further. There is a large dichotomy between prime yields in CEE and more secondary locations and assets in the region, in Poland especially. We can find a lot of potential in investing in those locations and assets, he added.
Development sentiment is very positive in the region. Developers, however, are put to the test with tenants’ needs becoming more flexible and lease periods getting shorter. The appearance of local capital on regional markets is clearly a sign of trust in CEE property which encourages many to buy instead of renting. The market – especially the Polish one – has entered a mature stage and developers need to keep that in mind, elaborated Adrian Karczewicz, Head of Divestments CEE at Skanska Commercial Development Europe.
Like TriGranit, CTP is also confident about the future of the region. CFO Radek Zeman believes that the increase in construction costs is partially the result of buildings becoming more modern and local currencies being depreciated. In the future we expect interest rates to rise which will in turn increase rental fees. Higher rental income means that even with rising construction costs our developers will be highly profitable, he added.
