Mark Richardson, Director, Head of Industrial and Investment Services at Colliers talked to Property Forum about the impact of the war in Ukraine on the CEE investment market, expected changes in the warehousing sector and the further development of PRS products in Poland and the Czech Republic.
It seems that conflict in Ukraine is far from de-escalation. Do you think it may impact the interest in the CEE countries among the investors from United States and Far East in the long term?
We have certainly recorded a slowdown in activity from some international investors, including Western Europe although the war in Ukraine is not purely the only contributing factor. Declining economic and related factors globally are also causing market adjustments and delays in decision-making. The slowdown in overall activity between Q1 and Q2 2022 can also be noted across the wider European region. We are also seeing signs of capital in Ukraine looking to invest cross-border in CEE and seeking to diversify their exposure to Ukraine.
What about the European entities? Are the EU and NATO membership a sufficient guarantee of safety for them?
Investors who are more familiar with these markets, particularly those originating from CEE Countries familiar or with a historic ties to Russia and those already invested in them are likely to be less put-off by the war across the border and can even use the opportunity to have a little less competition of the acquisition of assets. That said debt financing has become more expensive and more challenging to acquire in recent months.
Mark Richardson
Director, Head of Industrial and Investment Services
Colliers
After the pandemic, warehouses seemed to be crisis-resistant assets. Looking at the demand among the tenants, we can say that this opinion is still valid…
Yes, industrial and logistics properties remain highly sought after industrial investment volumes are still significantly higher than pre-pandemic levels. However, due to the presence of long-term holders/developers controlling a large share of the regional stock, there are fewer opportunities to satisfy the appetite of investors. Other constraints have also added to this dilemma in light of supply chain issues and the cost of materials in delivering a new product. This is also impacting the letting markets, which have remained robust but are being met with some of the lowest vacancy levels on record, especially in the region's most sought-after locations. With high construction costs and limited construction and supply of investment products in the sector, we expect investment volumes in the Industrial sector to fall in the short term.
Surging energy prices: can we expect that solar panel farms will be a must-have on the roofs of the new warehouse projects from now on?
Alternative energy sources and other environmental/energy efficiency measures are already an increasingly key priority for most developers owners and tenants alike and will continue to be so in light of recent price hikes and developing legislation around ESG.
Retail and office sectors had to find new identities after the Covid-19 pandemic. What is Your opinion on their performance almost 30 months after the outbreak?
For offices and the various retail formats, the markets are still adapting to the various impacts of the last couple of years and will continue to do so in light of new challenges brought about by the war and the unfolding economic backdrop. Some level of stabilisation has occurred, partially brought about by lower levels of new supply, but all market players can expect to make further changes going forward.
PRS investments are currently a hot topic in CEE countries. „One hit wonder” or a beginning of a long, stable trend?
The supply of institutional PRS investment products is still quite limited on a regional basis, especially outside of Poland and the Czech Republic. With rising costs of debt for individual buyers and a reduction in affordability as a result of price rises over the past few years, we expect to see residential rent levels increase and more rental products being available, as the asset class becomes more appealing to developers/owners who to date have preferred to sell residential units on an individual basis due to the strong demand. That said, as the income is typically in local currency, this may exclude some investors for example, unless rents were to be denominated in euro to offset FX risks. This does of course shift the risk to the end users/tenants therefore, it will need to be considered carefully so as not to reduce demand.
Do you expect any changes in financing conditions in the nearest future?
Yes, financing conditions have already and will continue to adapt to the ongoing market and economic climate. This will result in higher costs, stricter requirements and guarantees on secured income - whether standing assets or development - and additional time required for financing decisions to be made. All of which can impact pricing and the ability to close mutually agreeable deals.
