What’s next for the SEE property market?

 

For Property Forums in 2018 we have decided to focus on technology and innovation as they are rapidly changing the real estate industry. Digitalisation has affected the entire property development cycle starting with the early design, project management, leasing, sale process and long-term asset management. But it’s not only about newly-built schemes, existing properties can also adopt many of these innovations. I am delighted that representatives of companies that have prepared and have been using such digital solutions had accepted our invitation to share their experience with us.

 

Erste provides financing for all real estate asset classes throughout SEE. Currently, SEE is outperforming Western Europe in terms of GDP growth rates, generated by strong local demand. This reflects in the real estate industry, both generating demand for office and retail projects. As e-commerce is spreading into SEE, we also see growing demand and opportunities for logistics. At the same time, the SEE real estate market does not show typical signs of overheating.

 

 

In some of the markets, we are still faced with certain political uncertainties. At the same time, public administration and infrastructure have not reached western standards yet. Also, SEE has to manage not to lose talents as many young people still aspire for career paths abroad, currently causing a certain “brain drain” in the local markets.

 

 

Over the last 5 years, our non-performing loans ratio in real estate has come to a historically low level. Our strategy is simply to anticipate different stress scenarios in our analysis and consequently mitigate risks in advance. Our strong local footprint and expertise enable us to do so.

 

Vacancy rate in the competitive office stock is low, while demand for office spaces is the strongest for Class A buildings. Due to the lack of quality office supply and increased demand, the market can be characterized as landlord favourable. Recent transactions were driven by the tenants’ needs in relocation and lease renewal therefore we expect much more activity in the office market in the next 12 months. Development should meet the entire demand and take advantage of market upside through rent increase. However, the risk of a global slowdown or decrease of business could have an effect on demand for offices space.

 

 

More and more companies are noticing the importance of modern office space arrangement/management. New technologies are set to change the methods of work and the interior design of offices in the future, albeit humans will continue to play a key role there. The quality of the work environment has a real impact on the effectiveness and satisfaction of employees, as well as on the attractiveness of the employer among prospective candidates. In effect, businesses have begun to step away from standard office models and take up individualized space that reflects the values and identity of the organisation. In new and modern offices the prime focus is on the environment which is in line with increased engagement & satisfaction of employees and energy efficiency.

 

I think the key trends are automation (AVMs, Big Data, further processing of valuation data) and all elements directly or indirectly connected to this (digital processing of valuations, cost reduction and so on). Also, the "scoop of work" for a valuer might be a trend to discuss. Where does a valuation end? Where does a legal opinion start? These are some the questions to be asked.

 

Over 60% of our customers are banks and the annual monitoring assessment should not be done in the form of desktop reports, but in form of statistical models which can provide sufficient information about market prices trends. The basis of the transaction prices, asking prices and economic indicators enable us to create a database for statistical models. Sprengnetter successfully applies the ImMaRISK product on the markets of Austria and Germany, and by testing a sample for Serbia we can tell that we are ready for the Balkans as well.

 

The same challenges apply with more difficulty, especially due to legal issues (ownership, legal basement) and the lack of transparency which sometimes makes it much harder to evaluate assets altogether or the value might show a much higher bandwidth.

 

The convergence of the Balkan countries with the European Union led to the implementation of national standards and establishment of a database, which is a big step compared to the period of 15 years ago when I start to work as a valuer. Today, the market is much more transparent which makes our valuation more reliable, primarily when residential property is in question. When speaking about commercial property, the market is still not transparent and this is the biggest challenge in collecting true and reliable information to support valuations.