The report, ‘If I was a Rich Man…’, focuses specifically on the six core capital markets of Poland, Hungary, Romania, Bulgaria, Czech Republic and Slovakia and compares returns by country with other European countries using IPD 5-year return results.
We’ve tracked prime yields and rents, investment transactional trends, asset rotations and total returns across property sectors and countries in the CEE region over the last five years to produce a range of outcomes to identify asset allocation strategies for the best risk / reward payoff.
Damian Harrington, Regional Director of Research for Colliers International, Eastern Europe, said: “Over the last five years, office and retail asset acquisitions make up the bulk of investment turnover in the CEE region, with industrial/logistics acquisitions starting to eat into the share of retail since early-2013.”
Since 2009 average annual transaction volume in CEE is circa €3.5 billion and in terms of market rotation/liquidity retail assets have the longest holding period. Often acting as defensive assets, large retail shopping centres are rarely traded once acquired.
Post-crisis, large investment and sovereign funds tend to operate under a long-term buy and hold strategy across property sectors either through income accumulation or vacancy reduction.
Office, retail and industrial stock levels have grown significantly in since 2007, increasing approximately 42 per cent, suggesting that even with buyers acquiring assets for long holding periods that there is still a significant pool of assets to allow active participation from other investors.
“Based on our observations if you have fully diversified and allocated your €250 million on a weighted-basis across CEE you would have achieved a return of 8.75 per cent - nearly double the CEE average bond yield of 4.67 per cent. If you opted for a non-diversified strategy, then retail with total regional returns of up to 9.30 per cent would have provided the best return. However, if your strategy was country-focused, the results were slightly more hit and miss and dependent on whether you looked at gross or risk adjusted returns.” Damian Harrington added.
Investing in CEE has often been seen as more risky than other European countries. However, operationally there really isn’t a big difference between CEE performance and that of some of its European peers.
The report found that a diversified CEE portfolio acquired five years ago would have produced higher returns than those shown by the IPD benchmarks for Germany, Spain and Netherlands.
The key to total returns has been the performance of capital values, of which the CEE has outperformed its peers, including fixed-income in the shape of 10-year sovereign bonds.
Tracking capital values over the last five years on a weighted-basis in relation to Eurobonds, CEE government bonds, we found that investment volumes turnover increased for the specific six market set (Poland, Hungary, Romania, Bulgaria, Czech Republic and Slovakia), despite transactions stalling in 2012 as eurozone uncertainty persisted.
Moving forward economic growth will remain a critical feature of the CEE markets in helping to drive demand and rental performance.
As it stands, GDP forecasts for CEE region look far more positive than for Europe as a whole, indicating the CEE region will maintain its growth advantage over EU17 (the pre-2004 accession countries) in the short-to-medium term.
The report analysis assumes an unleveraged [closed-end] commercial real estate investment fund of €250 million with a holding period of five years from 31 December 2009 to 31 December 2014.