Investment volumes in CEE countries declined by 59% year-over-year in the first three quarters of 2023, reaching a 10+ year low, with €3.2 bn invested in Q1-Q3 2023.
In its Q3 2023 CEE Investment Scene report, Colliers highlights that the pricing gap between buyers' and sellers' expectations remains a significant barrier to seeing volumes return to the 5 and 10-year average levels of €10 - 11 bn.
However, real estate fundamentals remain fairly robust, with lower vacancy levels being recorded and some good levels of rental growth in certain sectors noted.
The cost of borrowing money to buy real estate in CEE is currently around 5.75% due to higher interest rates and the cost of hedging against rising interest rates. Compared to Western European markets, real estate prices in CEE have not fallen as much over the past year, leading to a longer recovery in 2024.
Office investment in CEE declined sharply in 9M 2023, accounting for only 29.9% of all investment. The industrial and logistics sector overtook office investment and is now the most popular asset class, with a 31.4% share, followed by retail with 30.6%.
CEE-6 domestic capital has been the most active in 2023, accounting for a 56% share of total regional volumes. Czech investors led with 33% of all investment, followed by other CEE regional investors with 23%, trailed by European (22%), US (7%), APAC (7%), and Middle Eastern (5%) investors.
Silviu Pop, director of research for CEE and Romania, commented: ‘The CEE-6 countries have so far managed to boost their economic sentiment indicators compared to Q2 2023, except for Romania and Hungary, which experienced a negligible decline. However, the external situation remains quite negative, as the Eurozone's Markit PMI hit a three-year low in October 2023.’
Kevin Turpin, regional director of capital markets, CEE added: ‘Construction prices in the CEE region remain elevated but stable, and may even be falling slightly. In addition, land in some of the most sought-after locations is scarce and more expensive making development more difficult to deliver given the development to exit yield spread being too narrow. Labour costs are also under upward pressure. All of which may lead to higher sales and/or rental prices, or reduced pipelines, and could eventually lead to undersupply in some markets and sectors.’
Colliers forecasts that many potential sellers in the commercial real estate market are waiting until 2025 to sell their assets, in order to stabilize their income, improve operational efficiency, and comply with ESG standards.
‘Some owners however may not have the option or resources to do this and may look to test the market appetite to limited pools of investors in ‘off-market’ deals. On the other hand, many buyers are simply waiting for opportunities from forced or distressed sales due to declining valuations, elevated interest rates and debt rollovers for example,’ added Turpin.