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TABLE OF CONTENTS Editorial

Regional Quotes

Regional Feature CEE investment flows down despite continuing demand for product

Regional Feature SEE attracting investors despite the slowdown

Sponsored Feature How do we shape spaces around us? Post-pandemic fit-out trends

Regional Sustainability Questions remain as to whether sustainability is a prerequisite for an acquisition

Poland Investment Investors still focused on Poland’s real estate markets

Poland Office The Polish office market remains resilient and has a promising outlook

Poland PRS Market PRS prospects growing in Poland

Hungary Feature Limited activity in Hungary investment market

Czech Republic Feature Czech investment activity limited by a low supply of product

Slovakia Feature Slovakia records healthy investment figures

Romania Feature Romania investment expected to make a comeback

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Investment Guide 2021

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PAGE 10 CEE investment flows down despite continuing demand for product

Despite post-pandemic concerns, analysts argue that there is a strong potential pipeline of asset grade products to meet investor demand, particularly in the office and industrial sectors and increasingly large-scale residential projects. With a substantial amount of international and CEE capital looking for a home, investors would certainly make acquisitions if the right asset or platform is available.

Questions remain as to whether sustainability is a prerequisite for an acquisition As the concept of ESG investing (the integration of environmental, social and governance factors into the fundamental investment process) is increasingly utilised by investors, the extent to which sustainability accreditation is a priority for investors when making an acquisition or concluding other property-related decisions, is open to debate. Investors have yields and returns on investment as a central priority, although commercially successful investment standard buildings invariably have sustainability accreditation, due to market pressure from tenants and increasingly stringent international environmental regulations. Further, investors need to look to a longerterm rise in the value of an asset and the prospect of new national and international sustainability regulations, for a project to be viable in the long term.

PRS prospects growing in Poland The Polish PRS market is still in its infancy, but more and more players are declaring their willingness to build portfolios of thousands of rental apartments in the country. According to Savills, investment into the multifamily sector in Poland reached close to €550 million in H1 2021. This now makes PRS the third biggest commercial real estate sector in the country, behind office and industrial.

Slovakia records healthy investment figures The total investment volume for Slovakia in the first half-year reached an estimated €538 million (including land), the second-best half-year in the history of the Slovak commercial real estate market. This already surpasses the total for 2020, a year impacted by the pandemic situation, according to JLL. Investment deals have been concluded in the office, industrial and retail sectors in both the capital, Bratislava and regional cities. Both domestic and Czech capital has played a significant role in the completed transactions.

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Editorial Gary J. Morrell The real estate investment markets covered in this publication could be summarised, albeit to a varying extent depending on the country, by the phrase – too much capital competing for a low supply of available investment grade products. The CEE markets are now generally seen as offering attractive investment opportunities, for markets that carry less risk than in previous cycles. Many of the assets are by developers originating from or with experience in Western Europe, using internationally-recognised architects with an international reputation and therefore the perception is that they are delivering projects that are of a similar standard to their own Western markets. Most investment class products are also benchmarked, having achieved third-party sustainability accreditation. International investors competing for assets are now in competition with domestic, private, institutional, CEE specialist investors, European investors and funds from further afield such as South East Asia. All active investors, from domestic to international, are operating at all levels of the investment sector from prime to value-add to redevelopment in a joint venture. This emergence of a stratum of domestic investors makes those CEE countries where they are active less reliant on foreign investors, who in turn have to compete with domestic capital. Further, beyond operating as country-specific and CEE regional investors, CEE funds and private investors are also investing and developing in Western Europe, as they, in turn, seek new investments or development possibilities. As with developers, investors and building owners are under increasing market pressures from tenants and staff to meet ever more sophisticated requirements from the perspective of building users. Further, there is an increasing number of national and international carbon neutral standards, energy-use and raw material usage and re-usage regulations that developers and investors need to take into consideration and adhere to. Investors are under social, legal and market pressures to incorporate ESG issues into their investment strategies and developers from their own perspective need to incorporate ESG and sustainability factors into the planning, construction and property management of their projects. From a positive perspective, this means that more highly specified, sustainable and architecturally interesting buildings need to be developed in order to gain finance, lease a project and provide a developer with an exit strategy with a sale onto investors.

Central & Eastern Europe Russia - CIS Ultimate Real Estate Guide/Last Mile Volume 40, Number 1, October 2021 Publishing House Kitbridge Media Sp zo.o. Kaleńska 5, 04-367 Warsaw, Poland Publisher Craig Smith craig@europaproperty.com +48 577 100 620 Editorial Director Winston Norman winston@europaproperty.com +48 506 535 293 Editor Gary J. Morrell gary@europaproperty.com +36 703 199 068 Journalists Gary J. Morrell Winston Norman Elie Issa Alex Webber Ewan Jones Poland Country Manager Sylwia Gajda sales@europaproperty.com +48 501 091 751 Hungary Country Manager Gary J. Morrell gary@europaproperty.com +36 703 199 068 Romania Country Manager Mihaela Mazilescu mihaela@europaproperty.com Administration admin@europaproperty.com Subscription subscription@europaproperty.com Art Director Daniel Zbroszczyk graphic@europaproperty.com

Investment Guide 2021

Regional

Quotes Irina Ushakova

Head of Advisory & Capital Markets CBRE Russia Real estate investment in Russia increased by 50 percent reaching RUB 188 billion in H1 2021 compared to RUB 125 billion in H1 2020. Acquisitions of land for residential development is the main driver behind the high investment levels. In contrast, the investment volume in commercial real estate was 9 percent down compared to H1 2020 (RUB 70 billion). Investment activity in the office market was limited, however, appetite for this sector is returning. The impetuous growth of e-commerce has stimulated high demand for warehouses and logistics infrastructure. Investor interest in this sector also increased, but investment volume is limited by the shortage of available assets for purchase. The industrial sector showed the most active capitalization rate compression in the last 10 years. Investment activity in retail real estate remains low. However, we are seeing a recovery of investor interest in this sector. In H2 2021, we expect a greater conversion of commercial real estate transactions and more moderate investment from residential developers.

Martin Erbe

Managing Director/Head of Real Estate Finance International Clients Germany, CEE & Benelux Helaba Logistics and office buildings have been the dominant asset classes in H1 2021. There were also a few retail transactions. But what is new is PRS - the Private Residential Sector for institutional investors, especially in Poland. The development in this sector clearly shows that there is a strong demographic change in CEE, and investors are reacting to it. If one compares the institutional investment volume in the residential sector in CEE with Western countries, it quickly becomes evident that this is not a trend, but a real change. It will certainly take some time before similar investment turnover takes place due to the low availability of high-quality properties, but there will soon be the first company listed on the stock exchange that invests exclusively in private residential assets, and that will then offer investors a real growth story.

Nebil Senman Managing Partner Griffin Real Estate

Although local markets were affected by the pandemic, some countries managed to leverage the situation better than others. Poland has positioned itself among the top investment regions in the CEE. It has already been at the forefront of preferred European locations for foreign investment in technology, R&D or electromobility, and now we can also see an increased activity of foreign investors in different classes of real estate with a particular interest in booming logistics and industrial sectors. As Polish logistics managed to take advantage of the development of e-commerce and changes to supply chains, the country is ranked second in Europe in terms of developer activity. Looking at trends emerging and dominating the real estate markets in recent months, and seeing the unchanged popularity of the warehouse space, logistics and industrial sectors are still wellpoised for further growth. However, to succeed in this type of investment, there are many factors that are considered to be able to craft a well-tailored space catering to the need of the local market, with the most efficient green solutions, great connectivity and access to other regional markets across the country.

Investment Guide 2021

Quotes

Feature

Arvi Luoma

CEO and Co-Founder Blackbrook Capital

There has been a dramatic shift in capital allocation towards the industrial & logistics sector, which has only accelerated throughout the pandemic. I&L is seen as a defensive asset class supported by the global trends in e-commerce and developments in the supply chain ecosystem. There will be a rush to secure sites in optimal locations with a focus on efficiency and strong ESG credentials. In turn industrial developments will be challenged by authorities who wish to promote employment and convenience, but at the same time wish to protect communities from noise, traffic and pollution as well as maintain green space. These will be driving forces for activity in urban development. It is a clear trend that will continue in this coming economic cycle. E-commerce is in its relative infancy in many countries and the current logistics footprint supporting it is massively inadequate. For every country to reach 30 percent+ e-commerce penetration and facilitate next day delivery to the entire 500+ million European population requires substantial investment in the space.

Rafał Brzoska

Group Chief Executive Officer InPost While I expect the short-term uncertainties from Covid-19 to continue, I am confident that the accelerated shift to a digital economy is structural, driving an expanded e-commerce market opportunity with a greater focus on sustainability and changing consumer preferences. For example, we have accelerated the pace of our APM deployments in both Poland and the UK. Our “Green City” program, which partners with six of the leading cities in Poland is helping to reduce air pollution and enhance the wellbeing of our communities. This includes the deployment of our latest generation of APMs that will operate on renewable energy. Immediately following the end of the quarter, we closed the acquisition of Mondial Relay, a big step in fulfilling our ambition to become Europe’s leading out-ofhome automated solution for e-commerce. We are executing our plan at pace and I’m confident about the long-term opportunities ahead.

Dieter V. Knittel

Managing Director, Head of CEE Deutsche Pfandbriefbank

Market fundamentals in CEE are strong. Solid GDP growth is expected across the region. So far in 2021 transaction volumes are lagging behind last year’s levels, but after around €5 billion have been transacted in H1/21, we would anticipate around €10 billion transaction volume this year. Poland is again taking the majority share with over 50 percent of volume followed by the Czech Republic and Hungary. Local investors are on the rise and are already quite strong in the Czech Republic and Hungary, but now also rising in Poland. This will bring a lot of stability to the CEE market. Warehouse and office assets are the most sought after asset classes with overall around 2/3 of market share in transaction volumes. Yields for prime office assets in core locations and well-spread logistics portfolios are still shrinking, but with a healthy gap to yield levels in many Western European countries. The long-term trend remains positive and CEE countries are robust, especially core countries such as Poland and the Czech Republic.

Investment Guide 2021

Regional

Feature

Indotek Group purchased GTC’s Belgrade office portfolio for €267.6 million

CEE investment flows down despite continuing demand for product Gary J. Morrell

Longer-term concerns remain concerning the hotel and particularly the retail sector. Although retail parks have become a new investment destination of choice. A low supply of assets is a common problem across the region and this is limiting investment activity that could meet the high demand from both domestic and international capital and further returning investors in the post-pandem-

Investment Guide 2021

ic era. This lack of product and development activity is a major reason for the CEE region seeing a 30 percent fall in year-on-year investment volume for the first half-year, as investor appetite at the same time remains strong, according to Avison Young. CEE investment volume (Poland, the Czech Republic, Hungary, Slovakia and Romania) reached €3.7 billion for the first half-

year, representing a 25 percent decrease on the previous year, according to Cushman & Wakefield. However, from a positive perspective, there has been a renewed sense of momentum with increased engagement between buyers and sellers that suggests a return to pre-pandemic investment volumes.

Regional

Feature Colliers has recorded a first half-year 22 percent fall in CEE investment volume (Poland, the Czech Republic, Hungary Slovakia, Romania and Bulgaria) with €4.9 billion in deals. Total CEE investment volume (Poland, the Czech Republic, Slovakia, Hungary and Romania) for the half-year reached €4.6 billion, according to JLL. Poland maintained its dominant position with 53 percent of the volume. The largest CEE market has tended to be crisis resistant in the past, partly because of its large domestic offering. Avison Young has traced €4.2 billion CEE (the Czech Republic, Hungary, Poland, Romania, and Slovakia) volume for the first halfyear. The consultancy recorded €2 billion in investment volume in Poland in 62 transactions and investment volumes of around €5 billion are predicted for the full year. This follows a pattern of Poland as the dominant CEE market followed by the Czech Republic, Hungary and Romania concerning investment volumes. The Czech Republic has the lowest CEE yields closely followed by Poland, Hungary and Romania, with the latter two countries providing significant yield premiums on their Central European peers. “This situation is not sustainable and sooner or later interest rates must rise, affecting property yields too. However, the yield gap between the countries will stay. There seems to be a supply-side constraint for various reasons in the different countries. The large interest of investors for buying property investment products puts downward pressure on yields,” said Peter Számely, executive director of real estate finance at Hypo Noe Landesbank. With strong fundamentals and demand in the industrial and logistics market sector

Griffin Real Estate sold a retail park in Poland

yields have compressed by 50 and 200 basis points since the beginning of the year, according to Colliers. Prime office yields outside Prague and Warsaw have also compressed by as much as 25 basis points. Concerning the different sectors, Avison Young put the regional sector breakdown (the Czech Republic, Hungary, Poland, Romania, and Slovakia) at 48 percent for office, 28 percent for industrial, 17 percent for retail and 2 percent for residential assets from its first half year investment volume estimation of €4.2 billion.

exceptionally good value at 6.5 percent and 7.5 percent respectively,” commented the consultancy on the industrial sector. Retail parks have recorded yield compression across the region. Although, due to the size of assets, the sector does not figure highly in terms of absolute investment volume. However, investor demand is strengthening and, for example, in the Czech Republic, prime yields now stand at 5.75 percent and are moving towards prime shopping centre yields at 5.5 percent. In Poland retail park yields stand at 7 percent as against yields of 5.75 percent for prime shopping centres.

Prime Yields 2021 Source: Avison Young

OFFICE Czech

INDUSTRIAL 4%

Hungary 5.25% Poland

4.5%

Romania 7.25%

“Almost every institutional investor is seeking industrial and logistics asset classes, with yields sharpening every quarter. The Czech Republic recorded the lowest yields at 4.5 percent and Hungary and Romania look

Czech

4.5%

Hungary 6.5% Poland

5.75%

Romania 7.5%

The dominance of domestic capital is seen as challenging the role of foreign investors, particularly in both Hungary and the Czech Republic where domestic capital has constituted more than 50 percent of investment volume at times. Further, domestic investors are looking at the possibilities in other parts of the region with the lack of opportunities in their domestic markets and in effect are becoming CEE investors. Polish domestic investors, however, are less interested in going abroad, obviously, they see more opportunities in their home markets. “The growth and dominance of domestic capital are reminiscent of 2008-2012 when local capital dominated the transactional landscape, the fundamental difference this time is that domestic capital is not simply ‘filling the void’ left by Western Institutions fleeing ‘riskier’ markets, it is actively competing with Western equity and winning. This is a mark of maturity of the CEE markets, as local funds grow the liquidity base strength-

Investment Guide 2021

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Feature

ens in CEE and the region shifts from pricing based on ‘Western markets plus a premium’ to market pricing based upon its fundamentals,” commented Avison Young. In a recent transaction the Hungarian investor, Indotek Group purchased GTC’s Belgrade office portfolio for €267.6 million. The agreement covers the sale of 11 buildings within five business parks with a total of 122,175 sqm. Once completed the deal will become one of the largest real estate transactions in the last five years on the CEE market. European capital has been the most active in the region in the first half-year with

46 percent of the total volume, according to Colliers. Further, CEE capital has also been active, not only in their markets but across the region. Czech and Hungarian investors have continued their drive with 20 percent and 10 percent of the investment activity, respectively. North American, Middle Eastern and Asian investors have been quiet, although they are expected to return. Colliers estimate that annual CEE volumes for the year will reach €10-12 billion. “The CEE investment markets continue to feel some impact on transactional activity with flow volumes down around 22 percent year-on-year. The office sector again domi-

nated in the first half of 2021. Logistics and residential continue to attract strong demand from investors but remain held back by the shortage of supply as opposed to demand. Retail investment volumes continue to be supported by retail parks and supermarket assets. Hotel volumes remain limited,” concluded Kevin Turpin, regional director of research CEE, at Colliers.

Marynarska Point I acquired by Adventum in Warsaw

KEVIN TURPIN Regional Director of Research CEE, Colliers Provided that the regional economies and market sectors return to some level of growth, normality and stability, including the hotel and retail sectors, we should see a pick-up in investment activity. More owners may also be more willing to sell as there remains plenty of capital waiting to find a home that still offers a great risk/return alternative to Western Europe, where pricing is much sharper in some sectors, by as much as 150 basis points or more. More and more investors are keen to pile into logistics, but there is a lack of product. Also, this may lead to a more open approach to retail (shopping centres) under the right conditions. Others are very interested in the PRS (Resi for Rent) sector, which is quite specialised, and again the lack of or limited product in most markets is further frustrating capital

Investment Guide 2021

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Feature

Green Heart in Belgrade

SEE attracting investors despite the slowdown Gary J. Morrell

Serbia, Croatia and the wider SEE are continuing to attract local and international investors for well-conceived projects that offer a yield premium on the established CEE and Western European markets for investors, albeit with more expensive financing and a low supply of potential investment assets. The region still offers few big big-ticket deals.

The year has seen a slowdown in SEE investment activity, which has fallen by 50 percent year on year to a little over €150 million in what is defined as the core SEE markets of Serbia, Croatia and Bulgaria, according to CBRE SEE. Serbia remained the leading market in terms of volume. Investors were active

Investment Guide 2021

in retail and office followed by industrial. The office deal for the GTC office portfolio was one of the biggest CEE deals of the last five years. “Local stock is considerably smaller than in other markets, especially in office and in industrial sub-markets which is certainly af-

fecting the availability of products. However, well known international and reputable local developers are very active in both Serbia and Croatia which will slowly reduce this gap compared to the core CEE capitals. The retail segment is an example of high development activity in the last 15 years, which created

Feature numerous products of institutional quality which were recently transacted,” commented Srdjan Teofilovic, head of capital markets & investor services at CBS International, member of Cushman and Wakefield Alliance. In a major deal for the Serbian office investment market, the Hungarian investor, Indotek Group is to purchase the GTC Belgrade office portfolio for €267.6 million. The agreement will cover the sale of 11 buildings within five business parks with a total of 122,175 sqm GLA, located in the New Belgrade business district. GTC is further planning the 16,000 sqm GTC X in new Belgrade. In this way Hungarian investors represented 26 percent of the first half-year SEE total investment volume according to Colliers International. Prime Belgrade office yields are estimated at around 8 percent. “The past few years were marked by the influx of international investors who recognised the numerous opportunities that SEE region can offer, while already present investors showed their interest in long term investments. The growing interest in the Serbian real estate market was mainly evident in the retail segment, but the number of investment transactions in the office and industrial segments is significantly growing. So far, the largest investment transaction in the office market in Belgrade was recorded in the second quarter of this year. Namely, GTC has decided to sell its portfolio of office space in Belgrade to the Hungarian investment fund, Indotek Group,” added Srdjan Teofilovic.

According to CBS International, yields for prime office schemes in Belgrade currently range between 8.00-8.75 percent. Prime retail yields for Belgrade stand at circa 8 percent. Prime logistics assets with blue-chip tenants have a yield of below 9 percent. In Zagreb, prime office yields stand at between 7.75- 8.00 percent. Total office modern office stock in Belgrade has surpassed 1 million sqm, out of which around 765,000 sqm was developed on a speculative basis according to CBS International. Construction activity is high with over 100,000 sqm scheduled to complete this year. “Looking at the market as a whole, the market is experiencing strong development activity with almost 250,000 sqm in various phases of construction (under construction or renovation), which are planned to be completed by the beginning of 2023 at the latest,” said CBS International. CBRE SEE put total quality office stock in Belgrade at 970,000 sqm with a vacancy rate of 7.7 percent. Several projects are at the final stages of development and are due to complete this year. The consultancy has traced at least ten notable office projects in the pipeline. Across Serbia, BIG CEE acquired Kragujevac Plaza and the Kragujevac Shopping Park and additional development land from the long term SEE developer and investor, NEPI. Belgrade prime shopping centre yields stand at 8.25 percent and retail parks at 8,75 percent according to CBRE.

Regional

CBS International put total modern retail stock in Belgrade at around 530,000 sqm, vacancy stands at around 5 percent due to vacancy in some smaller retail schemes. Zagreb has seen a slowdown of new retail development deliveries, with a perception of potential oversupply in the capital, recent deliveries have consisted of retail parks serving regional cities and some retail centre extensions in secondary cities. A notable retail transaction in Zagreb was the sale by the developer/investor, Bluehouse Capital of the 13,500 sqm Point Shopping Center. The complex has been operating successfully with long term international and Croatian brands according to CBS International, who acted for Bluehouse in the deal. Prime shopping centre yields for Zagreb are estimated at 7.25 percent. The hotel sector made up the majority of the first half-year investment volume in Croatia to Colliers International. “The investment volume of commercial real estate exceeded €290 million in the first half of 2021, which represents a 30 percent increase year-onyear increase. The demand for bigger tickets exceeds the supply. New lending has typically become strict with less favourable conditions for buyers. LTVs are under pressure,” said Klara Matić, head of investment valuation & advisory services at Colliers International Croatia, regarding investment volumes so far this year. A notable hotel transaction was the purchase of Sunce Hoteli (BlueSun Hotels and

The deal for GTC’s office portfolio was one of the biggest of the last five years

Investment Guide 2021

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Feature

Resorts Brand) by the Croatian arm of the UAE-based investment and development company, Eagle Hills. Sunce Hoteli comprises 11 hotels and a camp in Dalmatia as well as an airport and a large landbank on the island of Brac. With the deal, Eagle Hills is continuing to expand its presence across SEE. The developer/investor has undertaken a major mixed-use office, retail, hotel and residential project in central Belgrade.

As elsewhere in the region logistics is attracting investors. Although, as with all sectors in SEE, a limited supply of products is a major obstacle to investment market development. “Local stock is considerably smaller than in other markets, especially in offices and in industrial sub-markets which is certainly affecting the availability of products. However, well known international and reputable local developers are very active in

both countries which will slowly reduce this gap compared to the core CEE capitals. The retail segment is an example of high development activity over the last 15 years which has created numerous products of institutional quality which were recently transacted,” concluded CBS International.

FORTRESS ACQUIRES ELI PARK 1 NEAR BUCHAREST Fortress, one of the largest real estate investments trusts (REITs) in South Africa, has reached an agreement with Element Industrial and Paval Holding and signed the acquisition contract for ELI Park 1, a class A industrial development, located in the newest logistics hub North-West of Bucharest, Buftea-Chitila. “Romania is one of the most exciting long-term logistics and warehousing investment propositions globally due to the high industrial and consumer growth potential and close access to Western Europe. The market is in the development phase with a lot of runway for real estate investment for Fortress. We are selective and intend to grow our high-quality warehouse portfolio across Central and Eastern Europe (CEE) in the coming years,” said Steven Brown, CEO of Fortress REIT Limited. ELI Park 1 is a 50,000 sqm GLA class A logistics and industrial park, located just 15 minutes from the North of Bucharest and 5 minutes from the ring road, near the connection with the future A0, Bucharest new ring road.

SRDJAN TEOFILOVIC Head of Capital Markets & Investor Services, CBS International, member of Cushman and Wakefield Alliance If we compare the previous period with the current situation in which the real estate market operates, we can see that industrial complexes and office buildings are taking the lead in the investment market rather than retail schemes in our region. The yields for prime office schemes in Belgrade currently range between 8.00-8.75 percent. Prime retail schemes in Belgrade command yields around 8 percent, while prime logistics assets with blue-chip tenants have a yield compression at below 9 percent. In Zagreb, prime offices command a yield between 7.75-8.00 percent. With an additional availability of capital, yields in SEE are expected to be under pressure, but their levels will remain slightly above the core CEE capitals.

Investment Guide 2021

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Feature

enoma in Wroclaw

How do we shape spaces around us? Post-pandemic fit-out trends

The pandemic has changed the way we live and work and thus is influencing the needs the real estate market has to answer to. Some major trends observed long before the year 2020, have suddenly been reinforced. Just think of digitization and sustainability. However, others, such as the huge emphasis on safety and redefining spaces in response to changing habits and market trends, pose challenges whether we are talking about offices, retail, or the rental industry. Experts, such as Tétris’ design x build have already worked through new concepts and ideas of how to cope with the new reality and seize new possibilities for improvements. The company is known for quickly adapting its offer to ever-changing directions, and market needs due to the support of its team and proven subcontractors.

Redesigning the office space The pandemic has influenced the rise in popularity of the hybrid work model. We still don’t know if it will stay with us for a long time and what model will eventually become dominant. Certainly, the need for a flexible model of space has been rein-

Investment Guide 2021

forced. Changes in companies’ approach to office functions are already visible – they perceive the office as a place for cooperation and socializing. Corporations decide to redesign their interiors and adjust them to the new needs of employees. Concerns for health, a friendly, homely atmosphere, and general well-being have already come to the

fore. Now it is accompanied by the desire to provide an even greater sense of safety. The focus is on making people feel at ease in the office space. “We are witnessing a shift in the way we perceive office space. It evolves from a work-only space to a meeting space. In the hybrid work model, employees perform

Feature tasks that require concentration working from home and come to the office mainly to discuss projects with the team or participate in a meeting and brainstorming sessions, etc. Companies come to us with requests to change the layout of the space. We replace open space areas with hot-desks zones, small 2-3 person meeting rooms, and other solutions, to ensure higher comfort of remote meetings, such as phone booths. The demand for the latter has increased a lot,” says Paweł Brodzik, Managing Director in Tétris, Hub Lead – CEE & Germany. Along with attention to employee comfort, a noticeable trend is also bringing green plants into the office space design. It entered commercial spaces long before the pandemic, but recently it becomes a musthave solution. Biophilic design has won the hearts of interior designers and is also in line with the idea of sustainable development – it positively affects indoor air quality and a healthy working environment. Moreover, the pandemic has reinforced the need to be close to nature, which confirms numerous studies on the benefits of communing with greenery. “When introducing green plants into office spaces, our designers keep in mind not only their decorative functions. We also use them as partitions, which calm down, im-

prove acoustics, and create an intimate atmosphere,” explains Paweł Brodzik.

Challenges in the retail sector Tétris has a track record of remodelling shopping centres. This part of the retail industry is constantly evolving due to changing consumer needs – for example, 28 percent of shopping centres in Poland have already undergone extensions, some of which have also been modernized. Last year was challenging and even game-changing for the industry. Long closure periods, shifts among tenants, adjusting to new sanitary guidelines are just a few of the pains they had to cope with. Apart from that, new, smaller formats are on the rise, forcing large shopping centres to rethink their tenant mix and switching to different functions. And in the post-pandemic reality, they are facing further challenges, which certainly will require a non-standard approach and openness to further transformations. Nevertheless, it is worth noting that after periods of lockdowns, traffic in malls is slowly returning to pre-pandemic levels – which shows the customer’s attachment to this form of shopping and spending time. “We operate in 18 markets around the world and over the years we have seen major

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changes in the way shopping centres are designed and managed. The facilities we have been entrusted to redevelop have been transformed into multifunctional, engaging places that encourage people to stay there longer. Today, looking at the industry and international trends, there are several leading directions for transformation – introducing new or combining several functions, focusing on a specific specialization, and looking for differentiation from the competition. As a global group we have experienced many interesting and thorough transformations,” says Rajmund Węgrzynek, Managing Director of Tétris in Poland and CEE. One of the directions that owners of big retail facilities can take is a classic modernization, focused on providing customers with the most interesting experiences and solutions, including technological ones. The devil is in the details such as a diversified selection of tenants as well as the development of new retail formats like showrooms and picks and collects points. Not to mention the importance of entertainment areas and food courts that in most cases should be expanded and refreshed in line with the latest trends and local conditions. Regardless of the chosen model of transformation – every shopping centre will need a thorough modernization at some point.

Złota 44 show apartment

Investment Guide 2021

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Today the driver of change is the emerging post-covid reality, tomorrow it will be further technological revolution or changes in consumer habits and expectations. “These types of redevelopments are large, multifaceted fit-out projects. On both the design and construction sides. When choosing a contractor, facility owners pay attention to experience, human resources, logistical considerations. Also important is the selection of subcontractors – in terms of price, quality of materials, and timeliness. Any delays generate additional costs, which is not welcome in the case of an already large budget. Nevertheless, to achieve commercial success, the most important thing is the idea for the design,” adds Rajmund Węgrzynek.

The growing popularity of apartments for rent In the Central and Eastern European countries, including Poland and the Czech Republic, the institutional leasing market is growing intensively. “According to Avison Young’s investment analysis, significant structural changes in real estate investment are visible in this region. A new type of investment has emerged. These are residential real estate properties, which are gaining popularity. Investors perceive this segment as very safe and with great potential. Residential real estate appears on the purchase lists of all major insti-

tutional investors. As shown by JLL data, only in Poland investments in private dormitories and apartments for rent amounted to €260 billion last year,” says Paweł Brodzik. Currently, the number of apartments in the PRS segment in Poland is about 5,5 – 6,500 units. Contracted or under construction are approximately 25,000 (also over 6,000 units within private dormitories, with another nearly 9,000 planned) – this is only 0.1 percent of the total housing stock in Poland. The Polish PRS market is expanding and promising. In the much smaller Czech market, the PRS is growing strongly – cite Residomo’s purchase of 43,000 PRS apartments. Although the number of projects for longterm rental in Poland is growing year by year, for developers it is still a fledgling market segment, fundamentally different from classic investments for individual clients. There are more processes to plan, a larger number of subcontractors, and a different specification of the end product than in the case of a traditional residential project – all of which require the development of new project management methods. “In fit-out projects in rental developments, our experience from large hotel projects becomes useful. We know very well which materials are not only aesthetically pleasing but, above all, durable. The scale of this type of facility, with dozens of apartments, also requires a network of trusted subcontrac-

tors and manufacturers who can provide the required quantities of materials in the planned time. Another important aspect is the human resources that enable the fit-out provider to carry out many large projects simultaneously. Taking on such a challenge with a company like ours, which is part of the global structure of both Tétris and the JLL group, reduces project risks. Additionally, from the perspective of investors operating on the international market, it is an advantage to employ a single entity providing services across the country, as well as abroad. This is also the aspect which our clients pay attention to – we operate practically in every region of Poland and CEE”, adds Rajmund Węgrzynek. Each of the countries belonging to the Tétris CEE HUB is different, but particular trends intermingle. If we take just the Polish or Czech market as an example, we see huge potential in fit-out projects in every segment of commercial real estate. The Covid-19 pandemic has influenced space planning and created new needs. Tétris as one of the leading companies in design x build projects, with a rich and diverse portfolio, knows how to respond to them. The company will continue to expand in various CEE markets, taking advantage of the international exchange of experience in its structures.

Rajmund Węgrzynek Managing Director of Tétris in Poland and CEE

Paweł Brodzik Managing Director in Tétris, Hub Lead – CEE & Germany

Investment Guide 2021

Feature

Sponsored

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Marynarska Point 2

Investment Guide 2021

Regional

Sustainbility

H2Offices by Skanska in Budapest

Questions remain as to whether sustainability is a prerequisite for an acquisition Gary J. Morrell

As the concept of ESG investing (the integration of environmental, social and governance factors into the fundamental investment process) is increasingly a concept and practice that is utilised by investors, the extent to which sustainability accreditation is a priority for investors when making an acquisition or concluding other property-related decisions is open to debate. Investors have yields and return on investment as a central priority, although commercially successful investment-standard buildings invariably have sustainability accreditation, due to market pressure from tenants and increasingly stringent international environmental regulations. Further, investors need to look to a longer-term rise in the value of an asset and the prospect of new national and international sustainability regulations, for a project to be viable in the longterm.

Sustainable investment could be defined as the practice of making capital allocations based on socially responsible ethical strategies. “Key areas of focus are the reduction

Investment Guide 2021

of energy consumption, the protection of natural resources as well as the provision of a healthy and well-being working environment. Guiding market decisions towards

sustainability and climate-friendly solutions will generate financial and economic payoffs for investors in the medium to long term,” says RICS.

Regional

Sustainbility Sustainability accreditation from an independent, third-party sustainability organisation such as the UK-based BREEAM and the US-based LEED, and increasingly WELL, is now the norm for development in the office markets and increasingly in logistics and retail across the CEE region. All these third-party accreditations systems have interior issues as a central component of their systems and award points on this basis. In attempts by developers to achieve market leadership double certifications are becoming the new norm in the region. Many project developers now choose WELL certification that is directed to improving interiors and the well-being of staff as a second commitment next to a green building rating system. Office interiors are now integrated into the concept, design, leasing strategy and project and facility management of office projects in reaction to tenant and staff demands, increasingly stringent environmental regulations and health and safety issues related to COVID. Indeed, as developers are striving to deliver ever more highly specified and sustainable office complexes, interior and exterior design have essentially become part of the same process. “In our experience, sustainability accreditations are becoming pre-requisites for investors. Grade A stock is more sought after than lower grade buildings and Grade A quality cannot be achieved presently without sustainability considerations. Developers have been building environmentally con-

a rooftop running track and cycle changing facilities. “We adapted very quickly to the new regulations and implemented the newest health measurements and we are also helping our tenants to be able to provide secure office space to their workers,” commented Aurelia Luca, executive vice-president of operations for Hungary and Romania at Skanska’s commercial development business unit. The “Care for Life Office Concept” has been developed for Skanska buildings in CEE. The developer collaborated with designers, an epidemiologist, and an exterior designer and ARUP architects studio to provide the best-suited workplace solutions. It includes the implementation of safety protocols and solutions to mitigate the transmission of Covid-19 and/or any other potentially infectious diseases in the future. It consists of four areas: air quality, touch-free solutions, social distancing, measures, and building management, according to Skanska. Concerning what influence investment and financing decisions are influenced by sustainability issues, Peter Számely, executive director of real estate finance at Hypo Noe Landesbank, argues that there is not a straightforward answer to this question, but sustainability is becoming more and more important and comes high in the priority cost of both financers and investors. “There seems to be added value if a property is officially declared green or sustainable. Further, there may be a discount

scious buildings with various certifications for years now and value-add investors that seek lower class assets tend to opt for ‘in use’ sustainability certifications as well to be able to achieve a higher return on their investments. Furthermore, more complex assessment criteria are emerging on the market: ESG considerations are becoming increasingly important for investors, which leads us to believe that in a few years, sustainability accreditations will become a ‘must’ rather than a nice to have,” said Máté Galambos, leasing director at Atenor Hungary. Atenor has a policy of developing phased office projects, then leasing and selling the assets onto an investor after completion across its CEE portfolio. The company has concluded investment transactions of BREEAM accredited office assets in both Budapest and Bucharest in recent months. Skanska as an established CEE regional office developer has been using a similar develop and sell strategy in Central Europe for several years. The company has undertaken the development of the first phase of the 67,000 sqm H2Offices on the site of the former Budapest Waterworks, the architectural design concept was created by the Danish Arrow Architects. According to Skanska, the new building complex will focus on the needs of users. The developers are aiming to obtain LEED and WELL Platinum certifications as well as WELL Health & Safety Rating and provide a wide range of amenities and recreational opportunities for staff such as

Sustainability Registered Office Buildings in CEE Source: Hungarian Green Building Council (HuGBC)

BREEAM

LEED

Czech

429

Hungary

189

Romania

324

1,168

223

103

Poland Slovakia

WELL WELL (Certified) (Pre-certified)

Investment Guide 2021

Regional

Sustainbility throughout the development process, from planning, permitting and financing to construction and leasing and an exit strategy. With sustainability benchmarking and accountability, it would be difficult for building owners to be accused of “greenwashing” (providing misleading information about how a company’s products are verified) as it is relatively straightforward to verify claims made by a building owner or developer. “International green building assessment systems provide a good basis for a comparable and consistent stock in a real-estate portfolio across countries. Corporations with a global presence as potential tenants are also seeking this assurance so these are the aspects behind the tendency of green ratings becoming now a minimum requirement for developers. ESG reporting obligations of businesses and the EU taxonomy will further drive the spread ratings and will increase the benchmarks higher,” concluded Ida Kiss, head of design at the architects and designers, DVM group in Hungary.

Green-wall installation at Generation Park Y in Warsaw

if a building is not sustainability certified. I think we are at the beginning of the process whereby societal issues and regulations are a part of the influence on financers and investors along with market forces but this process may accelerate quicker than one would expect,” he said. The question remains as to whether sustainability accreditation is a pre-requisite for investors in making an acquisition or that core investment-grade assets are accredited in any case and therefore it is an academic argument as market pressure in the leasing process makes and overall sustainability regulations. This is also now invariably the case with the value-add sector of the market.

Investment Guide 2021

“I would say this is true, at least in the case of offices. Overall, a sustainability certificate is rarely a decision-making factor yet, but ESG funds and investors are buying from green bonds where it is a must. I think value-add investing is already a sustainable thing. They usually refurbish and reposition buildings which is way more sustainable than building one from the ground. As they also want to create marketable products, that requires the incorporation of sustainability and third-party verification,” commented Norbert Szircsák, head of green building agency at Colliers International Hungary. It would seem that sustainability is a central element and arguably a necessity

Poland

Investment

Warta Tower located in Warsaw’s business centre

Investors still focused on Poland’s real estate markets Winston Norman

Despite the global uncertainty caused by the pandemic, demand from European and global investors has returned to Poland for core products in both the industrial and office markets. Once again, there is fierce competition for deals in these sectors. A gap in pricing for less core property remains, but here too there is selective demand for assets, particularly in Warsaw.

Poland continues to attract strong interest from funds that are active in the real estate sector. By contrast, the shrinking supply of off-the-shelf product, and the impact of Covid-19, has led to a reduction in total investment volume across the country. The

Investment Guide 2021

outlook for 2021, especially for the industrial segment, is cautiously optimistic. “The industrial sector remains the main focus of activity and the current activity could soon translate into new pricing benchmarks. The office sector is also showing signs of

increased activity and interest in other sectors such as retail and multifamily is visible,” commented Jeff Alson, CEE Partner, Capital Markets Group, Cushman & Wakefield. “Despite the massive switch to the remote working model and the postponement of

Investment the finalisation of some transactions, offices continue to attract investor interest. As for retail schemes, we can see a shift of attention towards alternative assets, such as retail parks and convenience centres, which is in response to the changing shopping needs of consumers. The retail market continues to diversify, offering an even broader range of products, which will translate into further investment deals,” commented JLL’s Tomasz Puch, head of capital markets. One of the largest recent office transactions includes Globalworth agreeing to sell five Warsaw office buildings to 5th Corner – a new investment platform set up by Cornerstone Investment Management and other shareholders. In this transaction, which is valued at around €123 million, the buildings in Globalworth’s portfolio that are to be sold are Nordic Park, Bliski Centrum, Batory Building I, Company House I and Warta Tower. “We are convinced that offices will remain relevant despite Covid, and this is the first step on the creation of a wider platform,” commented Darius Divwalla, managing partner at Cornerstone Investment Management. The largest of the properties sold by Globalworth is the 30,000 sqm Warta Tower located in Warsaw’s business centre. By 2023, 5th Corner plans to have invested more than €30 million in the complete renovation of the building. Commenting on Poland’s attractive investment market, Alexander Klafsky, managing

partner at FLE GmbH said: “Our main focus for investments is on strong and sustainable cash flows. We are very happy with our real estate portfolio in Poland that already comprises offices, hotel, wholesale, retail, and light industrial and are keen on expanding and diversifying here further.” FLE’s recently acquired Rockwell Automation’s warehouse and industrial facility, located in a last-mile delivery location near Katowice. “This is a perfect example of the type of product we like,” said Alexander Klafsky. The tenant has been operating from the property for 14 years and recently signed a long-term extension of the lease. “We see that Poland’s investment market is picking up again and new money is entering the market. We sold Wołoska 24 for more than €60 million to the Czech investment fund ZFP Investments,” commented Jeroen van der Toolen, managing director at Ghelamco Poland. “But we are not in a hurry to sell recently completed office buildings in Warsaw. He added, “Aareal Bank has recently provided a loan to Ghelamco to refinance The Warsaw HUB. The amount of the loan was €312.5 million. This is record-high refinancing that shows that financial institutions are still investing in high-class office buildings.” According to JLL, outside Warsaw, the total value of office investment transactions was a moderate €375 million – still 10 percent higher than the H1 average of the last decade.

Poland

One of Poland’s largest office deals concluded in the first six months of 2021, was the sale of Buma Group’s portfolio in Krakow and Wroclaw for about €200 million to Partners Group. Almost 50 percent of regional investment activity was in Krakow, with 27 percent in Tri-City, including Torus’ sale of its Alchemia Neon in Gdansk. Given the transactions currently in the pipeline, JLL estimates that total office volumes for this year should be close to 2020’s result. In a more recent regional deal, Avison Young announced that Sky Tower, a landmark development in Wroclaw, will be acquired by the Adventum Group. The seller, Develia has agreed to let the building go for €84.42 million. Poland’s logistics market is on track for another record year, according to Savills, as take-up activity is already in excess of fiveyear averages at the half-year point. Take up in Poland in H1 2021 exceeded 3,000,000 sqm for the first time in history and was higher than France, UK and Spain. “Industrial investment volume in Poland was close to €895 million in H1 2021, which is 22 percent below the level recorded in the same period last year, mostly due to the lack of product available for sale on the market,” said John Palmer, Director, Head of Industrial Investment at Savills Poland. “However, Euro logistics vacancy rates are now at record lows, which is a good prospect for the investment market. As of H1 2021 vacancy in Poland fell and stands at 5.3 percent. This is

Deka Immobilien acquired the Malthouse Offices, the largest office building of the Warsaw Brewery complex

Investment Guide 2021

Poland

Investment

very much in line with vacancy rates in UK and France. Along with this logistics take-up in Poland recorded excellent H1 2021 results being 78 percent up against five-year H1 averages. In the last 12 months, Poland recorded impressive volume of over 6.2 million sqm warehouse space that had been leased.” Commenting on Poland’s buoyant warehouse and logistics market, Arvi Luoma, co-founder and CEO of Blackbrook Capital, said: “Poland is a major industrial and logistics market due to its proximity to Germany and the rest of Western Europe, a coastline, its cost-effectiveness and availability of land to develop. In addition, it is a major consumer market with a strengthening economy and around 40 million population. This means it benefits from two distinct demand drivers which will keep it a hot market. Although subdued slightly by the wide availability of land and substantial spec development, in

the long-term it will be the most active market in CEE.” Blackbrook Capital announced their entry to the market with the acquisition of a 100,000 sqm Class-A logistics facility located in Poznan. “This asset represents a strategic facility in the tenant’s European distribution network. The asset matched our investment criteria closely – a tenant with strong credit rating, a mission-critical site, attractive real estate fundamentals, a long-term lease and located in an established European logistics market we know and understand well,” commented Arvi Luoma. Concluding Arvi Luoma, said: “Industrial and logistics are maturing as a sector, and it is also constantly developing as technology and the consumer (e.g., Gen Z) have a huge influence on the space. It’s an increasingly interesting sector to be investing in.”

Prime office yields in Warsaw are around 4.50 percent, whereas yields in the core regional cities like Krakow and Wroclaw stand around 5.75 percent. Prime warehouse yields are at 5.75 percent with exceptional, long leased assets trading at below 4.50 percent with Warsaw inner-city projects standing at around 5.50 percent. Despite the lack of transactional evidence, prime shopping centre yields are estimated at 5.25 percent with prime retail park yields remaining stable at 6.80 percent. However, further compression is expected as a result of increased interest in this asset class.

MICHAŁ STĘPIEŃ Associate, Investment, Savills Poland Subsequent lockdowns and pandemic related restrictions accelerated the e-commerce growth and the ongoing wider transformation of retail that has been affecting retail investment since 2016 Europewide (in Poland since 2019) and amplified polarization between ‘prime’ and ‘secondary’. This is reflected in the investor activity in Poland, which in H1 2021 in the retail sector did not exceed €300 million and constituted less than 15 percent of total investment, reflecting approximately a 40 percent drop year-on-year. Investor activity shifted from the retail sector towards logistics, significantly limiting the pool of buyers targeting retail. This is still a live process and activity in the prime end of the market is nearly non-existent, as the future is still uncertain and even the dominant centres need some time to adjust and stabilize. With the softening of prime yields by ca. 75 – 100 bps, it is also not the most comfortable time for vendors to divest. On the other hand, it is the time of opportunities, attracting buyers seeking high-yielding assets and/or value-add potential, especially in the long-term, as the gap between prime and secondary grew up to 350 bps, which resulted in secondary assets being traded at double-digit yields. We believe this will continue, with the consequences of the pandemic to unfold for a long time to come, however, once the sector recovers, driven by the synergy of traditional retail and online, the retail investment sector will be back on track.

Investment Guide 2021

Poland

O ffice

Warsaw Financial Center

The Polish office market remains resilient and has a promising outlook Craig Smith

As a result of the further lifting of restrictions combined with a mass vaccination campaign, cautious optimism is returning to Poland’s office market. According to JLL, during the first six months of 2021 over half a million sqm of modern office space was leased in the country. More than half of the total was accounted for by the major markets outside Warsaw.

One of the biggest drivers of demand is the Business Service Sector which is dominating the office landscape. Companies from this sector account for more than half of leased space outside of Warsaw and now occupy around 3.5 million sqm of office space.

Investment Guide 2021

“Despite the pandemic, the business services sector continues to develop and is one of the fastest-growing branches of the Polish economy,” commented Jakub Sylwestrowicz, Head of Office Tenant Representation at JLL. “The prospect of the sector further expanding is a strong impulse for the development

of the office market in Poland, especially in regional cities.” In Krakow, for example, employment in the BSS sector is around 82,000 people. Further, in the Malopolska region, over 1.3 million sqm of offices are currently leased,

O ffice

Poland

The Warsaw HUB delivered by Ghelamco

of which more than 60 percent are now occupied by BSS companies. Poland provides a wide and diverse choice of office locations. In H1 2021, total office stock exceeded 12 million sqm and the regional markets have almost caught up with Warsaw in terms of supply. From January to June 2021, a total of over 514,000 sqm of leases were signed in Poland. Regional markets accounted for over 50 percent of the volume (264,000 sqm), with the most active tenant continuing to be the BSS sector. At the end of June 2021, the vacancy rate for the Polish office market stood at 13 percent, reflecting more than 1.5 million sqm vacant space. “The growing volume of vacancies may cause owners of slightly older or less attractive office buildings to consider modernising their space and adjusting it to a higher standard,” commented Bartosz Oleksak, Senior Negotiator, Office Agency, AXI IMMO. According to AXI IMMO, the office market in Warsaw and the major regional markets after the first half of 2021 registered a visible slowdown in supply and moderate demand. The market situation has been conducive to a rising level of immediately available space over the last few months, which is already over 1.5 million sqm and represents around 13 percent of its total stock. Nevertheless, developers, as well as tenants, remain active. In the first half of 2021 developers delivered 21 projects with a total area of around 352,500 sqm. The most significant pro-

jects completed by the end of June 2021 in Warsaw were Warsaw UNIT (57,000 sqm, Ghelamco), Skyliner (48,500 sqm, Karimpol) and Generation Park Y (44,300 sqm, Skanska). “We expect that in the next few months in both Warsaw and the regions the number of new office buildings will stop for some time. On the other hand, some of the projects currently under construction, for which no pre-let agreements have been signed, will extend their occupancy periods as much as possible. The reasons for this can be found, among others, in the high financial costs connected with the maintenance of already built office buildings and the growing vacancy rate. However, reports of a slowdown in supply should be treated very carefully. Once the situation on the market stabilises, we may observe a swift absorption of space,” said Jakub Potocki, Senior Negotiator, Office Agency, AXI IMMO. The total volume of tenant activity in the Polish office market in the first half of 2021 amounted to over 514,200 sqm. Registered demand in regional office markets was higher at the end of June 2021 (264,200 sqm) than in Warsaw (nearly 250,000 sqm). In the leasing structure in Q2 2021, renegotiations (47 percent) overtook new deals (45 percent) and expansions (8 percent). “The high percentage of renegotiations and new deals indicates that there is still intense competition for lease signings on the Polish office market, both in Warsaw and the regions. It’s a very good signal for the whole

sector. It allows us to believe that after the appropriate level of immunisation of society, the maintenance of proper security measures and a slightly changed work model, the lease market will open up even more strongly,” said Bartosz Oleksak. According to JLL, excluding the capital city, BSS companies leased over 160,000 sqm in the first half of the year, accounting for over 60 percent of office demand in regional cities. “The sector’s appetite for office space was illustrated by Katowice which saw the BSS sector claim a 90 percent share of demand in the city. In turn, BSS companies in Krakow accounted for three-quarters of total demand for offices in this period with Poznan in third with 57 percent. In comparison, Warsaw, which is the second-largest business services market after Kraków, saw BSS firms only register a 19 percent share of demand. However, given the fact that the capital city plays host to a large number of corporate headquarters, this is still a very good result,” said Mateusz Polkowski, Head of Research and Consulting at JLL. There are many indications that this trend will continue in the long term. Over 1,600 business services centres in Poland employ 355,300 people. The share of the business services, in total employment in the business sector, has risen to 5.6 percent, up from 5.2 percent in 2020 – despite the pandemic. According to ABSL, the number of jobs could increase by 6.1 percent y-o-y to 376,900 in

Investment Guide 2021

Poland

O ffice

Q1 2022, demonstrating the sector’s huge potential. “The disruption to global supply chains brought on by Covid-19 has caused companies to revise their outsourcing strategies and, in an effort to maintain the continuity of business processes, are increasingly willing to analyse options to launch operations closer to the country of origin. Poland may be one of the largest beneficiaries of this trend,” added Jakub Sylwestrowicz. BSS companies are looking for locations that offer high-quality office space in order to provide new employees with a comfortable and optimal working environment, and that take into account the challenges of the ‘new normal’. The total office stock in Poland now stands at over 12 million sqm. The balance between

Warsaw and regional markets is pretty much evenly distributed (less than 6.1 million sqm vs. over 5.9 million sqm). “Developer activity outside Warsaw remains strong, and in fact at a higher level than in the capital. A further 760,000 sqm, which is under construction in the country’s eight major regional markets, is scheduled to be delivered by the end of 2023. The highest levels of development activity are currently being seen in Wroclaw, Katowice and TriCity,” commented Ewa Grudzień at JLL. “The pandemic has caused corporations to reduce their presence in more risky markets,” commented Jeroen van der Toolen at Ghelamco. “We see that many companies are planning to move from Asia to Europe. Poland and Warsaw will be the beneficiaries. We still believe in the office market. This is

why we decided to start new projects during the pandemic. We started the construction of The Bridge skyscraper in Warsaw. The 174-metre-high skyscraper will offer 47,000 sqm of office space. Then there’s The Craft office building in Katowice. It will provide 26,700 sqm of space and 13 floors. It is scheduled for completion in 2023. And finally, we have Kreo that is being built in a new office district in Krakow. Kreo will offer 9 floors and 24,000 sqm of leasable space. The value of these projects is nearly €300 million.”

Poland’s office market registered a visible slowdown

JAKUB ZIELIŃSKI Team Leader, Workplace Advisory, JLL Services sector companies employing thousands of professionals, and following the expectations of their employees, naturally set trends related to the shaping of modern office space. They are also adapting the office to the needs of returning employees who work in the increasingly popular hybrid model. The challenge regarding the working environment that companies increasingly come to us with is how to provide employees with a positive experience that both encourages them to be in the office, and supports their productivity and creativity. In response to current needs, both entire new buildings and proposed solutions for individual offices are based, among other things, on the idea of meetings, including spaces for quick presentations, and rooms for teamwork. Spaces which are equipped with multimedia technology and that are able to help in successfully integrating employees are also taken into account.

Investment Guide 2021

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Poland

PRS Market

Poland is a large market with multiple investment opportunities and strong economic fundamentals

PRS prospects growing in Poland Winston Norman

The Polish PRS market is still in its infancy, but more and more players are declaring their willingness to build portfolios of thousands of rental apartments in the country. According to Savills, investment into the multifamily sector in Poland reached close to €550 million in H1 2021. This now makes PRS the third biggest commercial real estate sector in the country, behind office and industrial.

According to Cushman & Wakefield, rental apartments in Poland account for about 15 percent of the country’s total housing stock (2.3 million out of 14.8 million units). Most are privately or municipally owned. The development pipeline intended for rent is estimated at 35,000 units, of which around 10-15 percent will be delivered in the next 12-18 months. “Despite COVID-19 headwinds, housing prices on the new build and resale markets in Warsaw and the largest regional cities have not fallen. This is mainly because the demand remains relatively strong. A substantial proportion of affluent individuals

Investment Guide 2021

having bank deposits which are paying virtually no interest at the moment are trying to protect capital values and are therefore buying apartments with cash,” commented Mira Kantor-Pikus, Partner, Equity, Debt and Alternative Investments, Capital Markets, Cushman & Wakefield. Poland has one of the fewest rooms per person in the European Union and stands at 1.1 compared to the EU average of 1.6. Its density of apartments per 1,000 inhabitants is just 80 percent of the EU average. It is estimated that there is a shortage of about two million apartments in Poland to satisfy demand. In addition, affordability compares

favourably with other EU countries and migration trends support demand for housing with net immigration growing. “All investors chase opportunities and assess risk-return trade-offs. The demand and supply dynamics of Poland are interesting. Poland is a large market with multiple investment opportunities and strong economic fundamentals,” comments Jeff Alson, CE Partner, Capital Markets Group, Cushman & Wakefield. According to experts, the PRS will grow in the next three-five years through direct acquisitions of developer projects and larger joint venture deals. Pricing will be influenced

PRS Market by the success of early transactions, competition from the buy-to-own market, operating and currency hedging costs. “Most overseas investors will factor in the costs of hedging this risk, which could decrease net returns. On the other hand, assuming leverage of an investment with a PLN loan at the level of 55-60 percent, the investor needs to hedge only free cash, which would compensate some loss,” said Mira Kantor-Pikus. Who will invest in the Polish PRS? “Investors have entered the market through acquiring a residential developer or establishing a joint venture to secure pipeline and volume. This can be a great win-win scenario for some as it can help fast track both for sale and rental product by sharing the financing load,” commented Dorota Wysokińska-Kuzdra, Senior Partner, Corporate Finance, CEE, Colliers. In what has been heralded as the largest real estate deal in Central and Eastern Europe since the outbreak of the Coronavirus pandemic, Cornerstone Investment Management together with Crestyl Group, a Czech real estate developer and investor, finalized the acquisition of Poland’s residential developer, Budimex Nieruchomości. The transaction was valued at PLN 1.51 billion. The signing of a strategic partnership with one of Europe’s leading residential real estate businesses, Heimstaden Bostad, to acquire 2,500 flats for rent over the next 5-year period, was also agreed upon. “Together with Crestyl, we would like to establish the company as a significant player in the area of residential real estate sales and rentals in the region. This acquisition is the

first step towards achieving that goal,” said Paweł Dębowski, managing partner at Cornerstone Investment Management. “There’s a bright long-term future ahead for the Polish real estate market. Despite its constant growth, the number of dwellings per capita is still significantly lower than the EU average. Additionally, there’s still a lack of cohesion in the Polish residential sector, and we see great opportunities ahead,” added Omar Koleilat, Crestyl Group CEO. In another significant transaction, NREP, a real estate investor from the Nordics, managing assets worth more than €10 billion, announced its market entry with the purchase of more than 1,000 new build units acquired from YIT. By 2025, NREP plans to deliver 10,000 modern homes in major Polish cities, most of them designed to meet the increasing demand for 1-2 person households, such as young urban professionals, singles, or young couples, looking for modern living solutions with a community vibe. “The market entry of NREP is a sign of growing maturity of the Polish market. The country’s living sector offers not only high returns and stable demand – but, due to its specificity, also allows the creation of portfolios for modern state-of-the-art assets. This factor is attractive for long-term investors who value and prioritize sustainability in real estate,” commented Krystyna Pietruszyńska, Senior Consultant, Living Investment at JLL. Andy Thompson, Head of Investment, Colliers, commented: “For an investor, the business model seems pretty robust. Institutional capital (almost unlimited capital) is effectively now competing with individuals

Poland

and families to buy apartments. The result is that there will be even fewer apartments developed for sale – putting upward pressure on pricing for those apartments that are built for sale. Demand for renting will increase as people will not be able to find sufficient capital for a deposit on their mortgage for ever more expensive apartments. Ultimately, rental growth, driven by the forces of less supply and increased demand will help make BTR/PRS one of the most interesting asset classes to buy for investors.” Kamil Kowa, Board Member, Savills Poland, concluded: “Compared to more mature European markets, the Polish rental market continues to offer competitive yields that attract new investors. I think that private investors will find it increasingly difficult to achieve similar rates of return due to rapidly rising home prices and the pandemic correction of rental rates. Institutional investors will have it a little easier by building scale and acquiring buildings originally designed as multifamily projects. With record mortgage borrowing and an expected hike in interest rates, residential developers are likely to reconsider wholesale transactions going forward although there is no sign of any slowdown and their sales teams are experiencing a period of prosperity”.

PETER NOACK CEO, Zeitgeist Asset Management There are two dominating trends on the CEE market: investing in residential for rent and long-term-hold strategies. PRS brings the safest return on investment, as the current social and economic changes pushed the demand from “owing” to “renting”. The pandemic period has only strengthened this process, with people not being sure about tomorrow. Unstable incomes, political anxieties and global employers are in the game. The place you live does not define you anymore, as young generations seek flexibility and freedom. Just combine all of this with a low supply of flats-to-own on the CEE markets and you see that the trend for renting is going to stay. And, with it, the expectations raise. You require better quality for a place for living and growing your kids: bigger apartments, various services, more balconies and gardens. We see tenants moving from one apartment to another with us as their status changes. As for investment risks, they are still the same. Permits very often depend on politics and not the economy. Definitely, the rule of law and more transparency would help to speed up the process. I just hope that politics, especially in Poland and Hungary, don’t disturb our engagement by talks about exiting the EU.

Investment Guide 2021

Hungary

Feature

Vaci Greens by Atenor

Limited activity in Hungary investment market Gary J. Morrell

Having recorded increasingly rising investment volumes in recent years, liquidity in the Hungarian investment market has been negatively impacted by a low supply of available investment-grade assets. Despite the appetite for core products at proven locations, there are very few property owners who are willing to put assets on the market as many are aiming for further yield compression. However, in the longer term, analysts argue that there is a strong pipeline of investment-grade buildings to meet investor demand, particularly in the popular office and industrial sectors.

With a substantial amount of international capital looking for a home, international investors would certainly consider investing in Hungary if the right asset or platform were available, according to most analysts. This is in addition to the very active domestic investors who have accounted for over 50 percent of market activity in recent years. Hungary is

Investment Guide 2021

seen as an attractive investment destination with a significant yield premium on both Western Europe, Poland and the Czech Republic, although a gap remains between the Central European countries concerning investor preferences. “Supply-side issue is the bottleneck of the market. Some landlords are still hesitant to

put their assets on the market as the implications of COVID on pricing and performance remain major uncertainties, however capital is widely available and ready for deployment,” commented Bence Vécsey, head of capital markets at Colliers International Hungary. The annual investment volume for Hungary in 2020 amounted to around €1.25

Feature billion, reflecting a decrease of 26 percent on the previous year. Office transactions generated almost €800 million or 60 percent of the total volume. The sector remains the investment destination of choice along with the industrial sector, the clear winner in the post-pandemic environment. However, minimal activity has been recorded in the hotel and retail sectors. “There are very few property owners who are willing to put their assets on the market as most of them are aiming for further yield compression. Most of the closed transactions in the first half of 2021 were off-market deals,” said JLL about market liquidity. “Due to the undersupply, some property owners are setting very high price expectations and foresee a strong bidding competition for their product. While this might be the case for prime office properties and logistics, the retail, hotel, development site and secondary office asset classes are generating less interest among investors for the time being,” added the consultancy concerning investment asset classes. The office sector accounted for 80 percent of investment activity in the first half-year according to Avison Young. Demand is strong for industrial assets, although the activity is constrained by a low supply of assets. GTC has invested €160 million in the acquisition of the LEED Gold accredited 20,000 sqm Er-

icsson Headquarters and the 21,500 sqm Siemens Evosoft Headquarters in South Buda from Wing. The transaction fits in with the aim of the Hungarian developer to become a regional CEE player as it focuses its activity on development and investment in CEE, partly through its Polish subsidiary, Echo investment. GTC also acquired the 15,500 sqm Váci Greens Building D, developed by Atenor and sold to a private Hungarian investor. Office supply in Budapest for 2021-2022 remains constrained with a projected pipeline of 356,000 sqm according to Cushman & Wakefield. CBRE estimates a pipeline of 440,000 sqm as of April. Total modern office stock in Budapest now stands at approaching 4 million sqm of class A assets according to the Budapest Research Forum, BRF (consisting of CBRE, Cushman & Wakefield, JLL, Colliers International, Eston International and Robertson Hungary). The overall vacancy rate of close to 10 percent is expected to increase further. Ín the retail sector the experienced Hungarian developer, Futureal has opened the 55,000 sqm Etele Plaza after several postponements of the project at a railway, metro, tram and road intersection on the western edge of Budapest. There has not been a new shopping centre development undertaken in Budapest for several years with developers having concerns over the level of consum-

Hungary

er spending following the financial crisis, planning regulations concerning shopping centre development and subsequently the impact of COVID and the lockdown and the rise of online retail. Domestic funds have traditionally been very active on the market as the big three institutional Hungarian funds: OTP RE Fund, Erste RE Fund and Diófa RE Fund and a growing number of private investors have been dominant, notably at the top end of the office, hotel and retail sectors. In addition to these established domestic funds, additional strata of closed-end investment funds and private property companies have become active. However, the dominance of domestic capital has been changing to a roughly equal split between foreign and domestic capital and this trend is expected to continue. CBRE put current prime office yields for Hungary at 5.5 percent, 6.25 perecent for shopping centres, 6.15 percent for industrial and 5.75 percent for high streets. The circa 100-150 yield gap with the Czech Republic and Poland is expected to remain. “Some deals in the logistics segment are breaking records approaching 6.00 percent and we have registered office investments close to 5.5 percent in Budapest. In the office segment, it is difficult to expect 5.00 percent yields until vacancy rates are not maturing and rents remain under pressure, but the gap

Ericsson headquarters by Wing, purchased by GTC

Investment Guide 2021

Hungary

Feature

on between yields in Budapest and regional peers has closed in,” said Bence Vécsey. Eston International forecast a total investment volume of €1.5 billion, dependent on whether there is €100-200 million transaction if no large transaction is closed then

volume may not be much above €1 billion according to the consultancy. Investment levels are likely to reach €1.3-1.4 billion with the office expected to outperform the previous year to CBRE. Avison Young expect the annual volume of transactions to be in line

with the previous year at €1.2 billion with several transactions set to complete in the remainder of the year.

FUTUREAL SECURES €50 MILLION LOAN FROM MKB BANK Hungarian developer Futureal and MKB Bank have signed a loan agreement for nearly €50 million to finance the third phase of its Budapest ONE office park project. The final phase of the office complex will be completed in the second half of 2022. MKB Bank will extend a loan of €49 million with a tenor of more than 15 years to finance the construction and operation of the third phase of Futureal’s Budapest ONE office project. The 25,000 sqm first phase was completed early in 2020. Phases 2 and 3 are under construction and were structurally completed this May. The simultaneously developed projects will create 40,000 sqm office space and nearly 3,500 sqm retail and service space, to be complemented by nearly 2,500 sqm of green area. Tenants will be able to move in from the second half of 2022. The new buildings of the office park, which is located at the juncture of motorways M1 and M7 on the fringe of Budapest, will host Vodafone’s new headquarters and BT’s regional service centre.

BENCE VÉCSEY Head of Capital Markets, Colliers Hungary We are still experiencing a relative undersupply of quality investments across multiple sectors. Logistics assets appear to be the clear winners of the pandemic vastly outperforming any other asset classes. To most investor frustration, this sector is highly concentrated with very little supply hitting the market any time soon. Consequently, offices are enjoying continuous momentum as most investors remain optimistic about the longterm performance of this segment. Provided there is little disturbance on the market caused by potential further impacts of COVID, Hungary may return to its €1.5 billion investment trajectory as evidenced in the last few years. This volume, however, will remain well below those in the Czech Republic and Poland.

GÁBOR BORBÉLY Head of Research & Business Development, CBRE Hungary Certain sectors, particularly destination retail and hotels, need to stabilise on a fundamental level before considerable investment activity can be expected. In the case of the pandemic trajectory being contained during the rest of 2021, next year could bring a rebound in the investment sector. Industrial development is strongly picking up – this could be beneficial to the investment market as more developers are likely to exit after developments are finished.

Investment Guide 2021

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Czech Republic

Feature

Parkview in Prague by Skanska

Czech investment activity limited by a low supply of product Gary J. Morrell

The Czech Republic continues to be the leading CEE investment destination along with Poland and could be considered the most stable CEE country with the lowest risk profile and some of the lowest yields in the region. However, a low supply of investment-grade assets is putting a brake on investment volumes in addition to the negative impact of the pandemic. “With regard to investment in the Czech Republic, there is a shortage of products on the market to cover the excess of capital available. Next year will likely see more industrial and retail deals where there is a product,” commented Michal Soták, head of capital markets at Cushman & Wakefield in the Czech Republic.

Investment Guide 2021

The office sector has dominated with the most significant deal in the first half-year the purchase by Deka of Parkview in Prague 4 for €77 million from Skanska. The transaction is the second CEE transaction between the parties over the past 12 months. The LEED Platinum and WELL accredited complex, designed by the New York-based Meier &

Partners, was completed ín 2020 and is close to fully let. Skanska has gone on to undertake the construction of the first 28,000 sqm phase of the 35,000 sqm Port7 on a brownfield site in the Holesvice district of Prague. JLL estimate that €666 million in transactions was concluded in the first half of the year, representing a 12 percent fall in volume

Feature on the previous year. The consultancy puts this predominantly down to a greater level of uncertainty caused by Covid-19, the scarcity of investment product in the markets and the lower average deal size. With the positive indicators, the Czech Republic is regarded as an attractive investment destination. However, activity is limited by both a low supply of quality assets and the high price expectations of vendors. The total investment volume for the first half of the year was €678 million, which is about 20 percent lower than the same period for the previous year, according to Cushman & Wakefield. A similar figure is expected for this year, making the annual volume higher than last year but still far from the volumes achieved before the pandemic. “After a waiting-mode period, investors started to be optimistic again regarding the economic recovery, and they still possess a significant amount of capital to be deployed on the market. However, investment activity remains low, particularly due to the lack of product caused by reduced development activity across all real estate sectors,” commented the consultancy. Avison Young has traced €790 million in investment volume for the first half-year. Although this represents a year-on-year fall on the previous year, the consultancy argues that this is misleading as the previous year was dominated by the €1.3 billion purchase of the Residomo residential portfolio by the Swedish Heimstaden Bostad.

The largest recent office transaction outside of the capital was the acquisition of the 30,000 sqm, fully let Karolina park in central Ostrava by the Czech Rt Torax Group from the Czech developer and investor, Passerinvest Group for €80 million. Passerinvest is developing what could be the tallest building ín the Czech Republic on an adjacent plot. Domestic capital is continuing to dominate investment activity in the Czech Republic with local capital constituting 53 percent of investment volume in the first half-year, according to JLL. Cushman put the proportion of domestic capital at 43 percent of the total investment followed by purchases from German and Israeli investors. Activity in the industrial market is also low with only three deals and a decrease in volume for the first half-year compared to the previous year, this is despite the strong investor interest in the industrial sector. The largest deal was the purchase of the Czech component of the Arete portfolio, by the Singapore Cromwell European REIT for €51 million. “Investor activity and appetite for this investment product continues to be strong, however, it is limited by a lack of supply of product,” said JLL. As elsewhere in the region long term industrial tend to hold onto their product on a long term basis. The retail sector had the fourth largest volume reflecting the caution shown by investors to this sector as investment volume at €68 million fell by 60 percent for the first half

Czech Republic

compared with the previous year. However, with the opening up of shopping centres, the sector is attracting interest from investors and deals are anticipated this year. The residential sector achieved second place in terms of investment volume with €125 million, the residential sector has seen increasing activity. “The residential will feature more heavily as a number of transactions are underway, being sold to international institutions, this market segment is expected to become a new pillar of the investment market as an increasing number of funds allocate funds to BTR acquisitions,” commented Avison Young. Avison Young estimate that 44 percent of investment has been undertaken by Czech investors, 12 percent by Austrian investors and 10 percent by German investors. “Over the past five years, in particular, we have seen a greater number of domestic investors targeting not only their own domestic markets but also other markets in the region. The ratio (percentage) of domestic (national) to international capital between 2016 and the first half of 2021 in the Czech Republic is 32:68 compared to 45:55 for Hungary,” said Kevin Turpin, regional director of CEE research at Colliers. With regard to the divide between the proportion of domestic and foreign investors, Michal Soták comments that last year the proportion of domestic to foreign investors was 72 percent versus 28 percent. This year, the proportion is tending towards for-

€1.3 billion purchase of the Residomo residential portfolio by the Swedish Heimstaden Bostad

Investment Guide 2021

Czech Republic

Feature

eign capital which has accounted for 46 percent, namely because of the Arete portfolio bought by the Singapore fund Cromwell). JLL put prime office yields at 4.25 percent, prime industrial & logistics at 4.75 percent and shopping centres at 5.25 percent. Prime high street retail stands at 4 percent. Yields for office and industrial are the lowest in the CEE region.

“I expect lower transaction volume than in 2020 which was €1.4 billion (excluding residential properties). This year, I expect investment activity around €1 billion, with office transactions being the most frequent, reaching a circa 50 percent share,” said Michal Soták.

“A lack of available investment properties is the single limiting factor influencing transaction volumes, ever greater than the Covid-19 virus,” concluded Avison Young.

The PRS market is growing

MICHAL SOTÁK Head of Capital Markets, Cushman & Wakefield Czech Republic I do not expect a significant change from the current trend of low activity and high pricing. There will likely be more industrial and retail deals next year, but the overall trends will remain. Hotels and prime retail in Prague still suffer from depressed travel levels and lower office employees’ mobility. Other than that, all sectors have performed admirably well despite, Covid-related disruptions, retail in particular. With regard to products to meet investor demand, there is a shortage of adequate products on the market, insufficient to cover the excess of capital available.

Investment Guide 2021

Slovakia

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Slovakia is attracting both local and international investors to Bratislava and regional cities

Slovakia records healthy investment figures Gary J. Morrell

The total investment volume for Slovakia in the first half-year reached an estimated €538 million (including land), the second-best half-year in the history of the Slovak commercial real estate market. This already surpasses the total for 2020, a year impacted by the pandemic situation, according to JLL. Investment deals have been concluded in the office, industrial and retail sectors in both Bratislava and regional cities outside the capital. Both domestic and Czech capital has played a significant role in the completed transactions.

The main contribution to this high transaction volume is the purchase of the 56,600 sqm Aupark Bratislava shopping centre from Unibail-Rodamco by a consortium of the international investor, Wood & Company and the Slovak investor, Tatra Asset Management (TAM), who acquired an initial 60 percent of the complex for €270 million. According to

Investment Guide 2021

the agreement, the remaining 40 percent will be purchased over 2022, 2023 and 2024 and the total stake will constitute €450 million. “We will continue to develop the shopping centre in order to maintain Aupark as a market leader in the premium shopping centre segment. This will continue to fulfil our expansion strategy and plan to enter

other CEE countries, taking the opportunities created by the disruption of the ongoing pandemic and develop our portfolio further,” commented Martin Smigura, investment director & head of Slovak RE operations at Wood & Company, on the deal. Prime retail stock in Slovakia stands at around 2 million sqm, 64 percent consists of

Feature shopping centres and 28 percent retail parks, with the majority located in the Bratislava, Kosice, Zilina and Nitra regions, according to JLL. Prime shopping centre stock totals 1.3 million sqm. A further 160,000 sqm is under construction including the 70,000 sqm Nivy Mall and 25,000 sqm Eurovea extension in Bratislava. Slovakia is attracting both local and international investors to Bratislava and regional cities, although further development of the investment market is limited by the small size of the country and in common with other countries in the region, Slovakia suffers from a low supply and availability of investment-grade assets. However, significant office and mixed-use development are ongoing in Bratislava and industrial and retail park development in regional cities could provide investment-grade assets to meet the strong investor demand. “Demand remains strong for office, industrial and retail park stock but supply is limited. As a result, yields have compressed in the office, industrial and retail park sectors,” says Avison Young. Retail constituted 53 percent of the total in the first half-year, followed by industrial with 25 percent and office with 21 percent. “It is important to mention that Slovakia is no exception in the global trends and we see a continuation of demand from international capital for logistics/warehouse (various sources of capital, from institutional investors to developers) and prime core office as-

sets, in both of which cases demand greatly overpasses supply,” comments JLL on the investment asset supply and situation. However, further development of the markets is limited by the size of Slovakia. “The main obstacle to further market growth in the short term will be the supply of quality product. Secondly, it is the depth of the market itself, given its relatively small size, the volume of deals, or in monetary terms, is often insufficient to attract bigger players as they either lack evidence (in terms of their benchmarks) or they have fears regarding secondary liquidity,” comments Marian Fredric, head of Slovakia at Cushman & Wakefield. The year has also seen a growth in the proportion of domestic capital. “The increase in the share of Czech and Slovak investors is mainly due to the acquisition of the Aupark shopping centre in Bratislava through a joint venture between Wood & Company and Tatra Asset Management. In addition, the increase is also due to the growing activity of small and medium-sized local investors, for whom we record an increased appetite for retail assets in particular. Some investors and developers are active in the region as both investors and developers are even looking at the western markets of Germany, UK, and Spain and so on,” added Marian Fredric. In a major office deal, the Slovak-based JTRE sold the 17,000 sqm Zuckermandel office and retail development to the newly formed fund, Erste Realitna Renta. The deal

Slovakia

sets a new prime yield on the Bratislava office market according to consultants. The current modern office stock in Bratislava stands at almost 2 million sqm, around 60 percent of which is class A. The vacancy has risen to 12 percent and there is currently 170,000 sqm of new office space under construction, most of which is in the city centre. In another office deal, Wood & Company completed the acquisition of BBC 1 & 1 Plus from CA Immo. Further, outside the capital in Kosice the Czech and Slovak investor, Intefi Capital, purchased the Cassovar Business Center 1 for €30 million. The complex consists of 13,000 sqm of office space and 7,000 sqm of retail. JLL put office yield in Slovakia at 5.5-5.75 percent, shopping centres at 6.25-6.5 percent and industrial at 5.75-6 percent. Avison Young estimate office yields at 5.3 percent, industrial at 5.75 percent, shopping centres at 6 percent and retail parks at 7.25 percent. The industrial & logistics sector has formed a stable source of investment volume in Slovakia. The largest recent industrial transaction is the purchase by Cromwell European REIT from the Czech-based Arete group of a portfolio consisting of 11 properties, the major part of which, at 93,000 sqm is spread in four locations across Slovakia. The adaptation of online shopping has accelerated industrial development in Slovakia and there is now around 340,000 sqm of space under construction in 13 projects according to Cushman & Wakefield. Around

Eurovea in Bratislava by JTRE

Investment Guide 2021

Slovakia

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200,000 sqm of this is preleased with an overall vacancy rate of 8 percent. Total industrial stock in Bratislava stands at over 3 million sqm, according to JLL. In another industrial deal, CTP further expanded its presence in Slovakia with the purchase of Immorent Zilina, a combination of standing assets and development land. The purchase consists of existing buildings in addition to the possibility of the development of 145,000 sqm of space on completion. CTP

plans to expand its portfolio in Slovakia to 1 million over the next two years. “Compared to last year, we expect a significant acceleration in investment activity, and the total volume of investments in commercial real estate should exceed €750 million. We see a number of transactions underway across all segments and therefore we expect exceptional year-end volumes,” said Marian Fridrich.

“For the second half-year we expect investment activity to continue and depending on the timing and successful closing of deals, annual volumes to reach anywhere between €550-€1 billion,” concluded JLL.

BBC1 office complex in Bratislava

MARIAN FRIDRICH Head of Slovakia, Cushman & Wakefield Local domestic mutual funds that invest in commercial real estate have enjoyed significant growth over the last couple of years that has elevated them to the leading positions in the investment arena, thanks to their growing capacity and experience. This year we still see strong demand from Czech capital, which traditionally enjoyed common history and understanding of the local market. However, western capital is also tapping in, most visibly in the industrial market via platform deals.

Investment Guide 2021

Romania

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CTPark Bucharest

Romania investment expected to make a comeback Gary J. Morrell

Romania has some of the most attractive yields in the region, while compression is expected for premium assets, which are attracting increasing interest from investors, according to market analysts. Bucharest is the most popular investment destination in the country followed by Timisoara and Oradea.

The office sector is the dominant investment destination with 64 percent of the first half-year investment total followed by the industrial sector with 24 percent and the hotel sector with 9 percent, according to JLL. Total office stock in the Bucharest office market stands at over 3.7 million sqm with

Investment Guide 2021

an overall vacancy rate that has risen to 10.5 percent according to JLL. There is a massive pipeline of 250,000 sqm forecast for this year, although several projects are expected to be pushed back. On the investment market, developer Atenor sold the 75,000 sqm fully leased Hermes

Business Campus in the capital to the CEE investor, Adventum Group. The company is also planning to sell the @Expo office complex. The development and successful sale of the phased Hermes Business Campus reflect the strategy of the developer, the development and sale to investors of large-scale,

Feature phased office projects. According to Avison Young Romania, the office sector is expected to continue to dominate the Romania investment market. In another significant office transaction in Bucharest, S-Immo acquired the 38,000 sqm second phase (Campus 6.2 and 63), consisting of two interconnected buildings from Skanska for €97 million. Campus 6 is a phased, 81,000 sqm office project and the first WELL accredited office development in Romania, according to Skanska. The first 22,000 sqm phase of the project was sold to CA Immo for €53 million. Also, in the office sector, UNIQA Real Estate purchased The Light One from River Development for €56 million. In another deal, Immofinanz bought the Bucharest Financial Plaza in central Bucharest from BCR (part of Erste Bank) for €36 million. The largest recent industrial transaction was the acquisition of the Catalyst industrial portfolio consisting of two assets in Timisoara, one in Arad and one in Caransebes by CTP, the largest industrial player in Romania, from the British Catalyst Capital for €23 million. “The limited activity in the industrial segment is due to a lack of product as the market is dominated with strategic players who very rarely sell,” commented JLL. Avison Young predict that the transactional pipeline reveals that the contribution of the industrial and logistics sector to the overall investment activity might be significant this year. “This will be supported mainly by investors’ plans to further expand their local portfolios to accommodate retailers’ expansion plans as consumer trends towards e-commerce have generated the need for more warehouses.” The stock of industrial space in Romania has broken the 5 million sqm threshold and will reach around 5.5 million sqm this year, according to CBRE. The largest market is the Bucharest area with a total stock of 2.3 million sqm say CBRE figures. Romania now has a developed nationwide logistics network. Globalworth acquired Industrial Park West Arad and Industrial Park West Oradea from Globalvision. Although the major institutional investors have not entered the Romanian market, foreign investors represent a high proportion of investors representing 61 percent of investment volume while some local investors are active, according to Avison Young Romania. “If we were to look at recent years, the average share of domestic investors in total has hovered around 20 percent, with

a peak of 28 percent in 2019. It is important to note that only recently did the local real estate market start seeing more and more domestic investors active, and we view this trend as a sign of capital accumulation; this process takes time – bear in mind the Romanian economy only just took off after joining the EU in 2007. Either way, as the Romanian economy will continue to expand in the following years and ‘produce’ wealth for local entrepreneurs, so too will their need to park excess cash, hence, more domestic investors. We do not have any signs that Romanian investors are looking abroad for the moment, though there might be some sporadic transactions from time to time, based rather on

Romania

opportunity rather than an active interest,” said Anca Merdescu, associate director of investment services at Colliers Romania. JLL put prime office yields at 7 percent, retail at 7.25 percent and industrial at 8 percent. Prime yields could potentially come under pressure for logistics and potentially office. “Back in 2007-2008, Romania had yields similar to those in Poland or the Czech Republic and a percentage point above Germany’s for prime office yields. Now, nearly a decade and a half later, despite having one of the fastest growth rates in the EU (probably topped only by Ireland, but outpacing all CEE countries), Romania’s prime office yield is some 4 percentage points higher than

Green Court purchased by Globalworth from Skanska

Investment Guide 2021

Romania

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Germany’s. In our view, this situation creates the premise for a continued downward move for yields in Romania, particularly for the good/prime income-producing assets,” commented Anca Merdescu. Analysts expect investment volume for the year to be at levels similar to the €900 million recorded in 2020. Colliers expectations for 2021 hover around €700 million, but a lot depends on whether or not projects will close. “We expect that investment volumes in 2021 will be close to the total registered

in 2020, although in this period-accurate predictions continue to be difficult to make. Nevertheless, with the vaccination process going strong and considering the significant amount of side-lined capital targeting real estate these forecasts may improve,” says JLL. “Despite the very favourable economic results, Romania probably suffers from a misguided perception among (potential) investors and this is not just true for real estate markets. Still, given the robust returns, the domestic economy has been deliver-

ing for the past decade and a half, it is only a matter of time before things turn around. Besides the perception issue, Romania also suffers from certain structural limitations inhibiting the development of certain submarkets, notably public infrastructure, but there is some hope that things might be finally changing in the subsequent years,” concluded Anca Merdescu on prospects for the investment market.

ANCA MERDESCU Associate Direct of Investment Services, Colliers Romania While there is a lot of room for surprises, given the still-elevated inflation and Romanian investment yields still offering a healthy premium versus other European peers, we tend to believe that next year is shaping up to be a good year for the local real estate market. The Romanian real estate market is very interesting for regional investors, especially for those who already have a presence in the market, like Austrian listed funds. There were a few entries of new investors either buying directly or in a JV with an already existing player, all of them being return driven. The better the supply of products will be, the bigger the chances of having also the core investors (i.e. German funds) entering the market.

Investment Guide 2021

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CEE Investment Awards

EuropaProperty announces the short-list for the CEE Investment Awards all LIVE & ONLINE - October 21, 2021

Alicja Tandecka

EuropaProperty is proud to host the 11th annual EuropaProperty CEE Investment Awards. This annual spectacle is one of the most important and valuable real estate events in Central and Eastern Europe. This year the forum and awards gala will be organised using a hybrid-style concept incorporating traditional face to face meetings at the Intercontinental Hotel in Warsaw with an ONLINE component (via the CEO Networking Platform). “We at EuropaProperty have become pioneers as well as innovators in the field of events. Bringing people together has never been more important and this year’s CEE Investment Awards and CEO networking forum will create a unique opportunity for everyone to be entertained and share the experience of a highly coveted event, whilst learning about the developments and trends which will help shape the ‘new normal’ going forward. So, I’m very pleased that we have now established ourselves as the number one awards event organisers,” commented event organiser and publisher of EuropaProperty, Craig Smith.

Before this current crisis investment into CEE was registering substantial increases, and expectations were that investment volumes would reach and exceed previous record volumes, with all of CEE expected to perform strongly. However, while the impact of the coronavirus pandemic on the real economy has been dramatic, market experts are cautiously optimistic that transaction activity can and will resume as normal. In terms of asset classes, investors are drawn to the core / core+ sectors but the market may witness a new wave of capital targeting opportunities occurring off the back of any signs of distress. Core and core+ real estate investors will continue to be attracted by high specification office buildings in key CBD locations with low vacancy. Convenience retail and last-mile logistics assets in densely populated areas, and high specification logistics warehouses in markets with high or rising e-commerce penetration will continue to attract investors. Residential and multifamily assets in cities and regions with supply shortages will also remain key for investors.

The event is the only one of its kind with a real focus on the investment market with awards for top investors, investor/developers, bankers, projects and specialized service firms. Nominations were made online and an independent jury carried out the process of deciding between the nominations for the award categories. The members of the jury are all experienced real estate professionals and are from every sector of the commercial real estate in the region. The shortlisted finalists will have their entries scrutinized and the jury then votes to decide the winners on the night before the gala at a jury dinner held LIVE at the Intercontinental Hotel and ONLINE via the latest digital technology. The event auditor, “EY”, oversees the voting process.

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The Investment Awards Gala will be presented in front of a live audience

CEE Investment Awards Shortlist for 2021 INVESTOR OF THE YEAR RESIDENTIAL Cornerstone Investment Management BLD Homes Zeitgeist Asset Management OFFICE Adventum International AFI Europe CA Immo CPI Property Group GTC REInvest Asset Management WAREHOUSE Accolade Group Blackbrook Capital CBRE Investment Management Crescendo Real Estate Advisors

Cromwell European REIT European Logistics Investment Fortress REIT Savills Investment Management WP Carey INVESTMENT ASSET MANAGEMENT COMPANY CBRE Investment Management Crescendo Real Estate Advisors Savills Investment Management Zeitgeist Asset Management JV INVESTOR Accolade Group Cornerstone Investment Management Gloriette Investments Limited Griffin Real Estate

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CEE Investment Awards

OPPORTUNISTIC Griffin Real Estate IMMOFINANZ WING WP Carey VALUE ADD CA Immo Crescendo Real Estate Advisors BLD Homes WOOD & Company CORE Adventum International AFI Europe CA Immo Cornerstone Investment Management IMMOFINANZ One United Properties REInvest Asset Management

INVESTMENT DEAL €100 MILLION + Acquisition of 8 retail parks in Serbia and the Czech Republic by IMMOFINANZ Acquisition of 9 high-class office buildings located in Warsaw by CPI Property Group AFI Europe acquired NEPI’s Rockcastle office portfolio in Romania Cromwell European REIT (CEREIT) acquired 11 logistics and light industrial properties in the Czech Republic and Slovakia The sale of Belgrade office portfolio to Indotek Group by GTC Griffin Real Estate sold four retail parks, completing the final of the three tranches of the “M1 portfolio” transfer to EPP Hermes Business Campus acquired by Adventum International Sale of Evosoft and Ericsson HQs to GTC €50-100 MILLION AFI Europe acquires Avenir Business Park Acquisition of a fulfilment logistics centre in Poznan by Blackbrook Capital Acquisition of Postępu 14 office building by CA Immo Griffin Real Estate sells six retail properties to a confidential buyer

CEE Investment Awards

Regional

Griffin Real Estate and Madison International Realty announced a joint venture investment in Germany Fortress REIT acquired ELI Park 1 in Romania Indotek Group acquired 4 offices from IMMOFINANZ in Poland SEB headquarter in Vilnius was acquired by REInvest Asset Management Acquisition of a Castorama Distribution Centre by Savills Investment Management UNDER €50 MILLION CBRE Investment Management acquired 7R Park Poznań East and 7R Park Sosnowiec K-FLEX BTS - Crescendo Real Estate Advisors Fortress REIT acquired two modern logistics parks in Poland M&A DEAL Acquisition of Spravia( previously Budimex Nieruchomości) by Cornerstone Investment Management and Crestyl Group Griffin Real Estate and Kajima acquired a 72% stake in PAD-RES Sale of NEO Property Services subsidiary by WING

PROJECT OF THE YEAR

HOTEL PROJECT BB Hotel - WING - Hungary Crowne Plaza & Holiday Inn Express Warsaw (The HUB) - Ghelamco - Poland The Marmorosch Autograph Collection - Apex Alliance - Romania FUTURE PROJECT DL Tower - DL Invest - Poland Gatchina Gardens - Gloriette Investments Ltd - Russia The Bridge - Ghelamco - Poland Tbilisi Outlet Center - Georgian Outlets & Resort Group/TORG Group - Georgia WAREHOUSE PROJECT Diamond Business Park Ursus - White Star Real Estate - Poland SEGRO Industrial Park Wrocław - SEGRO - Poland WEBER Panattoni BTS - Panattoni Europe -Poland RESIDENTIAL PROJECT BudaPart Homes ‘E’ - Property Market - Hungary Fabryka PZO Mieszkania - White Star Real Estate - Poland Metropolitan Garden - WING - Hungary

Regional

CEE Investment Awards

One Mircea Eliade - One United - Romania Secret Gardens - BLD Homes - Bulgaria TRIAMA Residence 1 - Speedwell - Romania MIXED-USE PROJECT BudaPart neighbourhood - Property Market - Hungary Crowne Plaza & Holiday Inn Express Warsaw (The HUB) - Ghelamco - Poland One Floreasca City - One United - Romania Record Park - Speedwell - Romania RETAIL PROJECT Atrium Reduta (redevelopment) - Atrium European Real Estate - Poland BEO Shopping Center - MPC Properties - Serbia Eperia Shopping Mall (phase 2) - JTRE - Slovakia Etele Plaza - Futureal - Hungary Vendo Park in Piekary Śląskie - Trei Real Estate - Poland OFFICE PROJECT AFI TECH PARK 2 - AFI Europe - Romania BudaPart CITY - Property Market - Hungary Evosoft HQ - WING- Hungary Mississippi House and Missouri Park - CA Immo - Czech Republic One Tower - One United Properties - Romania Park Lane Office Center - Park Lane Developments - Bulgaria Skyliner - Karimpol - Poland USCE Tower Two - MPC Properties - Serbia X20 office - White Star Real Estate – Poland Warsaw UNIT - Ghelamco – Poland

COMPANY OF THE YEAR PROFESSIONAL SERVICE PROVIDER Applover ecoCoach Geodetic Howden Group L/E/I Transactions Loredo RES

ARCHITECTURAL FIRM Epstein PRC Architects Tetris Poland X Architecture & Engineering

M&A ADVISOR AIRR Excalibur Capital Maconis

CEE Investment Awards LOGISTICS COMPANY DSV Solutions Frigo Logistics M.B.B. Logistics Raben Logistics MANUFACTURER Alumetal Aluprof EasyRobotics Flex Haizol Toyota Motor Group LAW FIRM Allen Overy Dentons Miller Canfield Penteris Rymarz Zdort Smolarek, Rogala, Caban (SRC) Wolf Theiss HOTEL OPERATOR Apex Alliance Hotel Management & Development Cycas Hospitality Intercontinental Hotels Group Radisson Hotel Group CONSTRUCTION COMPANY CFE Kajima Karmar

BANK Aareal Bank Helaba pbb Deutsche Pfandbriefbank Pekao Bank TITLE INSURANCE PROVIDER DUAL Asset First European Title Insurance Marsh Polska TAX AND FINANCIAL ADVISOR MDDP PwC TPA Poland PROJECT MANAGEMENT COMPANY APP-Projekt Arcadis Avison Young Gleeds PROPERTY MANAGEMENT COMPANY CBRE CPI Property Group Crescendo Real Estate Advisors Cushman & Wakefield Master Management

Regional

PROPERTY MANAGER OF THE YEAR Andrzej Borówka Avestus Anna Jaskaniec - CBRE Artur Dresel - CBRE Małgorzata Sęk - BNP Paribas Real Estate SERVICED OFFICE PROVIDER Mindspace myhive - IMMOFINANZ New Work Offices LOCAL AGENCY 108 AGENCY AXI IMMO Corees Hamilton May CORPORATE AGENCY Avison Young CBRE Cushman & Wakefield JLL Savills HOTEL DEVELOPER Apex Alliance Hotel Management & Development Ghelamco Group Intercontinental Hotels Group WING

Regional

CEE Investment Awards

RETAIL DEVELOPER AFI Europe Equilis MPC Properties Trei Real Estate RESIDENTIAL DEVELOPER BLD Homes One United Properties Property Market Speedwell WING WAREHOUSE DEVELOPER CTP Invest Panattoni Europe SEGRO

OFFICE DEVELOPER AFI Europe DL Invest Echo Investment Ghelamco GTC MPC Properties One United Properties Park Lane Property Market Speedwell WING CITY

Katowice Lodz Poznan Opole

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OVERALL AWARDS

OVERALL INVESTOR OF THE YEAR PROFESSIONAL OF THE YEAR Michal Cwiklinski - Avison Young Robert Dobrzycki Panattoni Europe Beatrice Dumitrascu - One United Properties Arvi Luoma - Blackbrook Capital Mihai Paduroiu - One United Properties Nebil Senman - Griffin Real Estate Yitzhak Hagag - Hagag Development Europe

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