The fourth quarter should be less active

In its latest Global Capital Markets report, Collier’s analyzed investment volumes in the Central and Eastern European region. According to the overview, investment volumes for the first three quarters of 2022 in the CEE region increased by 3% year-on-year, but a notable slowdown compared to the second quarter was recorded.

Due to strong activity in the first quarter, partly spilling over from last year, investment volumes for the first three quarters of 2022 amounted to 7.5 billion euros. Year-end 2022 volumes could reach between 9 and 10 billion euros reveals a report by Colliers: “CEE Investment Scene Q1-Q3 2022”.

Individually, most countries saw slightly improved year-on-year results, with Hungary recording a 53% increase. However, the generally strong fourth quarter is expected to be less active as there is less product on the market, amid high funding costs and a continued period of price discovery. In terms of activity, Poland has secured 58% of CEE volumes so far in 2022.
Kevin Turpin, Regional Capital Markets Manager, CEE

Despite the lack of evidence in some markets, we started to see downward moves in prime yields between 25 and 50 basis points initially. The cost of funding has risen rapidly over the last quarter, with total costs now hovering between 500 and 600 basis points and could rise further if the ECB raises its key rates further to fight inflation.

We are also seeing similar responses in other markets across Europe, with the UK and other Western European markets generally adjusting faster than in CEE. As indicated in our October report, we could expect a 0-30% correction in capital values, depending on how other factors come into play over the next 6-24 months.
Kevin Turpin, Regional Capital Markets Manager, CEE

According to the Collier’s report, ECO flows by sector. The office sector continued to hold the top spot with a 38% share of volumes from Q1 to Q3 2022. Logistics remains in high demand but is held back by a lack of product. Retail saw shares in two major portfolios change hands. Otherwise, we still see a lot of interest in PRS/Living assets, however, they also remain scarce. With much higher mortgage rates and declining sales, we could see developers turning to rental products.

CEE domestic capital has been the most active so far in 2022, with a 35% share of total volumes. Czech and Hungarian capital continue their momentum with respectively 19% and 10% of the total regional volume. Capital from the CEECs combined was responsible for more than 10% of volumes in Poland.
Hungarian capital investing in Hungary accounted for 80% of its volumes and Czech capital was responsible for 56% in its own market. This is followed by North American (27%) and European (22%) capital, although in general we have seen a slowdown or tendency to withhold international capital as prices correct.

The risk of recession is increasingly likely in many parts of CEE and Europe as winter approaches. In addition, high inflation is causing a lot of problems, and not only in the CEECs, caused by the energy, oil and food crises triggered by the war in Ukraine, in addition to an already delicate economic context following the pandemic.

As a result, central banks have raised interest rates to help counter rising inflation, which, in the meantime, has a huge impact on the cost of consumer products and mortgages, and therefore creates a drop in consumption. Equally, it hurts businesses and their ability to grow amid falling demand for products and services, as well as a workforce calling for higher wages, to cope with a cost of living crisis, further aggravating inflation. At the same time, investors will benefit from higher inflation on rents, but will also be affected by rising debt and operational costs.
Kevin Turpin Regional Head of Capital Markets, CEE

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