CEE Investment Briefing
Kevin Turpin
London, November 6th 2019
Regional Director of Research
CEE | Colliers International
Colliers International 20192
CEE Headlines …
…Economies & Cycles…
…Brexit / Czexit?...
…Cost & Availability of Labour…
…Sovereign Ratings…
…Rising construction costs…
…Political noise…
…Upward pressure on rents…
…CEE’s car industry…
…Flex Space & Co-working…
…Growth of online sales…
…Alternatives…
…Shortage of housing / Price Rises…
…Trade wars… …Supply chain & fulfilment…
…Data & Technologies…
…Land availability & Permitting…
Colliers International 20193
Economic Growth Cooling Across EuropeCEE remains positive but risks are present
GDP (Real)
Growth Forecast
2019-2022 (%pa)
< 1.0%
1.0 - 2.0%
2.0 - 3.0%
>3.0%
Source: Oxford Economics
Colliers International 20194
Retail Sales Outlook is PositiveCEE markets have experienced strong wage growth
Total Retail Sales (US$ PPP)
Growth Forecast
2019-2022 (%pa)
<2.0%
2.0 - 3.0%
3.0 - 4.0%
4.0 – 5.0%
>5.0%
Source: Oxford Economics
Colliers International 20195
Unemployment a Double-edged SwordMany markets face a war for talent
2019 Unemployment Rate (%)
<3.0%
3.0 - 5.0%
5.0 - 7.0%
7.0 – 9.0%
>9.0%
Source: Oxford Economics
Colliers International 20196
CEE Investment flows by Country – 9M 2019Investment flows remain healthy at ca. €9.0 bn … How long will this last?
Source: Real Capital Analytics, Colliers International
Colliers International 20197
CEE Investment flows by Sector - 9M 2019Another record year despite the drop off in Retail? Offices dominate with 59%
Source: Real Capital Analytics, Colliers International
Colliers International 20188
Sources of Capital - 9M 2018 vs. 9M 2019CEE domestic players, WEU and a lot of noise about South Korean capital
Split of purchaser capital by region of origin
Biggest players in past 10 years include:
NEPI Rockcastle, Union Investment, Globalworth, GIC, CPI
Group, Deka, CA Immo, CIC, Pimco, Redefine, Invesco, Reico,
Blackstone, Mapletree, Starwood
Colliers International 20199
Private Equity is Chasing Returns
Source: Preqin
CURRENT PRIVATE EQUITY “DRY POWDER”
Colliers International 201910
Consolidation of Capital
HISTORICAL PE FUNDRAISING FOR EU REAL ESTATE
Source: Preqin
Colliers International 201911
CEE Prime YieldsAlmost all yields have well surpassed pre-GFC levels
Colliers International 201912
CEE PRIME OFFICE YIELD (%) SPREADS ACROSS TO GERMANY AND 10 YEAR EURO BONDS
CEE Remains Attractive Despite Further CompressionHow low can we go?
150 - 500 bps spread to Germany415 - 765 bps spread to 10 year bonds
Source: Colliers International, Oxford Economics
Colliers International 201913
◼ECB to continue with
negative interest
policy
◼Real estate continues
to be viewed as
attractive asset class
vs. bonds (low-yield)
and equities (hi-
volatility)
◼CEE is seen as
attractive given the
current risk / reward
profile
Low Interest Rates & Excess CapitalWhat does this mean for CEE?
Colliers International 201914
Freedom of movement has left some Countries stuck. Return mobility for CEE … is it realistic?
% of CEE6 population residing in EU – 2008 vs. 2018
Source: Eurostat
• Government action and private sector investment should play a role in the boomerang
• Benefits of returnee workers to economic growth and on real estate demand will be material
Factors that could provoke return mobility
Income: faster wage growth in CEE
Costs: cost of living rising faster in W Europe
Currency: FX appreciation vs EUR and GBP
Taxes: Lower personal income tax / CIT in CEE
The “Quality of Life” factor:
Overcrowding, language, status, environment
Colliers International 201915
CEE residential markets continue to inflate rapidlyIt will take interest rate rises or a substantial banking crisis to derail markets
House price inflation as of June 2019 across the EU (year-on-year, %)
Source: Eurostat
Colliers International 201916
What makes CEE so attractive to Corporates?Although narrowing at a fair pace, a significant gap remains.
Estimated Hourly Labour Costs - 2018
Source: Eurostat
Colliers International 201917
The Coworking and Flex PhenomenonA driver or disrupter for CEE?
Source: Colliers, April 2019
Colliers International 201918
The E-Commerce & Supply Chain Impact on Retail & LogisticsCan retail strike the right balance?
Source: The Sequoia Partnership, Prologis
Colliers International 201919
2019-2020 CEE OutlookPositives and Negatives
Negatives
• Despite some headwinds CEE economies are doing well
• Headline rents are increasing in offices and rising across
other sectors (also typically linked linked to EU CPI)
• Wage growth positive for retail
• Development pipeline is strong
• Effect of rate rises on CEE is not immediate as funding
“yield gap” is quite wide. Yields therefore have a little
more room to compress
• Strong occupier markets for office and industrial
Positives
• Rates rising and risk of inflation spike
• E-commerce risk continues for retail (opportunity for
logistics?)
• Wage growth negative for the business services
(BPO/SSC) and industrial
• EU funding reduces as punishment for “populism” or
as a result of EU political instability
• Product availability vs. seller expectations
• Demand > Supply as owners hesitant to sell without
opportunity for redeploying capital
Colliers International 201920
Colliers International Slovansky Dum
Na Prikope 22
Prague 1 11000
Czech Republic
Kevin TurpinRegional Director of Research | CEE
+420 606 725 032
Thank you!