CEE Region CEE investment volumes on the slide

The first quarter of 2023 saw CEE-6 investment volumes decline by about 57 pct y-o-y. This is marginally better than the wider European figures, where the decrease was 62 pct.

Volumes across CEE were some of the lowest levels recorded since the GFC. Poland still secured a 50 pct share of Q1 2023 volumes, followed by the Czech Republic with 31 pct. Interestingly, Romania and Bulgaria both had a better start to the year than in 2021 and 2022.
Kevin Turpin, the CEE regional director of capital markets at Colliers

A meaningful recovery still rides greatly on an improved inflationary and interest rate environment to close the pricing mismatch.

With a lack of evidence in the market, it remains a challenge for all market players to pinpoint where yields currently are. This then leads us to provide a more sentiment-based, in-house view, taking current market conditions into account. Amongst other things, these need to address the various elephants in the room, such as interest rates, ESG compliance and structural changes to occupier markets, for some sectors.
Kevin Turpin

All-in financing costs are currently somewhere between 5 and 6 pct, driven by significantly higher interest rates from just twelve months ago, as well as the costs of other financial tools such as interest rate swaps. In addition, the previously generous spread between other investment strategies, such as bonds, has diminished and also caused investors to pause and reassess their portfolios and strategies. Industrial and logistics reclaimed its leading spot over offices and retail in Q1 2023, as activity cooled off and the lack of product being marketed became more apparent. Major transactions included Panattoni's disposal of over EUR 300 mln in assets in Poland. In the retail sector, Trei divested its supermarket portfolio in the Czech Republic and Slovakia for over EUR 200 mln.

Despite the reduced levels of activity, the dominance of domestic capital prevails with CEE capital being responsible for 53 pct of volumes, most notably Czech (41 pct). International capital is still seeking opportunities in the region; however, the combination of fewer opportunities being openly marketed, and the widely discussed macro and financing challenges are currently causing many to put decision-making on hold. As a result, we can expect to see a similar trend for the remainder of the year.

The global outlook remains quite mixed: while we are starting to have more clarity on inflation, this does not necessarily mean more clarity on rates or the threat of a banking crisis and a potential credit crunch in advanced economies. Other geopolitical and Covid-related crises remain in place, which explains why the global economic outlook, along with the CEE-6’s outlook worsened a bit compared to a few months ago. That said, as long as no external event is driving a material downward shift in economic activity in the Eurozone, we would expect the CEE to continue to outgrow their Western partners over the long term thanks to EU funds and an attractive business backdrop.