ee investment market trends sept 2013

EE Investment & Market Trends September 2013

2

Outline

• Eastern Europe in Context

• Investment Volumes/Deal-flow

• Finance, Pricing and Values

• Office Trends

• Retail Trends

• Logistics Trends

Eastern Europe in Context

3 West Europe East Europe Turkey

Source: Colliers International

Investment Deals [1,895]

91.7% 7.7% 0.6%

Investment Deals [2,710]

88% 11% 1%

Office Stock [350 million m²]

65% 34.5% 0.5% 65% 34.3% 0.7%

Office Stock [315 million m²]

Eastern Europe in Context

4 West Europe East Europe Turkey

77% 19%

89% 10% 1%

Investment Volume [€155 billion]

88% 11.5% 0.5%

Investment Volume [€67 billion]

2007 2012

GDP [US$20,134 billion]

81% 16% 3%

GDP [US$20,924 billion]

77% 19% 4%

50% 41% 9%

Population [843,744 million]

• Long-term potential is very strong!


5

Historic Transaction Volumes


0

50

100

150

200

250

300

350

0

2

4

6

8

10

12

14

16

18

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (H1)

No

of

De

als

Bill

ion

s

Regional Total (Volumes) Regional Total (Deals)

• Volumes on the way back up, driven by large deals in Russia, Poland

• Number of deals on the way down?

6

Big Deal Distortion


Major EE Deals (Post-crisis)

Russia

€815 million: Galeria Shopping Centre, St

Petersburg

€770 million: White Square, Moscow

€487 million: Ritz Carlton, Moscow

€288 million: Ducat Place, Moscow

Poland

€475 million: Manafaktura, Lodz

€390 million: Zlote Tarasy, Warsaw

€412 Silesia City Centre, Silesia

Czech Republic

€365 million: VGP Portfolio, Prague

€275 million: The Park, Prague

€1.5 billion: Europolis Portfolio

Warsaw Financial Centre

€210 million

Buyer: Allianz RE / Tristan

Capital Partners

Vendor: CA Immo AG /

Pramerica REI

Metropolis SC, Moscow

€869 million

Buyer: Morgan Stanley REI

Vendor: Capital Partners

7

Deal Volumes by Country Deal Volumes by Country:

2009+


• Post-crisis: Russia, Poland & Czech Republic.

• Pre-crisis: Poland dominated: Czech Rep, Hungary & Russia about even,

r/o Tier 2 locations ‘didn’t quite get started’.

Poland

Russia

Czech

Republic

Hungary

Hungary

Deal Volumes by Country:

Pre 2009

29%

17%

17%

17%

7%

4% 3%

2% 2% 1%

Poland Hungary Russia

Czech Republic Romania Bulgaria

Slovakia Serbia Ukraine

Croatia

Czech

Republic

Russia

Poland

8

The (2012) Result of Banking Reform


• Baltics improving; Hungary also improved in the last 2 months

• New debt funds’ (and banks) yet to infiltrate majority of CEE, bar Poland

• Banking debt availability positive in Russia, Poland, Czech Rep & Slovakia

Office Yields: EE v Germany

9

• Yields offer a discount to Germany, allowing for some country/liquidity risk

• Warsaw on a par with Madrid, which has seen an investment surge in Q2

• Are Tier 2 yield discounts enough relative to the perceived/actual risks?

Tier 1 Cities Tier 2 Cities

300 bps enough?

Capital Value Indices

10

• Office values remain way below 2007 peak: both Tier 1 & 2.

• Retail values now above peak in Tier 1; Tier 2 again ‘below par’

0

20

40

60

80

100

120

140

160

2006/Q

1

2006/Q

3

2007/Q

1

2007/Q

3

2008/Q

1

2008/Q

3

2009/Q

1

2009/Q

3

2010/Q

1

2010/Q

3

2011/Q

1

2011/Q

3

2012/Q

1

2012/Q

3

2013/Q

1

Tier 1 Office Value Index Tier 2 Office Value Index

Prime Office Capital Value Index Prime Retail Capital Value Index

0

20

40

60

80

100

120

140

160

180

2006/Q

1

2006/Q

3

2007/Q

1

2007/Q

3

2008/Q

1

2008/Q

3

2009/Q

1

2009/Q

3

2010/Q

1

2010/Q

3

2011/Q

1

2011/Q

3

2012/Q

1

2012/Q

3

2013/Q

1

Tier 1 Retail Value Index Tier 2 Retail Value Index


11

Office Market Position: Avg. Vacancy & Rents

Vacancy Avg.

Secondary Rent Avg.

Prime Rent Avg.

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

'07/Q

2

'07/Q

4

'08/Q

2

'08/Q

4

'09/Q

2

'09/Q

4

'10/Q

2

'10/Q

4

'11/Q

2

'11/Q

4

'12/Q

2

'12/Q

4

'13/Q

2

€/ m² %

• Prime rents – recent fall in Warsaw a short-term blip

• Secondary rents still ‘bumping along the bottom’ , vacancy ‘flat’


12

Office Market Position: Stock & Vacancy

• Varying levels of market maturity across the region (working population)

• Operational vacancy not as high as headline figures suggest

• Obsoletion driven by need for quality space


NVR Band

Office Stock + Active Pipeline/ per Capita Population Working Age

GDP Growth Forecasts: 2014

13

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Latv

ia

Turk

ey

Lithuania

Esto

nia

Russia

Pola

nd

Rom

ania

Ukra

ine

Slo

vakia

Bulg

aria

Czech R

epublic

Hungary

Cro

atia

Slo

venia

• A return to economic growth will improve all market conditions

• Driving take-up/absorption, supporting rental growth across the board

EU Forecast

%

Source: Focus Economics/ Colliers International

14

Market Position of Retail Sector

Traditional Shopping Centre Stock & Pipeline 2012 [per capita, m ²]

Nordic Avg.

Europe Avg.

• TSC retail reaching capacity, growth possible in other retail forms

• Multi-channel strategies yet to really impact (Russia 35% growth forecast)

Traditional Shopping Centre Stock & Pipeline

H1 2013 [per thousand capita, m²]


9.0%

4.0%

4.4%

7.6%

8.2%

13.1%

13.7%

18.9%

25.0%

25.6%

31.9%

42.5%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Russia

Czech …

Croatia*

Germany

EU (28)

UK

Bulgaria

Romania

Poland

Latvia

Estonia

Hungary

Online Retail Sale Annual Growth Rate 2011 - 2012

* 2011 growth rate

Source: Eurostat

Technology

inventory/customer analysis requires capital investment

Shipping & Returns

customer loyalty costs up to 100 bp on gross

margins

Fraudulent Claims

costs money estimated

US$8.9 billion (2012)

Space Rationalisation

can be counter productive;

less traffic = lower sales

In-store fulfilment

can counter balance reduced ‘free

shipping’

15

Multi-Channel Balance Essential

Clicks or Bricks?

Both!

US market to see more prototype stores opening in 2013 – wait & learn

16

Amazon’s European Footprint

New centres 2012 :

• Pforzheim, Germany (110,000 m²)

• Koblenz, Germany (110,000 m²)

• Chalon-sur-Saone, France (41,800 m²)

New Centres 2013:

• Calais, France (90,000 m2)

• Brandenburg, Germany (65,000 m2)

• Castel San Giovanni, Italy (60,000 m2)

• Prague??? Where next??.....

• Ozon growing in Russia

Source: Amazon/Colliers International

“Hot spots” for manufacturing

Intentions regarding production capacity in the next three years

Increase in production capacity

Stable production capacity

Decrease in production capacity

USA / Canada

37% Western Europe

52% EE + Russia

+ Turkey

48%

China

44%

India

37%

Japan

31%

Latin America

30%

Africa & Middle

East

26%

Rest of Asia

33%


Summary Slide

18

Pro’s

• Long-term investment horizon

• Property values below peak/par

• Bank finance conditions

improving?

• Office market trends better than

headlines suggest

• Some pockets of retail yet to be

tapped into

• Industrial/logistics market has

strong growth potential

Con’s

• Perception of some markets a

barrier to entry

• Lack of depth in local capital

markets

• Yields may need to soften in Tier 2

cities?

• Is there enough product?

• Retail becoming saturated and

challenging for non-dominant

centres

19

• Bond volatility leading to increase in CRE allocations

• But safe-haven bond yields rising (US T-bills driving the change)

-4%

-2%

0%

2%

4%

6%

8%

10%

Prime Office Premium

EU-Prime Office Yields

10-year German G'ment Bond

Major Driver of Property Investment


Damian Harrington

Regional Director, Research & Consulting

Colliers International, Eastern Europe

[email protected]

+358 400 907972

mailto:[email protected]

ee investment market trends sept 2013

Business