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EE Investment Market Trends Sept 2013

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  • 1. EE Investment & Market Trends September 2013
  • 2. 2 Outline • Eastern Europe in Context • Investment Volumes/Deal-flow • Finance, Pricing and Values • Office Trends • Retail Trends • Logistics Trends
  • 3. Eastern Europe in Context 3West Europe East Europe Turkey Source: Colliers International
  • 4. 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! Source: Colliers International
  • 5. 5 Historic Transaction Volumes Source: Colliers International 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) NoofDeals Billions 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. 6 Big Deal Distortion Source: Colliers International 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. 7 Deal Volumes by Country Deal Volumes by Country: 2009+ Source: Colliers International • 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. 8 The (2012) Result of Banking Reform Source: Colliers International • 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
  • 9. 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?
  • 10. 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/Q1 2006/Q3 2007/Q1 2007/Q3 2008/Q1 2008/Q3 2009/Q1 2009/Q3 2010/Q1 2010/Q3 2011/Q1 2011/Q3 2012/Q1 2012/Q3 2013/Q1 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/Q1 2006/Q3 2007/Q1 2007/Q3 2008/Q1 2008/Q3 2009/Q1 2009/Q3 2010/Q1 2010/Q3 2011/Q1 2011/Q3 2012/Q1 2012/Q3 2013/Q1 Tier 1 Retail Value Index Tier 2 Retail Value Index Source: Colliers International
  • 11. 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/Q2 '07/Q4 '08/Q2 '08/Q4 '09/Q2 '09/Q4 '10/Q2 '10/Q4 '11/Q2 '11/Q4 '12/Q2 '12/Q4 '13/Q2 €/ m² % • Prime rents – recent fall in Warsaw a short-term blip • Secondary rents still ‘bumping along the bottom’ , vacancy ‘flat’ Source: Colliers International
  • 12. 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 Source: Colliers International NVR Band Office Stock + Active Pipeline/ per Capita Population Working Age
  • 13. 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 Latvia Turkey Lithuania Estonia Russia Poland Romania Ukraine Slovakia Bulgaria CzechRepublic Hungary Croatia Slovenia • 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. 14 Market Position of Retail Sector Traditional Shopping Centre Stock & Pipeline 2012 [per capita, m²] 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] Source: Colliers International 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
  • 15. 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. 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
  • 17. “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% Source: Colliers International
  • 18. 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. 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 Source: Colliers International
  • 20. Damian Harrington Regional Director, Research & Consulting Colliers International, Eastern Europe damian.harrington@colliers.com +358 400 907972