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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!
Source: Colliers International
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)
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
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
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
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
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
Source: Colliers International
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’
Source: Colliers International
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
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]
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
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%
Source: Colliers International
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
Source: Colliers International
Damian Harrington
Regional Director, Research & Consulting
Colliers International, Eastern Europe
+358 400 907972