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Despite the economic climate, attractive property prices still attract buyers to the CEE region. The CEE investment market shows resilience in high-yield deals.

Jeff Alson • 09/11/2022

“Investment volumes of over EUR2bn for Q3 are substantial, albeit lower than the previous two quarters. This reflects the slowdown in transaction activity experienced since Q1 this year. Key deal closings this quarter (sale of Generation Y, Warsaw office by Skanska (PL), Hillwood’s Project Danica industrial portfolio (PL), and Prime Kapital ‘s sale of its Retail portfolio (RO) are transactions agreed upon and contracted at the start of the year”

- says Jeff Alson, International Partner, Head of CEE Capital Markets at Cushman & Wakefield.

A higher interest rate environment and changing market conditions have adjusted investors' strategies; however, last quarter's volume should increase.

Yields across all sectors have softened and may continue to do so into 2023.

“Higher yielding real estate such as retail warehousing, regional offices, or non-CBD office and some SEE markets are expected to show some resilience as they maintain a positive arbitrage to the new cost of debt. The presence of local capital in these deals and markets also allows for some consistency. Traditional pan-European investors take longer to engage in new transactions,"

- adds Jeff Alson.

Investments in CEE are primarily driven by relative value (price per square meter) and pockets of strong, structural rental growth.


Polish market recorded a strong result during the first three quarters despite the headwinds such as economic slowdown, increasing interest rates, and the war in Ukraine. By the end of Q3 total volumes reached €4.31 billion and were 22% higher than in Q1-Q3 2021. The logistics market is the leading sector, with 60% of the volume’s share in Q3 2022. Price adjustment is observed among all asset classes; however, yield decompression is mitigated by rental growth, especially in the industrial sector. CEE investors are taking advantage of extended decision processes among pan-European investors and have become a driving force in the office sector. 


While the occupational markets are still robust, the investment market has reached a standstill due to uncertainty in all key price-impacting parameters, such as interest rates, energy costs, and rental growth. We expect the activity to be minimal and 2023 to be a year of price discovery.


Increased market uncertainty has slowed transactional activity, impacting buyers’ and sellers’ pricing expectations.  Sellers are unwilling to accept price adjustments commensurate with the shift in interest rates and less favourable debt terms, while buyers are unwilling to commit to unadjusted pricing. While some deals are proceeding to close – e.g., Green Court Offices – these are typically the finalization of long-standing transactions where the terms of finance, etc., may not reflect the realities of what is achievable today.


While the transacted volume and the immediate pipeline remain positive, we have noticed an increasing number of institutional or financial investors postponing their deals or going into a “wait and see” mood. This is also reflected in pricing adjustments, but mainly for B-class assets. We expect a more volatile market where equity investors can perform more favourable deals.


Currently, we register increased uncertainty across the market. Increasing interest rates and rising bond yields create pressure on yields investors are willing to pay for commercial real estate. Across all segments, in the case of more risky assets, yields are rising just mildly up to 25 bps. Further yield increase is expected in 2023 and might already materialize in Q4 2022. As a result, we see our clients either trying to dispose of assets before year-end or postponing planned disposals to a more convenient period in terms of pricing.


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