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How to Capitalize on Real Estate Opportunities in CEE Markets

by PropTech Connect

PropTech Connect Webinar: How to Capitalise on Real Estate Opportunities in CEE Markets

On Wednesday, 28th of February, Michal Bílý, Head of Research - CEE at 108 REAL ESTATE, Andreas Kozma, Founder & CEO at iREMS International AG, and Michal Sotak, Partner, Head of Capital Markets CZ & SK at Cushman & Wakefield, joined us on this session about the opportunities ahead in CEE markets.

It was a pleasure hosting our fantastic speakers and learning a about where the market is going and where the opportunity lies across the real estate industry.

In case you missed it, here are some key quotes from this week's webinar.

The session recording can be accessed through the link here:

Webinar Highlights

  • Current Trends: Where are we now in the CEE markets?

Michal Sotak: "We are definitely in a period of increasing optimism and improving sentiment, and the long-term expectation is that interest rates will go down. (...) In CEE, yield levels are around 6% and financing costs are 4.5%, so there is clearly room for improvement and for yields to sharpen. Also, in Czech Republict the Czech Crown interest rates are going down, which will lead people to move away from the money market and to put more money into real estate funds so the local funds will see increasing flows this year. These funds compose 60%-80% of activity in Czech and they are a big part of the activity in Poland. Therefore, the combined drop in Euro interest rates and Czech interest rates will lead to increased activity and optimism on the real estate market in the city."

Andreas Kozma: "We are definitely seeing the silver lining on the cloud. After last year's gloomy mood, now we are seeing increased activity. After a period where margins are squeezed for real estate funds and there's less safety buffer in the deals, it becomes clear that data and the cost of acquiring it becomes quite important. It is important to have vertically integrated high accuracy data across the value chain that is available in dashboards that update automatically. Overall, it is really exciting to have a digital twin of the building in financial terms which is almost as fast as the reality itself."

Michal Bílý: "We have also seen a spike in investment deals. In fact, we saw that the first two months of 2024 were definitely better than the whole 2023. Although I don’t think interest rates are getting down to what they were like before, it will be interesting to see when interest rates will get back to a more attractive level for investors."

  • Factors Influencing Changing Landscape: What drivers influence the changing real estate landscape the most?

Michal Bílý: "In the Czech Republic, a very important topic is the new construction law aiming to make it easier for investors and developers to find a land plot, get the building permit and get the construction on the way to deliver premises to the client as fast as possible. For example, the European Union recently approved the microchip law in the EU, and now a Taiwan-based semiconductor manufacturing company will build a factory in Germany which will require subcontractors from Czech Republic and other countries in the region. These large scale projects are seen more and more by governing bodies as strategic assets, which will impact the real estate landscape."

Andreas Kozma: "In the last couple of years in Central Europe, tax authorities have become more strict. Although this means that bureaucracy has increased and this put a significant system burden on operators of real estate operators, it has also put more pressure on industry players to innovate, automate and to bring in the electronic invoicing. There is also new sustainability regulation, which not only requires more information to be gained and analyzed around energy consumption, but also information around methods of commuting for example that needs to be collected and reported."

Michal Sotak: "Nowadays, everybody accepts that sustainability is an absolute priority. Three years ago, people were discussing whether they should make their assets greener. I think that discussion is now completely gone. The only question is how much needs to be done, and generally the answer is as much as possible. If you can increase the energy efficiency of your building, you will simply invest into those areas because that is the money that you can get immediate return on investment because the preference for green product on the market is extremely strong."

"The key question is now around occupation, and this simply cannot be ignored. Historically, there has been a lot of transparency when it comes to retail. We know how many people come into the shopping center, through which entrance, you know the turnovers of each individual tenant and their rent to sales ratio. Now, we are getting transparency in the office sector, where we see beyond just the tenant and the lease agreement and we can actually see how many people occupy the workstations in many cases. If you don't see that on individual asset level, we can see that on the market level thanks to various benchmarks and data collection opportunities that we have."

  • Data Transparency: Real Estate data is becoming more accessible and reliable. What are the implications of this?

Michal Sotak: "One of the challenges that Western capital faces when investing in CEE is that there are several relatively small countries that have their own laws, cultures, and other specifics. This makes it very difficult for Western investors to build portfolios that can be easily managed at scale, and this is where technology can help. Technology can help you manage a large portfolio of assets in Czech, Poland, Slovakia, Hungary, and this will definitely improve the perception of the region as it addresses the challenge of market fragmentation in Central Europe."

Andreas Kozma: "With iREMS, we provide a platform which gathers data from various countries and adapts to country-specific legal environments. It provides a homogeneous and abstraction layer of the financial data that allows you to view your entire CEE portfolio combined even with Western European assets, all in one dashboard. This helps you basically to abstract away the differences. (...) There are multiple case studies for generative AI in real estate, but that is all publicly available information. This is not going to help you with your internal financial information, you still need to clean-up your data and technology can really help you with this."

Michal Bílý: "I personally that the main impact is the changes in processes. Previously, it was all about having the information that no one else can access. Now, in the digital era, information accessed is much more balanced and the focus is on updating data quickly and effectively to apply it where it has a higher impact. It’s all about data distribution across the company and the business environment ecosystem. Companies need to set up effective processes, have the right tools available, and instruct people on how to work with the data available."

  • Future Trajectory: What is your advice to RE Investors looking to enter CEE markets?

Michal Sotak: "The opportunity is in sectors where there is high capital demand, where you can build at a cost that is lower than the exit values in order to make profit on development, and where there is a good occupational story that attracts Western investment. The industrial development sector in Poland is where all these factors are positive, and I expect Western investors as well as local and regional investors to invest into it. And when you look at project costs in Polish industrial versus the capital values, you can definitely make money on that sector. This is where I expect most activity this year."

Michal Bílý: "I would like to advocate for manufacturing, because I think it is a very good indication of our geopolitical situation across the world, as well as projects connected to decarbonization goals. We saw how the war in Ukraine influenced the gas supplies and prices of electricity, and after that there was increased activity on solar panels and heat pumps. Also, the rising tension between China and Taiwan led the USA and Europe to create manufacturing capacities within their borders, which materialised through a massive money injection into this. (...) If I had to rank investment opportunities in CEE, I would say manufacturing, then retail, and then offices."

Andreas Kozma: "Cross-country differences exist not only in the legal environment, but also in lease provisions and leasing conditions, and this puts an additional strain on existing systems because you need to store data that does not come from a unified data source. (...) You need to understand the semantic meanings of that in order to avoid expensive misunderstandings, and reduce the data silos by unifying everything to have a single view."


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