Most CEE investors prefer the office market, but industrial and logistics spaces gain popularity

Newsroom 19/11/2018 | 16:34

Romania has remained an attractive real estate market for new or existing investors in Central and Eastern Europe (CEE) region, boosted by rising purchasing power and dominated by retail and office space, according to the KPMG Barometer on Real Estate Lending.

”We are seeing a note of optimism in Europe regarding real estate financing projects, which is also found on the Romanian market. This is reflected in the approach of the banks in Romania, considering that the majority included in their strategy the financing of the real estate sector as a pillar of growth. However, there is a general concern caused by the high uncertainty in the political and economic environment that could have an impact on the development of real estate financing activities,” said Ionut Mastacaneanu, the coordinator of the KPMG financial services team consultant in Romania.

The study aims to assess the prospects of lending to European markets and describe attitudes towards lending specific to each of these countries – Austria, Bulgaria, Croatia, Cyprus, Czech Republic, Hungary, Ireland, Netherlands, Poland, Romania, Serbia, Slovakia, Slovenia and Sweden.

The survey included 70 bank representatives from the 14 countries included in the report. Barometer makers believe external risks such as Brexit might have some effects in the future in some markets.

”The total investment volume in the first six months of this year decreased by 19 percent compared to the first half of 2017, reaching a value of nearly EUR 110 billion, the lowest level of the first half of 2014 so far, the more likely because many of the transactions in the first half of the year are still unfinished,” explains consultants.

According to them, markets in both regions are currently affected by similar factors, such as interest rates, which have fallen steadily in Central and Eastern Europe.

The respondents’ preferred property classes indicated, however, there are still key differences between Western European creditors compared to those in the developing CEE markets.

Residential properties are preferred by lenders in developed markets, such as the Netherlands, Austria or Ireland, according to respondents. Most CEE respondents have expressed their preference for the office segment, but the industrial and logistics class gains popularity, especially in countries such as the Czech Republic, Romania and Slovakia, as a result of the strong economic recovery in these markets in recent years.

Hotels also seem to be the least-favored property class among options, although Cyprus and Croatia are the exception to this rule, with economies strongly influenced by tourism.

”The recent rise in the European economy will probably continue, albeit at a moderate pace. The unemployment rate is decreasing, incomes are rising but so is the inflation rate, which could affect the medium-term interest rate, tensions in the global market, difficult negotiations for Brexit and an unresolved crisis of migration in Europe are risk factors for long-term growth prospects, ”explains Ori Efraim, partner, head of Real Estate, KPMG in Romania.

Another piece of good news is, according to the Barometer, that the number and value of bad loans are falling in Central and Eastern Europe. The proportion of performing loans, without delays in payment, in the portfolios of Central and Eastern European banks has become much higher, exceeding 85 percent in most countries. Romania is among the top performers, with a 95 percent rate. In comparison, four years ago, in only two countries, banks had over 85 percent of outstanding portfolio loans.

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