CEE Investment Markets Mark Robinson, CEE Research Specialist 27 - - PowerPoint PPT Presentation

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CEE Investment Markets Mark Robinson, CEE Research Specialist 27 - - PowerPoint PPT Presentation

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CEE Investment Markets Mark Robinson, CEE Research Specialist 27 October 2016 Economic activity buoyant Consumers are suggesting healthy growth outlook to sustain EC consumer confidence in core CEE countries 20 0 -20 -40 -60 -80 May 01

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CEE Investment Markets

Mark Robinson, CEE Research Specialist

27 October 2016

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Confidential – Colliers International 2015 2

Economic activity buoyant

Consumers are suggesting healthy growth outlook to sustain

  • 80
  • 60
  • 40
  • 20

20 May 01 May 03 May 05 May 07 May 09 May 11 May 13 May 15

Poland Czech Rep. Romania Hungary

EC consumer confidence in core CEE countries

Source: Bloomberg

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SLIDE 3

Confidential – Colliers International 2015 3

Transmission into investments intensifying

Consumers a leading indicator for likely investment volumes

  • 40
  • 30
  • 20
  • 10

2 4 6 8 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17

Investment into CEE6 real estate (EURbn) EC composite consumer confidence for CE4 (18-month lagged, rhs)

Lagged composite consumer confidence versus investment volumes into CEE6 ?

Source: Real Capital Analytics, Bloomberg, Colliers International

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Confidential – Colliers International 2015 4

The region is becoming more popular

Share of mind: almost the largest share of EMEA pie for 5 years

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16

% of total EMEA investment volumes into CEE countries

% of half-yearly total EMEA investment volumes going into the CEE6 countries

Source: Real Capital Analytics, Colliers International

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Confidential – Colliers International 2015 5

Longer run convergence potential very much evident

As GDP per capita rises, investment volumes should do so too

Investment intensity versus GDP per capita across Europe

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 10000 20000 30000 40000 50000 60000 70000 Average investment volumes as % of GDP 2009-15 GDP per capita US Dollars 2015 (real, PPP basis)

UK SWE GER CZE POL SVK BULROM HUN ITA SPA FRA NED NOR

Source: Oxford Economics, Real Capital Analytics, Colliers International

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Confidential – Colliers International 2015 6

Impressive volume growth in H1 2016

Activity picked up noticeably across the region

H1 2016 volume growth vs. 2009 H1 – 2015 H2 average

  • Hungary, Poland and the Czech Republic’s

volumes are growing fastest relative to recent history

  • Volume growth is most pronounced in the Retail

arena, at 72%, followed by Industrial at 49%

  • 73%
  • 29%
  • 27%

36% 49% 72%

  • 100%

0% 100% Apartment Hotel Sites Office Industrial Retail

H1 2016 volume pan-region growth by sector

Source: Real Capital Analytics, Colliers International Source: Real Capital Analytics, Colliers International

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Confidential – Colliers International 2015 7

Post-23 June: Investment market still active

Early signs: Poland Q3 slightly softer, others ahead/in line

149 50 23 13 5 13 72 34 12 11 5 9

40 80 120 160 Poland Czech Rep. Hungary Romania Bulgaria Slovakia

  • No. of deals H1 2016
  • No. of deals H2 to date

Number of real estate deals in CEE region

Source: Real Capital Analytics, Colliers International

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Confidential – Colliers International 2015 8

Deal size lower in Poland, higher in Hungary

Early indications suggest Czech and Romania in line with H1 2016

1.7 0.8 0.2 0.3 0.1 0.2 2.5 1.1 0.3 0.4 0.1 0.2 0.7 0.6 0.3 0.2 0.02 0.03 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Poland Czech Rep. Hungary Romania Bulgaria Slovakia 2009 -2015 HY ave. H1 2016 Q3 2016 Deal volume across sectors in key CEE markets (EUR bn)

Source: Real Capital Analytics, Colliers International

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Confidential – Colliers International 2015 9

Strongest dynamics in retail sphere

Firming rents and high occupancy encouraging money in

6.0 6.5 7.5 7.5 8.5 9.5 5.5 5.25 5.75 6.5 7 9 0.0 2.0 4.0 6.0 8.0 10.0 Warsaw Prague Bratislava Budapest Bucharest Sofia Prime TSC yield 2011 Prime TSC yield 2014 Prime TSC yield H1 2016

Prime traditional shopping centre rents (EUR/sqm/mth) Prime traditional shopping centre yields

85 90 38 63 65 32 112 100 39 75 65 34 20 40 60 80 100 120 Warsaw Prague Bratislava Budapest Bucharest Sofia Prime TSC rent 2011 Prime TSC rent 2014 Prime TSC rent H1 2016

Source: Colliers International Source: Colliers International

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Confidential – Colliers International 2015 10

How might the growth train be derailed?

Key risks to the CEE investment story

35% 25% 13% 8% 6% 2% 8%

USA Germany UK

  • S. Africa

Poland Sweden Other

Origin of investors in 2015

  • The shadow of Brexit

› investment sentiment and currency effects › EU disintegration risk › The rise of Russia

  • EU banking crisis
  • Reversal in interest rates as QE disappears

› Efficacy in EU is under question › Distortions in EUR credit markets nonsensical

  • Real estate cycle is long in the tooth already

Key risks Diversified..

Source: Colliers International

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Confidential – Colliers International 2015 11

The Brexit shadow – currency disturbance

Currency volatility, asset market volatility, political uncertainty

0% 5% 10% 15% 20% Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 GBPUSD monthly volatility

20-day daily volatility of GBPUSD cross rate 20-day daily volatility of EURUSD cross rate

0% 5% 10% 15% 20% Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 EURUSD monthly volatility

?

0% 5% 10% 15% 20% Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 EURPLN monthly volatility

20-day daily volatility of Euro-Zloty cross rate ?

50 60 70 80 90 100 110 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 ITRAXX 5Y Crossover Index (short ETF)

European credit risk – nothing priced in

?

Source: Investing.com

34%

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Confidential – Colliers International 2015 12

Financial yield gaps generally wide

Some room for interest rates or bond yields to rise

  • 4
  • 2

2 4 6 8

  • vs. short term interest rates (Max)
  • vs. long term interest rates (Max)

All-sector weighted real estate yield gaps versus short and long term interest rates (%)

Source: Colliers International, Oxford Economics

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Confidential – Colliers International 2015 13

Yield levels in CEE region not stretched

Ranking absolute risk, some CEE countries marginally expensive

2 4 6 8 10 12

20 40 60 80 100 120 140

Colliers Political-Econ-Demog Score Weighted Yield (Max %, rhs)

European countries political, economic, demographic factor rank vs. weighted prime yields

Source: Colliers International, Oxford Economics

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Confidential – Colliers International 2015 14

Conclusions

External risks evident but not fatal to story

Key risks

  • The shadow of Brexit
  • EU banking crisis
  • Reversal in interest rates as QE disappears
  • Real estate cycle is long in the tooth

already, stretching valuations Growth drivers

  • Strong internal demand, especially consumer
  • External underpinning from Germany and

potential bottoming of EM fund outflows

  • Investment intensity rising as convergence occurs
  • Prudent macro and leverage management in

region encouraging “flight” to perceived safety / higher yields

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Colliers International | Prague Slovansky Dum Na Prikope 859/22 Prague 1 11000 Czech Republic TEL +420 226 536 618 Mark Robinson CEE Research Specialist | Prague +420 226 537 646 mark.robinson@colliers.com

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Confidential – Colliers International 2015

485 offices in 63 countries on 6 continents

United States: 146 Canada: 44 Latin America: 25 Asia Pacific: 186 EMEA: 84

$2.1

billion in annual revenue

1.46

billion square feet under management

15,800

professionals and staff

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