5 SEP 2017
The results for Q2 2017 show that Hungary and the Czech Republic continue to post the strongest overall results.
The vast majority of respondents expect new investors to enter the market with the presence of local and CEE investors predicted to increase across the region in the year ahead.
The RICS Occupier Sentiment Index (OSI), an overall measure of occupier market momentum, returned a positive reading in each CEE country tracked within the RICS Commercial Property Monitor.
Hungary continues to post the strongest overall results, albeit the index eased somewhat from the first quarter’s record high. Tenant demand continued to increase robustly across the board, while availability of leasable space declined further. Rental growth projections were broadly unchanged compared to Q1 2017, coming in at 3.5%.
The Czech market gathered significant momentum over Q2 2017 with the OSI rising from +25 to +39, which is the strongest reading since the survey was formed in 2008. Solid demand growth, particularly in the office sector, has pushed near term rent expectations noticeably higher, with prime office and retail rents anticipated to rise sharply over the year to come. Projections for secondary locations, however, remain subdued.
Elsewhere, robust results were again reported in Bulgaria, with rising demand being met with a modest decline in availability. This is expected to translate into an increase in rental values across all areas of the market in the 12 months ahead. Rental growth prospects remain firmest in the prime office sector.
Meanwhile, although still comfortably positive, momentum appears a little more modest in Croatia. In Romania, availability continues to rise, despite reasonably strong demand growth, which is weighing on near term rental growth projections. Further out, however, respondents envisage rents rising across each segment (to a greater or lesser degree) over the next 12 months. By way of contrast, rents across secondary locations in Croatia are anticipated to remain flat at best, while prime sub sectors exhibit positive projections, with the strongest growth expected across prime retail space.
In Bulgaria, the Czech Republic and Hungary, development starts continue to rise significantly in the office sector, with the majority of respondents reporting an increase in new construction activity.
Hungary and the Czech Republic remain the two countries with the most upbeat investment outlook, as captured by the RICS Investment Sentiment Index (ISI), an overall measure of investment market momentum.
Hungary posted yet another record high ISI reading, at +48, while the Index came in at +45 in the Czech Republic. Domestic as well as foreign demand continues to rise sharply in both cases, driving near term expectations for capital value gains. In the Czech Republic, the outlook for the next 12 months is mostly flat across secondary locations, while in Hungary all sectors exhibit firm capital value projections.
Although ISI readings across Bulgaria, Croatia and Romania remain less robust than in the aforementioned markets, each country did see momentum strengthen slightly in the latest results. In fact, twelve month expectations across Romania and Bulgaria are pointing to robust capital value growth over the next year, with growth expected across both prime and secondary assets. Meanwhile, the picture is more mixed in Croatia, with only the prime retail and office sectors expected to see material growth, while the outlook is flatter across all other segments of the market.
In all five CEE countries the majority of contributors feel that the market offers fair value at present. It is worth noting, however, that in Romania a large share of respondents still feel that the market is undervalued, while in the Czech Republic the number of respondents who see the market as expensive increased significantly.
Credit conditions improved further in all five countries, with the majority of contributors reporting some degree of improvement. Only some respondents in Romania noted a more challenging financial environment.
In response to an additional question included in the Q2 2017 survey, a large majority of contributors across all five nations reported that they expect new investors to enter the market over the next year. The strongest return was Bulgaria (100%), while the Czech Republic’s share of 81% was the lowest. Likewise, a near unanimous majority in each market expects the presence of local and CEE investors to increase in the year ahead.
When asked what sources of capital respondents expected to be present in the local market over the next twelve months, the top answer for Bulgaria was South African capital. In Croatia and Romania, the largest share of respondents expect CEE cross border transactions to dominate the market over the next year, while in the Czech Republic and Hungary the relative dominance of local investors is expected by RICS professionals.
RICS Regional Manager, Central & Eastern Europe
t +36 20 262 88 91; e firstname.lastname@example.org
RICS Head of Media and Communications, Europe
t +32 2 739 42 27; e email@example.com