BRIEFING: Positive growth ahead for CEE offices

Rental growth in the office sector is attracting record numbers of investors to Central and Eastern Europe.

Rental growth in the office sector is attracting record numbers of investors to Central and Eastern Europe, delegates heard at the Investment Briefings’ CEE and Europe Outlook Briefing, which was held in Warsaw earlier this week.

‘Rental growth is the most important trigger for institutional investors to buy into the story,’ said Anna Duchnowska, senior director asset management, Invesco Real Estate . ‘We cannot count on further yield compression, but rental growth will attract investments.’

Looking ahead prospects are good, she said: ‘I am very positive about offices in general’. There is still a substantial yield spread with Western Europe and the real prospect of rising rents.

For these reasons the office sector ‘will see the most activity and the most positive growth story this year’, said Luke Dawson, managing director & head of capital markets CEE, Colliers International. ‘I am happy with where CEE is, we are in a good place and we have a good couple of years ahead of us.’

CEE and Europe Outlook 2019 panel

The office sector is evolving fast. The co-working trend has reached CEE and in Warsaw, in particular, the sector is growing, with many big deals being signed for 10-15,000 m2 spaces. 

The problem is lack of product, especially in Poland and in the Czech Republic, which is driving prices up. ‘It is very difficult to buy something,’ Duchnowska said. ‘We were bidding for two assets in Prague last week and we lost. There was a massive queue of investors ready to buy, especially domestic investors who understand the market better and are much more aggressive in terms of pricing.’

‘We are very cautious,’ Duchnowska said. ‘It is like retail: it has to be profitable. In the Q22 office tower in Warsaw, for example, 10% of the space is co-working and it’s 100% occupied, because all start-ups want to be in that building. But having 70%, 80% or even 100% of a building devoted to co-working it’s a very different story. It can easily become a problem.’

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