We live in an age of cities. In emerging markets, they are hubs of explosive growth in production and distribution facilities. In the developed world, cities have reinvented themselves as vibrant live-work-play destinations. We’ve compiled the second edition of this report so that those looking to invest in gateway cities in EMEA regions can quickly and easily understand pricing and market conditions.
The CEE Market Outlook 2016 analyses the results of 2015 in regards to investment, office, retail and industrial for Central and Eastern European countries and presents the forecast for 2016.
- Economic growth is the norm for almost all CEE countries, at a speed above that of Western Europe countries.
- The dominant cyclical factor is consumer spending, which is currently benefiting from a host of positive factors.
- Investment Volumes in CEE should be at minimum similar to those from 2015 (EUR 9.978 billion, except Russia).
- Historical high office demand is registered in almost all CEE countries, driven mostly by IT & outsourcing international occupiers.
- Buyont retail market, on the back of rise in private consumption, leading to tenants turnover increases and interest from investors in retail products.
- Even if industrial demand is reaching historically high numbers (in some cases up 65% compared to 10 year averages), there is limited speculative development.
- Hungary is a country that has grown under the radar for the past 12 – 18 months. With a number of indicators looking very promising – well past the region average –, we make a case for Hungary as the go-to-destination in 2016.
From a real estate perspective, global gateway cities offer many benefits. Their attractiveness to people and businesses means that space demand in their commercial real estate markets increases steadily over the long term, underpinning rent growth. These cities are also highly liquid markets, where real estate investments can be readily bought and sold. We have compiled this new report so that those looking to invest in one or more of the world’s great cities can quickly and easily understand pricing and market conditions.
• E-commerce growth, changing consumer requirements, and a rise in automated technology are restructuring supply chains and changing the logistics landscape in Europe
• Making maximum use of a site is critical with strong pressure to store and handle as many units as possible whilst being in close proximity to core markets
• Not only can operations save on cost of land, they can also benefit from a cut in labour and transportation cost if they build vertically as opposed to outwards, or searching for cheaper space further afield
• CBRE has identified two main categories of vertical solutions likely to dominate the European logistics sector; high-bay structures and multi-level warehouses
• The uniformity of the goods handled in an operation is identified as the main factor in deciding on one of these vertical solutions
Online retail is here and it’s not going away. Retailers have to cope with the changing dynamic of the consumer. The requirement and expectation for high levels of service in store are also reflected in the offline world. The challenge for online is that the only area where the consumer can ‘feel’ the service is in terms of delivery. The delivery either meets expectation or it doesn’t. A number of key take outs are evident:
Consumers expect everything to work properly – the website, the delivery and return mechanics
Convenience and price remain key
Retailers need a clear omnichannel strategy – the retail, logistics and marketing aspects have to work together
‘Free’ delivery will only be sustainable for a few – customers want excellence in service whether that be in store or online – it’s about value not about being pseudo-free
Christmas and Black Friday is not the right time to make dramatic changes to delivery options or to technical infrastructure – get it right before these key times hit
Promising something and not delivering is far worse than never promising at all
Customers want to click-and-collect
Customers do not want to pay for the privilege of visiting a retailer’s store to collect something they have bought
A great online site is meaningless without an equally great logistics operation in place
In a general sense, e-commerce is strengthening the already visible polarisation of demand for warehouse space: large central hubs vs last mile parcel centres (‘demand dumbbell’)
There are no linear logistics responses to the various online delivery models; trial-and-error and hybrid tailor-made operations dominate, leading to a more prominent role for logistics service providers
The emphasis on convenience, customer satisfaction and an efficient return management is expected to lead to a more intricate network of last mile solutions: both parcel hubs and pick-up/drop-off sites.
The recent equity market volatility has focussed many minds on downside risk but there are good reasons to expect that European property will outperform other assets in 2016.
Office leasing is still in an early stage of recovery in many European countries/cities, and occupier demand will continue to improve as the economic recovery continues.
Office vacancy rates fell at the fastest rate since 2007 in 2015 and are expected to fall further in 2016 helped by a so-far limited development response in most markets.
The dichotomy between high performing prime and struggling secondary retail will remain in 2016 but at least rising retail spending on the back of higher real disposable incomes will be of some benefit to all retail.
There is increasing emphasis on city logistics property with investors as well as occupiers attracted by the necessity of these properties in e-commerce supply chains.
Germany is seen as a safe haven for global capital. Demand for real estate on the increase gives reason to expect further high transaction volume in 2017.
Employment numbers in the service sector continue to increase, resulting in record office letting take-up volumes in 2016. Above all, in the top cities modern office space is in short supply and is driving a further rise in rental prices.
For many years, the retail investment market has been characterised by unwavering strong demand and a decreasing availability of product. As a result, investor focus is shifting increasingly to alternative investment opportunities.
Thanks to the continued robust fundamentals, the initial signs for 2017 are positive for both the logistics letting and investment markets.
There is an upswing in Germany’s hotel sector thanks to the solid economic growth and rise in the numbers of guest overnight stays.
Institutional investors are increasingly focussing on healthcare, which is a highly cyclical but fast-growing investment niche, but requires detailed market knowledge because of the statutory legislation involved.
The German residential market is becoming increasingly popular among national and international investors. The action scope of investors is expanding on second tier cities, project developments and the student housing Segment.
Logistics space with high potential in a central location
The logistics property market in Linz and surrounding areas comprises a total stock of 1.8 million sq m as of March 2017
Around 57% of the logistics space is concentrated in the submarket Linz West
Logistics stock within the greater Linz area is characterised by a balanced share of class A and class B logistics properties
The development of the logistics location Enns was driven by the extension projects of long-established logistics companies, the settlement of multiple logistics providers around the harbour area and a comprehensive tri-modal development project
The minimal growth of new class A business centers in the rental market in Q1 2017 had a slight effect on the vacancy rate. The vacancy rate in class B office centers remained unchanged. The rental rates increased in comparison with December 2016: + 9% in Class A and + 10% in Class B. The main demand is formed by companies of IT, oil and gas sectors.
Deficit of newly constructed speculative warehouses. Low activity in built-to-suit segment. The majority of lease transactions is accounted for trading companies (54%). The vacancy level is 5.4% (150,000 sq m). Supply in the sublease market is growing.
In 2017 any new large shopping centers are expected to be open. Only small shopping centers in residential areas and separate standing hypermarkets are under construction. The vacancy level decreased and amounted to 7%. The budget and premium segments of food retail chains are actively developing. New restaurant and cafes appear. Development of segment of multi-brand stores.