CEE Commercial Real Estate: 2024 outlook shows renewed optimism, after 2023 recorded the lowest investment levels in a decade

The total investment in commercial real estate assets, encompassing office spaces, retail establishments, logistics and industrial spaces, and hotels, across Poland, Czech Republic, Hungary, Slovakia, and Romania, amounted to a mere €5.1 billion in 2023. This figure represents the lowest annual amount recorded in the past decade. Poland, Romania and Slovakia experienced the most significant decline in annual volumes, witnessing a drop of approximately 60 percent year-on-year. There was a comparatively smaller decrease in the annual investment volumes in the Czech Republic, with a 27 percent reduction, while Hungary experienced a decline of 30 percent year-on-year, as reported by iO Partners in collaboration with JLL.

In 2023, the total transactional volume in the five countries saw a substantial 54 percent decrease compared to 2022. The gloomy market sentiment in 2023 was a global phenomenon in commercial real estate markets, driven by tight financial conditions and a deteriorating economic outlook. Persistent high inflation, elevated capital costs in the aftermath of the COVID-19 pandemic, coupled with higher vacancy rates and slower rent growth, prompted increased caution among all market participants, including lenders, vendors, and purchasers, leading to a significant pullback in activities.

“2024 began on a more positive note with forecasts of a stronger economy globally as well as in CEE, expectations of decreasing cost of borrowing and robust performance from the stock markets. This is also reflected in a more intense transactional activity in the real estate market at the start of the year, enabling us to foresee improved liquidity and new price benchmarks that should reduce the bid-ask spread going forward.”, declared Andrei Văcaru (photo), CEE Head of Capital Markets at iO Partners.

Within the countries covered by iO Partners, Romania saw a sharp contraction in investment activity across all asset classes, including a reduction in the number and size of transactions. It is noteworthy that the Romanian market performed exceptionally well in 2022, reaching a record high of €1.2 billion, setting a high baseline for the year-on-year comparison. However, Romania stands out as having achieved the highest transaction in terms of volume, namely LCP’s acquisition of a portfolio comprising 25 retail parks nationwide from Mitiska REIM, successfully intermediated by the iO Partners Capital Markets team.

An apparent trend is the obvious scarcity of large-ticket transactions—those exceeding the €100 million mark. This shortage has significantly impacted the annual transaction volumes. The observable shift in investor focus towards smaller ticket-size deals, which are more easily financeable, comes as no surprise in a high-interest rate environment. This strategic adjustment reflects the pragmatic response to prevailing market conditions.

In reaction to markedly reduced liquidity and challenging financing conditions, a swift repricing has been observed across all commercial real estate asset classes in the region. Prime yields have undergone year-on-year shifts ranging from 50 to 100 basis points in nearly every asset class, potentially reaching their zenith to present a more appealing return profile in the prevailing high-interest rate environment.