Andrei Văcaru, CEE Head of Capital Markets at iO Partners

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% year-on-year. There was a comparatively smaller decrease in the annual investment volumes in the Czech Republic, with a 27% reduction, while Hungary experienced a decline of 30% year-on-year, as reported by data from iO Partners in collaboration with JLL.

In 2023, the total transactional volume in the five aforementioned countries saw a substantial 54% 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, 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.

“In Romania, the property investment volume in 2023 was approx. €500 million, a 47% drop compared to the five-year average. Interest in retail has made a comeback in 2023, accounting for 58% of this volume, a trend we anticipate will continue. The number of deals above €5 million concluded in Romania in 2023 decreased by a third to 24. Moreover, the average deal size decreased by approximately 40%, to €20.7 million. Domestic investors were only responsible for 23% of the investment volume,” commented Andrei Drosu, Senior Consultant at iO Partners.

An apparent trend noted by consultants in 2023 was 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.

iO Partners (IOP) is a real estate services company headquartered in Vienna, providing a full suite of services in the Czech Republic, Hungary, Romania, Serbia and Slovakia, comprising Agency, Leasing, Capital Markets, Valuation, Project and Development Services and Advisory.

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