For most European countries, 2020 is lost, and the depth of the decline depends from state to state.
Colliers International Croatia, Slovenia & BiH presentsthe real estate market to a wider audience through a webinar series jointly referred to "2020 - what impact has it had on the market and what else can we expect from it?" each Monday at 10 AM, lasting 30 minutes, with yesterday being the last webinar in the cycle.
Managing Partner Vedrana Likan and Partner & Director Filip Vučagić consolidated all real estate market sectors and presented investment trends in the final presentation.
Globally, the health situation remains unfavorable. But despite the current circumstances, vaccines and social habits give us hope that COVID-19 is a temporary trend with a certain lifespan. From the economic side, for most European countries, 2020 is lost, and the depth of the decline depends from state to state. Croatia, a country whose GDP depends mostly on tourism and the tourist season, will have the biggest decline. However, we expect a recovery and a higher growth rate in the years ahead. "We predict that prime properties by quality and location and from more attractive sectors such as logistics will get the best out of the circumstances, while from an investment perspective it will take longer for a retail, HTL and entertainment property to recover, as well as a B and C-class property." explained Filip Vučagić, Partner and Director at Colliers International Croatia, Slovenia and BiH.
The fall in GDP in all countries has led to an escalation of the deficit and public debt, but at the same time, EU member governments and central banks have tried to maintain the economic picture through various monetary and fiscal stimulus so as not to lead to a negative cycle. It was these incentives that regulated liquidity and allowed moratoriums on debt repayments and tax liabilities. What did this mean for property owners and users? The real estate sector has handled the crisis well - taking into account that property owners have not been forced into quick-moving decisions and under-price property sales, while most landlords have been able to negotiate or extend the terms of their long-term contracts. Also, when it is certain that the health crisis is behind us and that countries are slowly but surely returning to the pre-COVID state, it will be too late to enter the market since market players will stay for the entire period.
NPL (non-performing loans) have been absent due to central banks' implemented measures, the way banks make loan repayments and moratoriums on debt repayments. Although work will be done to avoid them, there is a high possibility that they will exist because this health crisis has had a substantial impact on the economy. The period in which they will appear will be through 2021, but not through portfolios, but as individual cases with not so low discount prices as we remember from a few years ago.
The trend of investment volume in the first quarter of 2020 surpassed the previous years, and during the summer, it would seemingly begin to fall and create a deflection. It's even more apparent when we look at the number of transactions. What contributed the most to this was the difficult and prohibited travel because in order to buy a property, it needs to be analyzed on the spot and the location felt. Nevertheless, it is uncertain how it will play out in the last quarter's investment market , which is traditionally most active.
Yields in Croatia in parallel with CEE region
Unlike countries such as Poland and the Czech Republic that are more liquid and have safer yields, Croatia counts a much smaller number of transactions, if any at all, but follows the CEE region trend with small risk premiums on yields in the office and retail sectors, while the logistics sector is stable.
"The era of cheap and available money continues, which means that yields will remain stable if even not compressed. We also believe that control over the health situation will contribute to economic recovery and liquidity. At least in the upcoming short period, what will surely change is that the number of buyers will decrease. International buyers will remain active in our local and regional markets. Still, we believe that they will focus more on their domestic markets because of the difficult travel, which will allow higher yields.", predicts Vučagić.
Investments in commercial real estate sectors
Offices remain a value generator for companies and a focus on investor demand. The industrial and logistics real estate sector is a fundamental winner of the health crisis. The pay and labour cost gaps in China, Far East and Eastern Europe are starting to even out and the value chain is one of the most critical factors why manufacturing is promisingly closer to Europe.
Retail shouldn't be generalized when we talk about losing investor interest. Shopping centers have indeed lost their power, but that is why retail parks are a great interest and this is for the sake of easy transforming into, for example, logistics spaces.
Tourism has proven its strength throughout history, so surely the losses suffered by hotel operators this tourist season will only be recorded as one passing phase. What comes to light is the alternative refurbishment of budget and city hotels into so-called hybrid hospitality. However, hotels are still in the interest of investors and transactions in the HTL sector will undoubtedly occur.
Low development yields were the reason for stagnation of further development in all real estate sectors. We expect investors to start with the demand and development of logistics real estate, including the office sector. Development in the residential sector will inevitably occur, taking into account the healthy economic picture and the lack of new construction.
"Despite many global companies choosing to work from home until further notice and the growing popularity of Work from Anywhere among digital nomads, offices will remain a value generator for employers. No mode can replace the synergistic effect of being in the same space, creativity and innovation. A large part of our efficiency depends precisely on experience, contact and work with colleagues around us." Concluded Vedrana Likan, Managing Partner of Colliers Croatia, Slovenia and BiH.
