All major markets in CEE witnessed decreased occupiers’ activity since the onset of the Covid-19 pandemic. However, the impact of the slower demand is relative to the supply development. While new supply stayed strong in Warsaw or Budapest in the last 12 months leading to increasing vacancy rates, the rest of CEE capitals have seen much lower construction activity.
Future development of the office market will depend on how the pandemic unfolds and the vaccination rate. However, some permanent changes in working models seem inevitable. Companies across the region are restructuring their way of working and transferring from full office/full home-office work to hybrid office concepts.
The industrial market continues to power ahead in the current market environment. Retail transformation, the rapid expansion of e-commerce and a focus on diversifying global locations and minimizing the risk of disruptions to distribution chains are the key drivers of demand for warehouse space that continue to fuel the boom in the industrial sector across the CEE region.
Figures confirm the positive growth: quarterly gross take-up grew y-o-y by 80% on average in CEE. In some submarkets, such as Prague or Budapest, available warehouse space gets scarcer than ever, with vacancy rates staying under 3% in the last 12 months.
Many weeks of lockdown, unclear lease status of many tenants, uncertainty caused by the worsening pandemic situation, and the lack of a specific date for lifting retail restrictions have all left their mark on the entire sector in CEE. Many retailers have been restructuring their chains and closing unprofitable stores. On the other hand, new concepts and brands, especially from the mass market segment, have been growing and entering new markets: Half Price, Pepco, Dealz, Action, KiK, and Tedi. Primark will be opening its first flagship store in Prague in June. Current development in CEE focuses on mixed-use projects and retail parks opening in regional towns and cities.
The global hotel sector had undoubtedly faced serious challenges in 2020. Hotels in the CEE were no exception, with average revenues per room down by about 80% across the CEE-6 capitals (Bratislava, Bucharest, Budapest, Prague, Sofia, Warsaw). Unsurprisingly, transaction activity in the region declined significantly, with transaction volume falling by nearly 75%, as many deals were put on hold or withdrawn. However, little distress has yet been seen on the market, buoyed by government support and loan moratoriums. Conversely, investors have been awaiting greater visibility on the market recovery before making commitments. As vaccination rollouts continue and with the market showing signs of optimism around summertime, hotel performance and transaction activity is expected to pick up towards the latter half of the year.