BRATISLAVA, July 8th, 2021 – Total investments in commercial real estate in Slovakia in the first half of the year reached 478 million euros, which almost equalled the volume of investments for the entire previous year. Slovakia continues to maintain its reputation as a safe investment location with competitive yields.
According to preliminary data, the total volume of commercial real estate transactions in Slovakia reached 478 million euros in the first half of 2021, thanks to eight closed transactions, which represents an increase of almost 6% compared to the same period of the previous year. Optimism is growing in the investment market, as evidenced by the increase in the number of ongoing transactions, which should push the total investment volume beyond 700 million euros by the end of the year. This would represent an approximately 40% increase in investment in the commercial real estate sector compared to last year.
This year, there is an increase in interest in the retail property segment, which investors previously avoided last year, mainly as a result of increased investor caution due to uncertainty about the impact of the pandemic on their future development. In the first half of the year, 60% ownership share of the premium shopping centre Aupark Bratislava was acquired by the investment group WOOD & Company and its joint venture partner Tatra Asset Management, thus securing a total leasable area of 59,600 square metres. This acquisition is one of the largest transactions in the Slovak retail market and confirms confidence in the future development of shopping centres in Slovakia.
The pandemic has also brought to retail investments an increased appetite for assets with fewer tenants over longer lease terms, which provide investors with a more stable income in the event of economic fluctuations. These include, in particular, retail parks and retail warehouse units which provide a similar level of risk as industrial warehouses. In both cases, the prime yield is gradually decreasing due to high demand for these types of assets. In the case of retail parks, it is possible to achieve 7% for the most attractive properties, and 7.25% for retail warehouse units. Shopping centres continue to maintain a prime yield of 6% and our outlook for this year is stable. However, most of them are waiting for incomes to stabilize before they are offered for sale.
The industrial real estate sector continues to expand and enjoys the greatest interest of foreign investors among all segments of the real estate market. Due to the significant growth of online sales and the consequent increased demand for warehousing and distribution close to the customer, we expect localized growth in rents in the city logistics segment. The growth of rents in other parts of the country is tamed by the wide availability of land for future construction at various stages of permits, as well as by the growing concentration of competition in industrial hubs. The speed of construction of distribution centres in the range of 6 to 12 months and the availability of land in the hands of experienced developers allows a flexible response to market needs and at the same time reduces the pressure on the growth of rents.
The wide presence of international investors in the sector provides exceptional liquidity, which, combined with the low perceived asset risk, is pushing for a further decline in the prime yield. At present, prime yield for logistics properties has fallen to 5.75% with a positive long-term outlook. Investments take the form of individual as well as portfolio acquisitions and should exceed € 200 million by the end of the year. The Australian real estate group Cromwell has concluded the acquisition of a portfolio previously belonging to the Czech investment group Arete Invest. The Czech industrial developer CTP has expanded its portfolio on the Slovak market by acquiring Immopark Žilina, which is located in an attractive location near Žilina Airport.
The office sector is proving that, despite the pandemic, it is able to maintain investor interest in first-class, modern projects as well as older projects that offer an interesting price-risk ratio. In a low interest rate environment, investors are motivated to allocate available capital (which investment funds operating in Slovakia and abroad report) and therefore we expect the demand for newly built office buildings approaching full occupancy to continue. Newly built, fully leased office buildings with average lease lengths of more than 7 years with strong tenants can achieve a yield rate of 5.50%.
The favourable level of liquidity on the market was also translated into a significant transaction in which the real estate fund Erste Realitná Renta of the management company Asset Management Slovenskej sporiteľne bought the office project Zuckermandel from the Slovak developer JTRE. The transaction confirms the optimistic price development of prime real estate, which is not affected by a general increase in the vacancy rate or a decrease in lease sizes. The Bratislava Business Center 1 and 1 Plus projects were bought by the Wood & Company investment fund from CA Immo, which ceased its activities on the Slovak market. Office transactions did not take place only in the capital, as the Košice office-retail project Cassovar Business Center I was acquired by the InTeFi group from the Czech Republic.
"Assumptions from the beginning of 2021 about increased investment activity have been confirmed. This is also evidenced by the total volume of investment in commercial real estate, which in the first half reached levels approaching the investment volume for the whole of 2020. We record continuing investor interest in assets in all investment segments, where demand for the logistics segment dominates, but which suffers from a low supply of projects for sale. This situation, together with the ongoing activity of investors supported by the economic recovery after the COVID-19 pandemic and long-term low interest rates, creates the conditions for further price growth in selected segments of commercial real estate," says Marián Fridrich, Managing Partner at Cushman & Wakefield Slovakia.
“We are currently seeing the redrawing of the risk of individual real estate segments. While the logistics segment was historically considered the riskiest with yields often exceeding 8%, today investors are comfortable with yields below 5.75%, which is currently an unattainable level for the once least risky shopping centre segment," says Tomáš Némethy, Head of Valuation and Advisory in Cushman & Wakefield Slovakia.