Presentation SME Banking conference 24 october 200

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Information about Presentation SME Banking conference 24 october 200

Published on January 30, 2008

Author: Tomasina


Trends and issues in CEE Real Estate:  Trends and issues in CEE Real Estate Sound analysis, inspiring ideas SME Banking conference, October 24 2006 Damo Holt, Manager International Real Estate advisory Content:  Content Short introduction ECORYS Main angle: Institutional investor: portfolio analysis and management Economic trends regional markets and cities Major trends in real estate markets Additional extra: Equity participation/loans /fund management for urban development/ PPP- projects (EIB JESSICA-initiative) Who we are:  Who we are One of the foremost European economic research and consultancy firms ECORYS Group has 18 offices in 11 countries Including CEE (Warsaw, Prague, Budapest), SEE (Sofia), Turkey, Russia ECORYS Group 550 employees Wat we do:  Wat we do Market research, concept development Feasibility studies, risk analysis Commercial due diligence, portfolio analysis Cost-benefit analysis Project management, programme management Technical Assistance/Structural Funds management Monitoring and evaluation etc Who we work for:  Who we work for Public sector World Bank, EBRD, AsDB, EIB etc European Union (eg. SF) National governments, government agencies Provinces, regions Major cities, local municipalities Sector organisations Private sector Developers Building companies (Institutional) investors Retailers Leisure chains Transport and logistics companies Engineering firms Consultancy firms Where we work:  Where we work Countries where ECORYS clients were based 2005 (blue) Slide7:  Angle 1: Institutional investors: portfolio analysis and management Investment strategy from the investors’ point of view:  Investment strategy from the investors’ point of view Market stability Stable economic growth, Political risks, Legal framework, Low inflation and unemployment rate Tax environment Product quality Tenant mix Rental income stability, cash – flow Yield compression Simple basic rules:  Simple basic rules Real estate sector in CEE and SEE boosts, tight ‘sellers’ market But be selective in market choices (both in countries as in products) Economic development CEEC:  Economic development CEEC Source: European Regional Prospects, ECORYS & Cambridge Econometrics * EU 25 = 100 Slide11:  Unemployment rate 2005 in percent in comparison with other East-European countries Quelle: Bank Austria Creditanstalt, Turkey‘s Statistical Yearbook 2004, Financial Times Deutschland/ECE Slide12:  Inflation rate 2005 in percent (annual average) in comparison with other East-European countries Quelle: Bank Austria Creditanstalt, Turkey‘s Statistical Yearbook 2004 Source: Eurostat/ECE Slide13:  Corruption index 2005 in comparison with other (East)-European countries and Germany Quelle: Transparency International Source: Transparency International/ ECE Slide14:  Tax rate corporate tax in comparison with other East-European countries Source: European Commission/ ECE Slide15:  EU 25 = 14.255 € Purchasing power 2005 in € per resident and year in comparison with other Eastern-European countries and Germany Quelle: GfK Source: Eurostat/ECE Ranking urban economic growth I:  Ranking urban economic growth I Source: European Regional Prospects, ECORYS & Cambridge Econometrics Slide17:  Ranking urban economic growth II Source: European Property Development Group (EPD) League table macro-economic indicators:  League table macro-economic indicators Hungary Czech Republic Slovenia Lithuania Estonia Latvia Poland Slovakia Croatia Bulgaria (Sofia!) Romania (Bucharest!) Turkey (Istanbul!) Bosnia-Herceg Serbia Macedonia Albania Ukraine (exc. Kiev) Russia (excl. Moscow) Top Middle Bottom Kazachstan (?!), Kyrgyzstan etc X Note: Often yield compression in many markets, higher yields (including risk premium) in middle and of course bottom of league Market entry analyses/criteria :  Market entry analyses/criteria Current product supply and development pipeline Demand and take up - history and projection for the future Rental rates - history, projection for the future, Currency risks Major tenants on the market and projection of future market entries Major competitors on the market Key competing projects in the segment - existing and those in the pipeline Development conditions for the segment (terms of land acquisition, permitting, etc.) Availability of real estate financing in the market Availability of advisors on the market – i.e. law firms, quality surveyors, agents, etc. Legal framework Retail trends:  Retail trends Consumer spending is increasing at significant rate New developments need high quality to be competitive Large-scale supermarkets/hypermarkets, but future small-scale high profile outlets (deli-type) Big box developments Retail parks offer best development prospects Increasing attention towards thematic shopping malls (accessibility = crucial) Factory Outlet Centres More focus on mall marketing, centre management Simple rule: get the fastest and biggest Slide21:  Shopping Center leasable area per 1,000 residents and expected increase of area within a year in sqm Source: Cushman & Wakefield, 2005/ECE 150,0 55,0 133,1 6,1 91,9 30,0 88,0 10,0 82,7 18,0 80,9 24,5 80,0 20,0 75,0 0,0 10,0 35,0 19,2 5,0 8,9 7,0 7,1 10,0 0,0 1,0 0 60 120 180 240 EE D PL HU SK CZ LV SI LT TR RO RU BG Leisure/tourism trends:  Leisure/tourism trends Important boost in tourism next decade Many new developments in urban+ peripheral areas (hotels, resorts, facilities etc) Multiplex cinema’s Large-scale thematic parks & attractions (seaworld, indoor ski park, etc etc) Luxury wellness centres Golf-residential resorts (!) Marina’s combined with residential (2nd homes) Simple rule: get a high quality formula on a prime location Trends office market:  Trends office market Increase of mixed-use projects in inner-city regeneration Focus on capital cities, some 2nd tier Office demand mono-functional business parks outskirts of cities (also: rise airport cities) Continuing need for redevelopment inner-city buildings (eg government used) Business services development leading to need for conference space (hotels) Attention to call-centre market Simple rule: get big inside cities or get prime locations around them Trends industrial sites:  Trends industrial sites Urgent need for brownfield development (SF!) Some subcentre areas, much space at outskirts of major cities Thematic (business) park developments Demand for modern facilities Importance of connectivity by road, rail, airport, IT-infrastructure Mixed-use office/retail developments Increasing role for showrooms car industry Simple rule: get strategically located brownfield sites CEE Office Yield compression:  CEE Office Yield compression Source: CB Richard Ellis/Warimpex Effect of yield compression on the value of a property:  Delta = 3,4 M = 23 % Effect of yield compression on the value of a property Case study: Property, Income is 1 M EUR/a Source: Warimpex Trends logistic parks:  Trends logistic parks Increasing demand logistics parks at central axes east-west Focus on multi-modality (road, rail, water, near airports), but often facilities yet underdeveloped (logistics centers, terminals) Demand for modern, high quality facilities Road freight transport increases very fast, rail sector lags behind: increasing number of joint ventures between logistics providers and private rail companies Too much focus on expansion into new infrastructure links but not enough on future maintenance needs Simple rule: look at Prologis Trends in residential market:  Trends in residential market Inner-city regeneration capital cities/some 2nd tier cities Widespread suburbanization: high-end residential developments at outskirts of cities Growing demand from the West for expat housing and high-quality residential parks (2nd home ownership) Increasing market for private rented flats (investor owned) Shortage affordable housing and poor quality post-war housing stock Urgent need for restructuring panel housing Need for money and instruments local government Simple rule: get into the rent flats expat market Simple rules: general product criteria:  Simple rules: general product criteria Sustainable (=high) quality Innovative concept/product (competition!) Look at phase in product-market life cycle Prime locations Focus on catchment area/market size and absorption capacity consumers Land, prices:  Land, prices First mover advantages ‘Land economy’ is not fully developed Often unclear building laws (permits!), corruption Partly excessive asking prices (eg. periphery Sofia and Bucharest 1,500 €/m²!) Gradual changes in portfolio management and market strategies:  Gradual changes in portfolio management and market strategies Strong FDI influx, investments steadily growing Yield compression in maturing markets Search for new market possibilities is driving investors further east & south (Russia, Ukraine, Romania, Bulgaria, Turkey, further east....) Increasing attention towards 2nd ring around cities and 2nd tier cities Challenges:  Challenges New market attention drawing towards: Health care instutions (hospitals, private clinics etc) Schools, including private schools. Also prisons (…) Infrastructure building consortia (!) Private Finance Initiatives introduced (supported by EIB, SF, others), increasing role DBFOM-models Focus on Structural Funds (pipeline) projects ?! Financial management of the Structural Funds money (accounts) itself (eg. tender Czech Republic…?) Simple rule: go where the Structural Funds money will go (or get it there) Slide33:  For more information: Real estate, regional and urban development services Damo Holt, Pal Baross, (ECORYS Hungary) Economics, innovation, SME finance Julia Djarova, Slide34:  Additional extra: Equity participation, loans, fund management for urban development/PPP-projects Need for capacity building and financial instruments government:  Need for capacity building and financial instruments government Joint decentralisation and liberalisation have eroded local government base Severe shortages of financial assets Few instruments for adressing large-scale problems (eg. ownership-issues in casu housing) Growing role of urban dimension in Structural Funds (within National Strategies/NSRF’s) Growing awareness of EU Structural Funds and banking institutions (EIB presents JESSICA, EBRD pilots bankable housing projects) Three new initiatives for EU cohesion policy:  Three new initiatives for EU cohesion policy How the JESSICA initiative works I:  How the JESSICA initiative works I Is based on grant contributions from the SF operational programmes (ERDF) to urban development funds (UDF’s) or holding funds, to be managed by fund managers Levers-in additional loan resources for PPP and other major projects for urban development Includes opportunities for equity participation in project consortia Private banks and investors can contribute additional loan or equity capital (multiplier focus) Not being grants, these funds are recoverable and recyclable How the JESSICA initiative works II:  How the JESSICA initiative works II Projects eligible: Financially sustainable and technically and environmentally adequate Included in integrated plans for sustainable urban development and renewal Projects that could be supported by UDFs/EIB finance (selection of draft ideas): Redevelopment of land and buildings Commercial and retail development Upgrading of social and affordable housing (in NMS) Urban infrastructure, transport, utility networks Slide39:  For more information: Real estate, regional and urban development services Damo Holt, Pal Baross, (ECORYS Hungary) Economics, innovation, SME finance Julia Djarova,

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