CEE Investment Markets Mark Robinson, CEE Research Specialist 27 - PowerPoint PPT Presentation

CEE Investment Markets Mark Robinson, CEE Research Specialist 27 October 2016

Economic activity buoyant Consumers are suggesting healthy growth outlook to sustain EC consumer confidence in core CEE countries 20 0 -20 -40 -60 -80 May 01 May 03 May 05 May 07 May 09 May 11 May 13 May 15 Poland Czech Rep. Romania Hungary Source: Bloomberg Confidential – Colliers International 2015 2

Transmission into investments intensifying Consumers a leading indicator for likely investment volumes Lagged composite consumer confidence versus investment volumes into CEE6 8 0 ? 6 -10 4 -20 2 -30 0 -40 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Investment into CEE6 real estate (EURbn) EC composite consumer confidence for CE4 (18-month lagged, rhs) Source: Real Capital Analytics, Bloomberg, Colliers International Confidential – Colliers International 2015 3

The region is becoming more popular Share of mind: almost the largest share of EMEA pie for 5 years % of half-yearly total EMEA investment volumes going into the CEE6 countries 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 % of total EMEA investment volumes into CEE countries Source: Real Capital Analytics, Colliers International Confidential – Colliers International 2015 4

Longer run convergence potential very much evident As GDP per capita rises, investment volumes should do so too Investment intensity versus GDP per capita across Europe 3.5% Average investment volumes as % of GDP SWE 3.0% UK 2.5% 2009-15 2.0% GER NOR 1.5% FRA NED 1.0% CZE POL SPA 0.5% BULROM SVK ITA HUN 0.0% 0 10000 20000 30000 40000 50000 60000 70000 GDP per capita US Dollars 2015 (real, PPP basis) Source: Oxford Economics, Real Capital Analytics, Colliers International Confidential – Colliers International 2015 5

Impressive volume growth in H1 2016 Activity picked up noticeably across the region • Hungary, Poland and the Czech Republic’s H1 2016 volume growth vs. 2009 H1 – 2015 H2 average volumes are growing fastest relative to recent history • Volume growth is most pronounced in the Retail arena, at 72%, followed by Industrial at 49% H1 2016 volume pan-region growth by sector 100% 72% 49% 36% 0% -27% -29% -100% -73% Apartment Hotel Sites Office Industrial Retail Source: Real Capital Analytics, Colliers International Source: Real Capital Analytics, Colliers International Confidential – Colliers International 2015 6

Post-23 June: Investment market still active Early signs: Poland Q3 slightly softer, others ahead/in line Number of real estate deals in CEE region No. of deals H1 2016 No. of deals H2 to date 160 149 120 72 80 50 34 40 23 13 13 12 11 9 5 5 0 Poland Czech Rep. Hungary Romania Bulgaria Slovakia Source: Real Capital Analytics, Colliers International Confidential – Colliers International 2015 7

Deal size lower in Poland, higher in Hungary Early indications suggest Czech and Romania in line with H1 2016 Deal volume across sectors in key CEE markets (EUR bn) 2009 -2015 HY ave. H1 2016 Q3 2016 3.0 2.5 2.5 2.0 1.7 1.5 1.1 1.0 0.8 0.7 0.6 0.4 0.3 0.3 0.3 0.2 0.5 0.2 0.2 0.2 0.1 0.1 0.03 0.02 0.0 Poland Czech Rep. Hungary Romania Bulgaria Slovakia Source: Real Capital Analytics, Colliers International Confidential – Colliers International 2015 8

Strongest dynamics in retail sphere Firming rents and high occupancy encouraging money in Prime traditional shopping centre rents (EUR/sqm/mth) Prime traditional shopping centre yields 9.5 120 10.0 112 9 8.5 100 100 90 7.5 7.5 8.0 85 7 6.5 6.5 75 80 6.0 5.75 65 65 5.5 6.0 63 5.25 60 4.0 38 39 34 40 32 2.0 20 0 0.0 Warsaw Prague Bratislava Budapest Bucharest Sofia Warsaw Prague Bratislava Budapest Bucharest Sofia Prime TSC rent 2011 Prime TSC rent 2014 Prime TSC yield 2011 Prime TSC yield 2014 Prime TSC rent H1 2016 Prime TSC yield H1 2016 Source: Colliers International Source: Colliers International Confidential – Colliers International 2015 9

How might the growth train be derailed? Key risks to the CEE investment story Key risks Origin of investors in 2015 • The shadow of Brexit › investment sentiment and currency effects › EU disintegration risk 2% 8% › USA The rise of Russia 6% Germany • 35% EU banking crisis 8% UK Diversified.. • Reversal in interest rates as QE disappears S. Africa › Efficacy in EU is under question 13% Poland › Distortions in EUR credit markets nonsensical Sweden 25% • Real estate cycle is long in the tooth already Other Source: Colliers International Confidential – Colliers International 2015 10

The Brexit shadow – currency disturbance Currency volatility, asset market volatility, political uncertainty 20-day daily volatility of GBPUSD cross rate 20-day daily volatility of EURUSD cross rate 34% 20% 20% 15% 15% 10% 10% ? 5% 5% 0% 0% Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 GBPUSD monthly volatility EURUSD monthly volatility European credit risk – nothing priced in 20-day daily volatility of Euro-Zloty cross rate 20% 110 15% 100 90 10% 80 70 5% 60 ? ? 50 0% Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 ITRAXX 5Y Crossover Index (short ETF) EURPLN monthly volatility Confidential – Colliers International 2015 11 Source: Investing.com

Financial yield gaps generally wide Some room for interest rates or bond yields to rise All-sector weighted real estate yield gaps versus short and long term interest rates (%) 8 6 4 2 0 -2 -4 vs. short term interest rates (Max) vs. long term interest rates (Max) Source: Colliers International, Oxford Economics Confidential – Colliers International 2015 12

Yield levels in CEE region not stretched Ranking absolute risk, some CEE countries marginally expensive European countries political, economic, demographic factor rank vs. weighted prime yields Colliers Political-Econ-Demog Score Weighted Yield (Max %, rhs) 12 140 10 120 100 8 80 6 60 4 40 2 20 0 0 Source: Colliers International, Oxford Economics Confidential – Colliers International 2015 13

Conclusions External risks evident but not fatal to story Growth drivers Key risks • • Strong internal demand, especially consumer The shadow of Brexit • • External underpinning from Germany and EU banking crisis potential bottoming of EM fund outflows • Reversal in interest rates as QE disappears • Investment intensity rising as convergence occurs • Real estate cycle is long in the tooth • Prudent macro and leverage management in already, stretching valuations region encouraging “flight” to perceived safety / higher yields Confidential – Colliers International 2015 14

Mark Robinson CEE Research Specialist | Prague +420 226 537 646 mark.robinson@colliers.com Colliers International | Prague Slovansky Dum Na Prikope 859/22 Prague 1 11000 Czech Republic TEL +420 226 536 618 15

485 offices in $2.1 billion in 63 countries on annual revenue 6 continents 1.46 billion square feet United States: 146 under management Canada: 44 Latin America: 25 15,800 Asia Pacific: 186 professionals EMEA: 84 and staff 16 Confidential – Colliers International 2015