The most attractive office yields in the biggest cities in CEE can typically be found in Poland’s regional cities, reaching 7,5% in Katowice, according to Skanska’s market observations.
More mature, western and northern European markets are characterized by lower prime yields with the lowest prime yields reaching sub 6% in Warsaw and Prague and as a consequence, investors are increasingly inclined to look for opportunities in Central and Eastern Europe Tier 1 and 2 cities, including Katowice, Skanska comments. According to the developer’s experience of the CEE market, prime yields may fall further in 2015.
“Usually, when it comes to divestment of our office projects, the first thing we negotiate with the investor is the yield rate of the asset. The lower the investor’s risk, the lower the yield value is. As an active player on the CEE office transaction market, Skanska has in-depth knowledge of actual yield values on the capital and regional markets that we operate in. We know that modern, high-quality buildings in good locations, with long-term lease agreements signed by prestigious tenants is the best way to both find a buyer, regardless of the international economic conditions, and maximize yield potential. There is currently a great deal of capital liquidity and investing in real estate is seen as one of the best ways to receive a healthy return on one’s investment” – says Adrian Karczewicz, transaction director at Skanska Commercial Development Europe.
There is growing interest in CEE regional cities, with Poland’s agglomerations being particularly attractive. The most outstanding regional city was Kraków, which saw transactions totaling EUR 635 million. Katowice has so far been characterized by relatively small investment volumes. With almost EUR 75 million invested in the last ten years, it ranks as sixth amongst Poland’s regional cities. However, the second tier of regional cities, including Katowice, Łódź and Poznań, are quickly catching up with the three front runners – Kraków, Wrocław and Tricity.
“Yields for prime office projects in Kraków, Wrocław, Tricity, Katowice, Łódź and Poznań range from 6,25% to 7,5%. Our analysis shows that, among the major agglomerations outside Warsaw, the lowest yields characterize markets that are popular among investors, such as Kraków and Wrocław with 6,25%. They can find even higher profits in less obvious locations like Katowice and Łódź – the yields in both cities standing at 7,5%. The limited supply of prime products available for sale in Warsaw, regional markets offering increasingly more modern office buildings, and the need for investor risk diversification encourages the search for attractive options to purchase outside the capital. The growing interest of investors may eventually lead to yield compression in Katowice, Łódź and Poznan” – comments Tomasz Puch, regional director, head of Office and Industrial Investment at JLL.
Skanska has recently become part of the largest sales transaction conducted this year in the Central and Eastern Europe office market. The developer sold a portfolio of four office buildings in Poland (two buildings of Silesia Business Park in Katowice and two buildings in Kraków – Axis and Kapelanka 42A. The investment fund of Niam from Sweden purchased the portfolio for EUR 160 million. It was also the largest transaction in the history of Skanska’s activity in the CEE region. The transaction was not the only one concluded at the Katowice investment office market in 2015. Earlier this year, Starwood Capital Group acquired Katowice Business Point from Ghelamco.