The RICS Occupier Sentiment Index (OSI), an overall measure of occupier market momentum, returned a positive reading in each CEE country tracked within the RICS Commercial Property Monitor.
Hungary continues to post the strongest overall results, albeit the index eased somewhat from the first quarter’s record high. Tenant demand continued to increase robustly across the board, while availability of leasable space declined further. Rental growth projections were broadly unchanged compared to Q1 2017, coming in at 3.5%.
The Czech market gathered significant momentum over Q2 2017 with the OSI ( Occupier Sentiment Index – a composite indicator capturing overall momentum) rising from +25 to +39, which is the strongest reading since the survey was formed in 2008. Solid demand growth, particularly in the office sector, has pushed near term rent expectations noticeably higher, with prime office and retail rents anticipated to rise sharply over the year to come. Projections for secondary locations, however, remain subdued.
Elsewhere, robust results were again reported in Bulgaria, with rising demand being met with a modest decline in availability. This is expected to translate into an increase in rental values across all areas of the market in the 12 months ahead. Rental growth prospects remain firmest in the prime office sector.
Meanwhile, although still comfortably positive, momentum appears a little more modest in Croatia. In Romania, availability continues to rise, despite reasonably strong demand growth, which is weighing on near term rental growth projections. Further out, however, respondents envisage rents rising across each segment (to a greater or lesser degree) over the next 12 months. By way of contrast, rents across secondary locations in Croatia are anticipated to remain flat at best, while prime sub sectors exhibit positive projections, with the strongest growth expected across prime retail space.
“The Romanian property market has shown clear signs of growth in both levels of activity and investor interest, supported by several years of strong economic growth. Occupier demand has increased across all sectors and steep growth in retail sales has helped to drive rental growth in the retail sector. The manufacturing sector continues to attract new entrants to the market, with logistics being fuelled by the trend in retail sales. Foreign investor activity has gradually increased in 2017 and the overall level of interest in the market is significantly higher than 2016. The Romanian market retains a yield advantage for investors over more core markets of CEE, while offering a risk profile which is lower than often perceived. A positive outlook for the market heading into 2018”, says Tim Wilkinson MRICS, Chair of the RICS Board in Romania.
- The Occupier Sentiment Index (a composite indicator capturing overall momentum) improved to +15, up from +9 in the previous quarter. As such, this measure is consistent with a gradual pick-up in the momentum during Q2.
• Occupier demand increased at the sharpest rate since 2013, with a net balance of 51% of respondents reporting a rise in demand. When broken down, growth was particularly strong in the office and industrial sectors and more modest across the retail area of the market.
• Despite stronger demand growth, availability continued to rise across the board (albeit at a slower pace than in the previous two quarters). Likewise, the value of landlord incentive packages increased modestly in each sector.
• Although near term rental expectations remain generally subdued, twelve month projections were revised higher relative to Q1 in virtually all sub-markets (secondary retail the sole exception).
• Respondents now envisage solid rental gains across all prime areas of the market over the year ahead, while the secondary industrial sector also exhibits firmly positive growth expectations.
- The Investment Sentiment Index also ticked up during Q2 (from +12 to +17), indicating growth in investment market activity to be gathering pace.
• Investment enquiries, from both domestic and foreign buyers, increased strongly in each sector according tothe latest results. At the same time, the supply of property for investment purposes continued to trend upwards at a significant rate.
• Looking ahead, 88% of respondents expect new investors to enter the market over the coming year. Meanwhile, the same proportion expect the presence of local and CEE investors to increase during the twelve months ahead.
• Aside from local and cross border CEE investment (which ranked top) the largest share of respondents anticipate funds from Western Europe and the US to be a key source of capital during the next twelve months (see chart below).
• Capital value expectations were adjusted higher (to a greater or lesser degree) in all sub-markets when
compared to Q1, with prime office and industrial assets displaying the strongest twelve month projections.
• 50% of respondents view conditions in their local market to be consistent with the middle stages of an upturn (up from 30% in Q1).