Interview with Gijs Klomp
One of the forum speakers Gijs Klomp, investment director at NEPI Rockcastle, has shared his opinion about real estate field trends and forecasts.
How would you describe retail property development over last 3-5 years? What are the main tendencies, trends and changes that have shaped this sector?
I would say that retail property development in CEE is currently in a transition phase. With most markets reaching saturation, the focus is increasingly shifting from new development towards refurbishments and extensions to existing projects. As most markets are saturated (i.e. close to oversupply), there is limited need for new projects. Investors tend to focus on products that offer the flexibility to expand or have the basic concept allowing successful refurbishment, and I do see this tendency continuing in the upcoming years as well.
A second main trend is that the advent of online retail is prompting retail landlords to allocate a larger part of their schemes to leisure and entertainment. The role of online retail is very likely to continue expanding and reshaping the traditional shopping centres in the foreseeable future, as it is still a relatively young sector where concepts are rapidly developing and being driven by new technology. It offers threats to less hands on landlords and to landlords owning products that are inflexible, however it also offers opportunities to other property owners, for example online retailers increasingly seek to pursue a multi channel distribution (incl. Shops, high traffic pick up points such as well performing malls).
Has the amount of investments in real estate changed (grown or declined) in Central/Eastern Europe compared to Western Europe? What is the overall activity and directions investors tend to follow?
Investment appetite for retail property remains strong, although one could argue that there is a drop in interest coming from non-specialist investors, which seem to have become more cautious with respect to retail that is increasingly (and probably rightfully so) regarded as a specialist sector. One could also argue that there is no common CEE anymore, markets like CZ and PL are deemed increasingly core Europe, others still offer an interesting return spread and on the back of the very low returns those markets are also becoming increasingly popular. In general appetite for CEE markets is on the rise, an important factor is that in several CEE markets, most notably HU and CZ, domestic capital is becoming a major factor. The continuation of this trend depends on many factors such as product availability, ECC economic performance etc.
What, in your opinion, are currently the most successful acquisitions in CRE industry and why?
With pricing in most markets being around previous cycle highs, investors are increasingly cautious as too aggressive entry pricing typically can’t be offset by management and hence could trigger disappointing results. Therefore, focus is shifting towards ultra prime assets or value added assets with perceived reversionary potential. This is applicable for PL and CZ and SK, which as mentioned before, are increasingly regarded as core European markets and hence pricing has been adjusted structurally explaining why it has hit new levels. We can only expect a price drop when pricing adjusts globally due to a turn in the economic cycle and / or increasing interest rates. It does however pay off to invest in so-called value added assets, assuming one picks the right assets namely those that are value added in substance and aren’t just cheap.