Most housing is rented in Germany (54.3 per cent), followed by Austria (30.2 per cent) and Poland (15.3 per cent). In 2017, according to analysts Deloitte, the cost of rent per square meter in Budapest was €9,7 (yield: 7.9% per annum), in wrocław — €8,6 (7.4 per cent per annum) in Hamburg — €14,5 (4,3%), in Vienna — €9,4 (2.8 percent). We have an apartment in Budapest will pay for itself quickly, but to find tenants in Hungary is more complicated than in other countries. According to our estimates, the optimal results are Hamburg and Wroclaw.
In the long term for the rental housing market plays an important role the dynamics of GDP. Eurostat has calculated that on average from 2006 to 2016, GDP growth in Poland amounted to 3.5%, Germany 1.2%, Austria 1%, and in Hungary — 0.6%.
Austria, according to Deloitte shows the high variability of the interest rate of the lease, so it is difficult to predict how the situation will develop in the future. The German market will remain stable — no significant changes expected. Hungarian residents increased income, however, rising construction costs, so if the cost of real estate and grow, it is insignificant.
But investor interest in residential property Poland erupted. Analysts Ernst & Young reported that in 2017 in Poland were built record number of houses, the construction costs increase, prices in major cities grow, and demand outstrips supply.
As reported by Cushman & Wakefield, rents in this segment of the European property market grew in the first quarter of the current year by 0.8%. Analysts predict its further growth, however the decline in rental yields in the region of Central Europe.
In Hungary the volume of investments in offices have always dominated over other commercial real estate sectors, but in the first half of 2018, its share was only 37%. At the same time, the demand for office space is increasing, and this trend will continue until the end of 2018.
Free remains only 7.6% of the premises, and this figure may be even lower. Rents grew by 6%, and the yield of offices in Budapest declined to 5.50%. Despite the decline in investment, offices in the capital of Hungary will continue to be popular.
In Germany, investment in office space are leaders in the real estate market and the volume amounts to €12.1 billion, with 41% of this amount was invested by foreigners. CBRE reported that 83% of operations in the second quarter of 2018 was produced in the seven largest German cities — it is 17 percentage points more than last year. The demand for office space is high, but their profitability declines in April 2018, it was of 3.21%.
Austrian offices — attractive sector for investors and 69% of investments in the local real estate market in the second half of 2017 fell on them. The profitability of the offices, meanwhile, crashes — the reason is the high demand for premium real estate.
In the beginning of 2016 office space in Austria has brought to investors of 4.3% per annum, and in the beginning of 2018 is already 3.9 per cent. While rents for offices remained stable overall although the attractive locations it has increased by 1.5%. The empty space left only 4.9%.
In Poland free offices also less than 10%, and this indicates their demand. However, the positive trend will change: in the country there are new properties. The yield of the Polish offices in an average of 5.25% per annum.
According to Cushman & Wakefield, from 2013 to 2016, the growth of industrial areas in Central Europe made up 25% (from 16 million to 25 million square meters ). The most significant changes took place in Dusseldorf (area increased by 109%), followed by Wroclaw (57%), Frankfurt and Plzen (40%), poznań (36%) and kraków (31%). In Budapest the growth was only 3%.
In the logistics segment in Central and Eastern Europe for the first quarter of 2018, the rent increased by 1.8%. The West, the lower rates — for example, in Germany, it was recorded an increase of only 0.3%. In Central Europe, according to forecasts Cushman & Wakefield in the logistics sector is expected to increase rents and lower yields.
As reported by analysts of CBRE in Hungary investment in industrial property amounted to only 18% of the total volume of transactions for the first half of 2018. At the same time in Poland, this sector has developed rapidly, consumer spending increases, the area increase and heat up the interest of investors.
The profitability of industrial real estate in Germany is 4.50%, Austria — 5.8%, Poland — a 6.75%, and in Hungary 7,75%. With an eye on the amount of industrial space, we can say that the most attractive countries for investment in industrial properties in Germany and Poland.
As reported by Cushman & Wakefield, investment in European retail properties in the first quarter of 2018 showed an increase of 0.2%. Earlier, the retail sector has developed even worse, but this year, a positive shift occurred precisely because of the region of Central and Eastern Europe. In Poland, Slovakia and Hungary almost half of commercial properties are shopping centers.
Retail leads in share of investment in Austria — it amounted to 39% of the total investments in the first quarter of 2018. And this is not surprising since Vienna is the fourth in the number of commercial real estate. This is a target market for international brands, which shows stable profitability in the Vienna shopping malls, it is equal to 4%.
In Germany, commercial real estate is becoming more popular: in the seven major German cities, its share of total investment rose by 25%. However, this sector is expected to decrease the yield. Now, according to JLL analysts, it is 2.6 to 3.85% per annum.
In Hungary in the first half of 2018 commercial real estate was the leader in terms of investment: its share was 50%. Vacant space here is only 1.5% and sales growth from January to March amounted to 7% compared with last year. Rents and yields are likely to remain unchanged. Now commercial real estate in Hungary can bring the owner of 5.25% per annum for the region is a strong indicator.
In Poland for commercial real estate is also an opportune period. The economy is growing, wages are rising, and purchasing power increases. Rents are stable, and the yield, according to Cushman & Wakwfield in 2017 is 5%. According to our estimates, this market is also a positive development.
On the German market in 2017 operations hotels was €4.1 billion, the Country remains a safe haven for investors because of positive trends in the economy continue in 2018. Tourists flocking to Germany, and one of the reasons is the high level of comfort.
In the ranking of livable cities in the Global Liveability Ranking 2018, which amounted to The Economist, fell from 5 German cities: Frankfurt took 12th place Hamburg — 18th, Berlin — 21st, Munich — 25th, Dusseldorf — 28th place. This suggests that the hotel business in Germany will bring a stable income.
The Austrian capital ranked first in the ranking Global Liveability Ranking 2018, and hotel business is growing due to the fact that Vienna attracts more and more tourists. As claimed by a local company Wagburg-HIH Invest, there is every reason to expect that the interest of foreign investors to the Austrian hotels will grow. Today the majority of commercial space sold during the construction phase.
In the ranking of Global Liveability Ranking 2018 Budapest took 34 th place, ahead of new York and London. The guests began to stay at Hungarian hotels 6.4% longer than before. In the process of construction of 2,700 new rooms. Actively develops industry five-star hotels — only in the first half of 2018 appeared 621 new number.
In Poland interest in the hotel business is also growing. For example, some office space began to transform into hotels to increase their profitability.
Hotel in Berlin can bring to the investor of approximately 4.9% per annum, in Vienna — 5,1%, in Warsaw — 6,25%, in Budapest was 6.75%.
Risks and opportunities
European real estate attracts more and more Russian investors. However, it should be noted that such investments always involve risks.
The return of European real estate may be lower than from the Russian. The reason is that in Europe, utilities will cost more and taxes are higher than in Russia.
If we are talking about commercial real estate in Europe, its service is obliged to engage the building owner, not the tenant, as is customary in Russia. That is, for the investor this is an additional cost that many do not consider when making decisions about investments.
Also, no one is protected from sudden changes to the depreciation of the currency, new laws, transformation of the political system — all of which can change the profitability of real estate. To keep track of all this, it is necessary to have information about the economical and political situation in the country where you buy a property. And this is important both at the time of purchase and in the long term.
Investors who plan to invest in real estate in Central Europe, it is recommended to calculate the budget in the following way:
investments up to €500 000 — residential property;
up to €2.5 million — residential property or office space;
up to €10 million commercial real estate or hotels;
up to €20 million — a five star hotel, business centers, shopping centers.