The Central and Eastern Europe (CEE) region, with its six major economies of Romania, Bulgaria, Czech Republic, Hungary, Poland, and Slovakia, remains active in 2024, with a projected tripling of gross domestic product (GDP) dynamics in the region to approximately 2.5%, compared to less than 1% last year, forecasts Colliers consultants in the "Forecasts for CEE 6 2024" report.

Retail parks remain a growth engine in the CEE region, but Colliers consultants also see increased interest in large-scale malls. Additionally, limited office deliveries will result in increased occupancy rates for vacant spaces, especially for modern and ESG-compliant ones. Another major opportunity that Romania and neighboring countries should fully capitalize on is related to the trend of re/near-shoring of Western companies from various parts of the world closer to home, to diversify risks.

Although the growth rate will vary significantly from country to country, a positive advancement is expected in all CEE-6 countries in 2024.

Geopolitics will remain in the spotlight this year as well, with the CEE region becoming much more relevant globally, given the war in Ukraine and the reconfiguration of relations between China and Western countries. Increased Western attention to the region entails the strengthening of democracies and economic development in the CEE.

Poland and Romania, firmly anchored in the Western sphere of influence, could benefit the most among the CEE-6 countries from changes in international relations, given their size and distinct geographical position. Of particular importance for geopolitical balance are the elections planned for this year, not only in some CEE countries but also in major economies such as the USA, India, and the United Kingdom, according to Colliers consultants.

Western capital will be more present in countries that offer a stable investment framework at much lower costs than developed economies. The CEE region remains attractive for re-/near-shoring operations of Western companies, considering the significant gap between productivity levels and labor costs in all countries in the region.

Relocations of operations to closer and friendlier countries, a trend that has been discussed since 2021 and 2022, have become a visible reality starting in 2023, as pointed out by Colliers in the cited report, recently published by Colliers. All countries in the region already have significant investments in the economy, comfortably above the previous cycle's average.

Furthermore, the Czech Republic, Poland, and Romania recorded record levels of gross capital formation in 2023. These aspects indicate a positive medium-term evolution, as current investments will lead to hirings, wage increases, and increased purchasing power, and some of the favorable effects should be visible as early as this year.

Decreasing inflation rates and better economic prospects will also be on the agenda for many retail developers and investors looking to expand in the CEE. Compared to Western Europe, the coverage of modern retail schemes in the CEE is lower, even insufficient in some regions, so the question is not "if" but rather "when" these areas will be covered.

Retail parks remain a key element of real estate market growth in the CEE, as they can be built at lower costs for developers and target smaller cities. At the same time, Colliers consultants see increasing interest in large-scale mixed-use projects or larger schemes.

Regarding demand, the decline in inflation should help Eastern European consumers, but good prospects for discount stores are still anticipated.

In real estate transactions, although a potential decrease in interest rates at major central banks is anticipated, it has not yet occurred, and loans will remain significantly more expensive for many years to come than they were in the 2020-2022 period.

Moreover, there is the issue of capital value levels, which have been consistently decreasing over the past year and a half, and as such, many investors are waiting for a better opportunity to buy, while sellers prefer to hold onto their assets if possible. Consequently, at least in the first half of 2024, Colliers consultants expect a continuation of the weak investment period in the CEE region.

However, in the second half of the year, a timid revival is possible, as interest rates will decrease in the eurozone and the USA starting from the second quarter, and economic activity will remain at decent levels. The resurgence of investment activity can also be supported by asset sales on the market in the context of difficult loan refinancing.

2024 will also bring a considerable reduction in new office deliveries. In the capitals of Slovakia and Romania, for example, it is possible that no large-scale projects will be delivered this year. Currently, the market is dominated by tenants, with vacancy rates in the double digits in CEE capitals, except for the capital of the Czech Republic.

A favorable aspect of this situation is that slowing new constructions will facilitate the absorption of vacant spaces, especially those in modern and ESG-compliant offices. This trend could gradually tilt the balance towards a neutral market by the end of 2024.

In the industrial and logistics sector, as construction costs normalize and, in some cases, vacancy rates follow an upward trajectory starting in 2022 or 2023, Colliers specialists predict stabilization or at least slower rental growth in the CEE region.

In recent years, there has been an unprecedented increase in rents, affecting the overall attractiveness of the region. However, considering the significant differences between salaries and labor productivity in Western Europe, the CEE continues to offer a viable alternative.

"Green" and efficient buildings are at the center of attention for tenants, landlords, and investors in all CEE countries, with these qualifications becoming much more than just a tick-box criterion for companies and investors in shareholder reports. The discrepancy between older and modern and efficient buildings becomes increasingly evident in several aspects, from rental levels to attractiveness for tenants, from occupancy rates to property value.

Therefore, Colliers experts believe that this is the determining factor in stimulating the modernization of older buildings, turning them into viable options. It should be noted that this trend comes at a difficult time against the backdrop of high interest rates. On the other hand, the importance of ecological criteria in financing has also increased, as banks evaluate not only the value of the building itself but also how efficient and resilient it is in the future.

Digitization and the transition to a green economy are not only opportunities but also key factors that significantly influence the evolution of the real estate sector in innovative and sustainable directions. If discussions about "Artificial Intelligence" (AI) have largely focused on the potential of machine learning so far, it is evident that we are now moving towards practical applications.

Aspects such as multimodal AI, which could significantly improve productivity, are becoming a reality, while intelligent office solutions that facilitate the relationship between tenant and landlord are in full development. All these aspects should support the existing hybrid working regime in the office market.

However, Colliers consultants believe that fears of the disappearance of the office work model have proved to be greatly exaggerated, as most companies still need face-to-face interactions with their employees, not only in the CEE region but globally.

The residential sector in the region faces very different situations from one country to another. The accessibility of new apartments can vary from relatively decent prices in cities like Bucharest and Sofia to prices in the strong overvaluation/bubble zone in Prague and Bratislava.

Although a reduction in interest rates should stimulate the market in a positive direction for buyers, the market's evolution largely depends on various regulatory issues and legislative bottlenecks, especially the slow pace of authorization processes, so Colliers specialists do not anticipate changes or significant improvements in the short term.

In Central and Eastern Europe, the real estate market stood out last year through the dynamism of the industrial space segment and the return of demand for warehouses to pre-pandemic levels, through an increased trend for the opening of large shopping centers, but also for renovations, modernizations, and mergers and acquisitions in the retail sector, according to the Highlights CEE 6 Real Estate report, recently published by Colliers.

Another positive theme of the past year mentioned in the Colliers balance sheet report is a significant improvement in the construction market, fueled by falling construction costs and, consequently, increased developer availability for new investments. The report also emphasizes the importance of ESG (Environmental, Social, Governance) criteria and the transition from being considered "a good checkbox item" to a market standard in all real estate sectors.

The Colliers report for the past year also mentions that changes in how we work have led to increased demand for flexible workspace and intelligent office solutions, and digital technologies facilitate the management and access to these types of spaces, consolidating the agile office model, which allows for rapid adaptation to market changes or customer requirements. (Photo: Freepik)