The View 7th edition

7 Current economic sentiment is somewhat downbeat and seems to indicate a deceleration of economic growth throughout the EU in 2019-20 Looking beyond the property investment markets, what is the sentiment for 2019? Are there particular risks we are likely to face this year? There was a change inmomentum in the second half of the year, in particular Germany surprised the analysts with weaker than expected GDP figures seen in Q3 and also in Q4. It is still to be seen if this slowdown was just a temporary dip due to one-off impacts, or this indicates a turn in the cycle. On the one hand, there are arguments that the ongoing trade war, the generally slower Chinese economy will have a general drag on the European economy, on the other hand fiscal stimulus in particularly China and low energy prices can help to keep economic growth at a healthy level. Q1 2019 will provide evidence to judge if this slowdown is more a structural trend, but – for now economic growth is strong enough to support occupational markets and real estate in general. Definitely there is more political risk in the world than a year ago. We can name the ongoing conflict between Russia andUkraine, the sensitivities around Italy’s fiscal policy and Brexit of course. While uncertainties remain, liquidity has fallen in the UK investment market. Despite this, London has remained a healthy office market with strong local demand fundamentals. The high-end demand in the financial sector (like hedge funds) are less active and we certainly have seen some spinoffs to the continent (Paris, Dublin, Frankfurt, Amsterdam), the true impact thus far has been rather limited. Real economy has a clear impact on interest rate cycles. Last year many warned of increasing interest rates. How has this changed and what is the impact expected on the property investment markets? Do you think there are any fundamental changes we need to watch out for in the coming years? The outlook for an interest rate increase in the short terms has somewhat moderated – interest rate increase in the US is likely to come to an end sooner than previously anticipated as sentiment has come under pressure recently, and US economy faces risks on the downside, due to the trade war mentioned and as well as the lockdown of the government. In Europe the ECB is keen to take any measure in order to help confidence and support economic growth as some European economies are simply not strong enough to support interest rates increasing. In the long run, economists expect lower growth rates globally and this combined with the so- called “pension-glut” may mean we will remain in an environment of lower interest rates for a number of years. Generally, the expectation is that yields will remain mostly stable for now. Across property sectors, only retail has a weaker outlook and we expect here more consolidation to come for fundamental reasons: major cities are benefiting more than other locations, consumers are spending on services and F&B, instead of on consumer goods and online is taking a higher share of retail sales. The share of online in China or South Korea is around 30% of sales. As a comparison, in the UK – Europe’s most penetrated online market by far -is seeing the impact ecommerce is having already based on roughly 20% of overall sales. Based on this we may expect the increasing importance of online sales to impact the markets across Europe in the years to come. On the other side, logistics strongly benefits from this change and global markets await finally some rental growth.

0,25

0,2

0,15

0,1

Investment Volume in EUR mln.

0,05

0

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Czech Republic

Hungary

Poland

Romania

Slovakia

Hungary's Share in Total

CEE Investment Volumes by Country

Source: CBRE Research