SA Investors look to Europe for Property opportunities

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Pasaż Grunwaldzki shopping and entertainment center with parking multilevel and multiplex, the Grunwaldzki Square in Wroclaw, Poland — acquired by Redefine Properties and Echo Investment. Pasaż Grunwaldzki shopping and entertainment center with parking multilevel and multiplex, the Grunwaldzki Square in Wroclaw, Poland — acquired by Redefine Properties and Echo Investment.

Given the poor performance of the rand and inflation, South African property investors have made their mark on the real estate industry across Central and Eastern Europe (CEE) in the last 12 months.

With the region’s attractive yields and low interest rates enticing an increasing flow of capital, the nation’s major REITs and property companies, which have traditionally favoured domestic real estate deals, are looking to CEE to satisfy their appetite for quality yield enhancing assets.

While domestic investors welcome the opportunity to gain exposure to foreign real estate markets, analysts are becoming increasingly cautious of local companies rushing offshore. The general view is that South African players that are only now trying to build a global presence may find it is too little, too late.

“The attractive risk-reward profile, limited competition and lower funding costs offered by CEE markets are making it an enticing investment destination compared to markets like the UK, where competition is high for prime assets, and South Africa’s domestic market, where the cost of debt funding is currently higher than property yields for prime assets,” says Craig Smith, Associate Director, Sub-Saharan Africa Capital Markets, JLL.

He says these investors ideally want to be meaningful players in the market in which they invest, so frontier markets and those which have less international capital competition are attracting their attention.

Retail has outperformed other asset classes in South Africa and this preference is translating into investors’ strategies in Central and Eastern Europe. NEPI, for example, which has been active in Romania since 2008 and has recently expanded into other CEE countries, has a significant bias towards the retail sector.

In addition, JSE-listed REIT Hyprop Investments recently entered Serbia and Montenegro as part of a joint venture with Homestead to acquire two Delta City shopping centres for a total of €202.7 million, the largest single asset deal in South Eastern Europe for five years.

Atterbury Europe, Rockcastle, Redefine Properties, Accelerate and Tower Property Fund are other names to have entered the CEE region over the last 24 months.

Sector heavyweight Redefine recently announced it had acquired 75% investment stake into a 1.2 billion Euro commercial platform comprising 18 properties - the largest real estate transaction in the history of the Polish market.

The acquisition was made possible after Echo Investment made a decision to split its high yielding platform from its development and residential business and to find a buyer for the commercial real estate platform in which it will retain a 25% stake.

“While we believe the property fundamentals are stable in South Africa, the cloud of political instability and the threat of a downgrade in sovereign bonds is likely to result in this trend of offshore expansion continuing for the foreseeable future,” added Smith. 


Read more on:

South Africa Property Market  |  Hyprop Investments  |  Listed Property Sector  |  Nepi Rockcastle  |  Redefine Properties  |  New Europe Property Investments (NEPI)  |  Accelerate Property Fund  |  Tower Property Fund  |  Craig Smith  |  Atterbury Europe  |  Echo Investment  |  Offshore Property Investment

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