No one in Slovakia could have seen the pandemic coming or prepared for it. How have you managed the crisis and planning how to get out of it?
In real estate it surprised everybody, but the companies who were very flexible from the beginning are the ones who are leading the way today. The majority of our competitors were laying off people and restructuring their teams during this time. We decided not to make any changes to our team. I was reluctant to lay people off because for many years we have focused on hiring the right people. So, the seniority that we showcase nowadays on the market is key – on the one hand to handling current pandemic situation but also in order to grow a year from now. I can see now that it was the best decision and a good investment as clients perceive us as more stable, balanced and experienced.
The crisis has brought new opportunities for certain investors. But there are fears that high levels of public spending are laying the groundwork for another crisis. Do you worry that it’s a double-edged sword?
We have to live with the current situation. Of course, we have to keep in mind what might happen in the future. But if we don’t take advantage of what is currently on the market, then we won’t move anywhere. You can’t think more than a year in the future and worry about what could happen as you can lose a lot of opportunities.
Offices and shopping centers are open, but they’re hardly full. The market is still recovering, but how long will that be? When should underwriting start to be based on current conditions and indicators?
It’s already happened. Aupark transacted at the worst time even though the underwriting was difficult. But that was more about trust of the location, the tenant mix and its reputation on the market. Banks would like to finance industrial, logistics and residential. They have big questions about shopping centers, they’ve stopped financing speculative office and they’re barely looking at refinancing offices. Eventually, the lack of new office development will have an effect. Even if vacancy in Bratislava’s CBD is around 20% at the moment, with current demand there will be vacancy of 5% and a lack of space within two years.
There are a couple of projects that have been leasing for 2-3 years but by the end of this year they should be almost fully-leased. So, they’re considering starting next phases. Time will heal everything, but still, it’s hard to make any decision now. It’s hard to predict if the situation will be solved in a year or if it will take 2-3 years. But companies are definitely not leaving Slovakia. They’re worried about office expenditures for their offices, and about whether to have 50% of their employees work from home and 50% in the offices. They’re thinking if their strategies should be to move, or to keep the space they have and refurbish them. They need their people to cooperate together after a year of separate teams. It’s all very fragmented at the moment. But companies need to get together again because the good ideas, the inventions will only happen when people talk together.
From an investment perspective, is this year a write off for Slovakia, except for Aupark?
There are definitely more deals to come this year. There’s huge demand for logistics and industrial. More and more, DACH region investors or western money are coming to Slovakia. They see products in their home markets which are overpriced but here, they can find product that is still reasonably priced and also in the Euro currency. Slovakia is well-established in the logistics and industrial sectors because it’s on the crossroads to Poland and the northern countries. It’s a good product at a good price. Investors buy in Germany for 3.5% to 4%, making yields in Slovakia quite attractive for them.
In terms of prestige, it’s good to have international investors coming in. But the fact that there’s local demand for an asset as big as Aupark is an awfully good sign for the Bratislava market.
It’s a very good sign. It gives foreign investors confidence that in case they decide to sell, there are other investors who will buy from them. It helps the confidence that even such a big volume asset could be traded in Slovakia to a local investor. Before the transaction local investors were mostly focusing on tickets of €50m to €70m maximum.
The question was, who would buy a €400m shopping center in Bratislava, especially since Unibail-Rodamco was doing a perfect job running it? Foreign investors worried what would happen to rents and to the structure of the tenants if Unibail left?
Whereas the final buyer believes it’s a good product in the right location with the right tenants. They believed they could source the money locally on the market because Aupark is a brand. The local investors understand the specifics of the market here, so they are not afraid like the international institutional funds who have to underwrite risks such as the Slovak legal system.
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