What did you focus on in Slovakia last year?
In Slovakia, we focused on the markets where we are currently active. We completed the divestment of two office buildings, with both transactions signed at the end of the year. One of these was the WESTEND TOWER, smallest asset in our portfolio. Given its limited size, we didn’t launch a broad sales process, instead, we held one-on-one discussions with several interested parties over the course of a few years. Eventually, we reached an agreement with a buyer on mutually acceptable terms and successfully closed the deal. In retail, we completed the acquisition of the remaining stake in Aupark last year. It was a deal that took nearly four years to complete.
With the office disposals, it doesn’t sound like freeing up liquidity was the primary goal.
For us, these transactions proved that we can also be active on the sales side. We wanted to show investors that it’s not just about buying new buildings and growing volume of assets under management, but also about successful divestments. The price was right, but the building also had a large number of small tenants which demanded significant amount of time from our leasing and operations teams.
The second transaction was the sale of BBC 1+, which we sold to the government to consolidate the district courts of Bratislava into a single location. This was again another very specific transaction, and because it involves government, the process will take some time. We still need to vacate the building, terminate ongoing contracts, then do the fitouts and hand it over to the buyer.
Once we collect the equity, we’ll decide whether to reinvest locally or expand to different markets. Both deals were closed at or above the fund’s valuation.
What are the main take-aways for you?
I would say that it confirmed that that we’re approaching valuations correctly. We’re not overly aggressive, unlike some of our competitors whose assets appear significantly overvalued. For us, it’s a clear sign that we are doing things right and that these valuations are achievable on the market.
It doesn’t sound like you’re in a rush to go buy replacement Bratislava office assets right now though.
Office is a stable part of our portfolio. However, at the moment, our investors in Slovakia and the Czech Republic are not very aggressive when it comes to increasing their office exposure. It has been this way for a couple of years now, driven by energy prices, the home office trend, the issue of vacancy in the US and so on. It’s not that the Slovak market is in such bad shape compared to some of the US cities. But our investors don’t have a very positive outlook towards this sector as such. We’re not seeing any huge redemptions from the fund, but at the same time they’re not willing to invest more significantly.
In the office sector, we still don’t see any major inflows of new tenants or increased demand for expansions. Most deals are contract renewals or slight downsizing agreements. There has also been some consolidation by government-type tenants into A or B class offices. This creates some movement in the market and reduces the vacancy, which is a little bit above average.
As for retail , the sector is generally stable or even growing in line with inflation. Of course, the local market in Bratislava was impacted by extension of Eurovea and opening of Nivy in the last couple of years, which were significant openings considering the size of the market and the scale of those two projects. So, it certainly affected the market and the competition, but overall the market is stable, predictable, as you said, and the outlook is looking good.
What is your view and what is your investor’s view on the long-term potential of residential rent? There’s always seemed to be less interest here in Bratislava than in Prague.
In recent years, we’ve started to develop a lot of residential projects through JV structures with developers where we act solely as a financial partner, but these are residential for sale, not residential for rent. One example is Millhaus next to BBC five that we’re doing with Immocap. We’re also doing the Lakeside Residential with Cresco Real Estate and we acquired another land plot in 2024, right next to the Lakeside location.
But it’s a different story with residential-for-rent. In our view, it doesn’t offer returns interesting enough for our investors. You need a portfolio big enough to achieve economies of scale. Starting with few flats or something like that simply doesn’t make sense for us. It might work for someone like a developer who builds those flats and cannot sell them. Or for investors like Kooperativa who needs to deploy their insurance reserves without the need for high returns.
It would be hard to compete with an investor who’s not prepared for an extremely conservative investment.
Exactly. We don’t try to compete with these types of investors or developers. If we deliver 8% to our investors in the office fund, they’re not going to be satisfied, because they expect double digit returns. And the residential for rent project simply couldn’t even produce 8%. That’s why we are focusing on different markets, segments or projects.
Are you looking beyond the Czech and Slovak markets? What about Poland, or Germany?
To be completely honest, in Poland, we’d love to increase our stake, but it’s very challenging to find the right asset at the right price. It’s a very similar situation in Prague, although we have a much larger footprint there compared to Warsaw. We have also been considering entering Romania for example. That’s one of the markets where we see a lot of potential. So that would probably be the direction.
As for expanding west, that’s not very likely. We looked at couple of retail prospects in Germany last year, where the market is certainly not at its peak. The overall sentiment and outlook on the economy is kind of negative. As a result, everybody is cautious and is reluctant to make big decisions. And if the owners aren’t under pressure, they’re not willing to sell below what they consider good value. That makes it kind of difficult, as there are no forced sales. Personally, I’m kind of cautious to enter these much larger markets where we don’t have the same presence as we do here. It could turn out well, but but there’s also a risk of getting burned.
Martin Šmigura is local partner at Wood & Co. in Slovakia
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