The weather in Germany was gorgeous, but mood of the Germans was foul. Asked when the market might start recovering, the optimists were the ones hoping for the end of 2024. What a stark contrast with Central Europe(ans). Sure, new office supply has fallen off a cliff in Warsaw, and logistics construction is down 40% (to ‘just’ 2.1 million sqm). But Polish GDP is up 11% since 2020. The country just refuses to do recessions.
Meanwhile, the mood over at the attractive Czech stand was could hardly have been better — under the circumstances. Sure, the development pipeline has dried up and there’s unease about the future. But Central Europeans act as if they’re waiting out a thunderstorm. The Germans look like they’ve hunkered down for Hurricane Helga.
The difference seems to be deals. Extend and pretend was the mantra during Europe’s last financial crisis. This time, repricing is taking place across much of Europe. In CEE, slow deal activity means there’s been less movement on yields. Did yield compression in Germany just go too far? Or is it simply a more efficient market? For the time being, Czech domestic investors appear to assume they just have to be patient. We’ll see.
At the end of the day, everyone is still trying to get their heads around what “higher for longer” interest rates really means. Most of the Czech investment funds are going through their first crisis ever, which will also impact on their decisions. On the positive side, the real estate sector and the banks themselves did learn lessons from the GFC, putting them in a better position at the beginning of troubles. Still, US Treasury bonds have hit 5%, an unthinkable level just months ago. As Bloomberg put it, that means the pain is heading everyone’s way. (I’ve unlocked the article).
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