The shockwaves of the financial crisis in Central and Eastern European (CEE) real estate continue to be felt, even as all signs indicate recovery is on the way. The latest manifestation of the crisis’ impact has been a burst of activity in the region’s property management sector, with M&As as well as the establishment of new property management teams becoming an almost weekly event over the last few months.
“Landlords have realized the importance of property management and the quality of service provided to tenants because tenants are income and provide the cash flow they need,” Jan Kotaška, newly appointed senior property manager at Jones Lang LaSalle (JLL) in Prague, told Czech Position. “They are starting to pay much more attention to service costs of buildings.”
‘We hear a lot of talk about giving a whole portfolio to one company, but we will see if it really happens’
JLL is another example of this trend, having formed its Czech property management division in August 2010. The company created its new division in response to growing demand as well as the steady income property management provides a company. Furthermore, the sector has become especially heated recently because the cost awareness of landlords is being compounded by that of tenants.
Saving and selling
At the outset of the crisis, companies were more concerned with their own businesses and not focused on their office space and its effect on costs. This has changed, with cost-cutting becoming the number one issue. “The vacancies were different two years ago. Now the tenants are much more focused on the level of the service charges,” said Jiří Trojan, property manager at Jones Lang LaSalle.
Ironically, it is not only the effects of the crisis that are speeding the sector up, but the effects of the recovery. “We see a lot more movement on the market, and the funds are looking for an exit strategy. When they want to sell the building they, of course, want the highest possible tenancy and the lowest possible service charges. Basically, they want to be ready to sell the building at any time if a good offer comes along,” Trojan said.
Deals taking place in the sector over the past few months include BNP Paribas Real Estate’s acquisition of AEW’s property management arm in the Czech Republic, Poland and Hungary as well Prague-based Mint Investments announcing the establishment of its own property management business for the Czech and Slovak markets in December 2010.
Both Kotaška and Trojan expect the flurry of property management deals to continue throughout 2011 as cost cutting remains a priority, competition remains fierce and companies scramble for market share. “I think we can predict some acquisitions happening as well because some companies will realize that the only way they can gain as much market share as they’d like is to take over a company because it takes a lot of time to win new instructions,” Trojan said.
Another trend on the market is a move toward the increasing unification of funds’ property portfolios in the region. An example of this, as well as the sector’s increased competition, was the recent tender for the Czech and Slovak portfolio of SEB Investment won by property consultant DTZ. On Jan. 25 DTZ announced it will manage 56,000 sqm of the German company’s portfolio, including properties such as Anděl Park in Prague 5 and the Europeum and Dell buildings in Bratislava.
The tender involved all the domestic and regional property management teams and although one motivation for the process could have been an attempt to obtain a lower price for the contract it clearly fits the profile of the largest funds looking to unify regional property management as much as possible.
There still appears a long way to go, though Kotaška stated that a number of funds active in the region have held tenders over the last few months. “We hear a lot of talk about giving a whole portfolio to one company, but we will see if it really happens. I still see landlords with a few different property management companies,” Trojan said, adding that it is more common to see single buildings change management than whole portfolios.
JLL is focusing their property management services on a CEE-wide platform to streamline the process where an asset manager potentially has to contact property managers in each country where their portfolio has properties. By offering a single CEE contact they are hoping to position themselves for CEE-wide portfolio deals in the future.