For more information, please download a copy of the full report in pdf here
According to our analysis, interest in Athens is quietly picking up and several international investors committed capital in 2017 and put boots on the ground. The sector is attracting most interest in hospitality, which is not so linked to the local economy. International arrivals have gone up in each of the last three years, and the country is viewed as a safe European holiday destination. Prominent Athens hotels have traded at less than replacement cost this year. In the vanguard are US investors and private equity firms, often operating with local partners. Chinese capital is going into logistics at Piraeus Port and in residential assets, shopping centres are beginning to attract opportunity funds. Like hotels, retail including food and beverage gets a boost from tourism. Prime office yields have started to move in slowly off the bottom and Athens is one of the few cities left in Europe where there are opportunities for yield compression. As one experienced pan-European player now operating there says: “Investing in Greece doesn’t feel so crazy.”
Yet there is a lack of good stock of all asset types, it is too early in the recovery to develop opportunistically. Non-performing loans remain a huge headache for Greece with €101 billion clogging the books of its banks: an estimated 60-70 percent is either commercial real estate loans or collateralised by real estate. The Greek banking system has set an ambitious target of reducing it by €40 billion by the end of 2018, which will test investors’ appetite. And the country is still under the institutions supervision.
Since 2008, economic uncertainty, political instability and more recently the immigration crisis seem to have been the main determinants hampering international investors from looking at allocating capital in the local real estate market apart from the hospitality market, driven by the growth in the tourism market. As a result, the real estate market in 2016 was standing at its lowest point, almost 50% of where it was almost a decade ago. In 2017, the commercial real estate market experienced the first solid signs of an upward recovery trend in letting activity and investment demand, predominantly for prime space and locations. This came as a result of political stability and the first signs of noticeable economic growth.
We believe that growth will continue in 2018 as the outlook is looking better according to forecasts by the European Commission. Especially, if the country manages to negotiate with its creditors an unwavering exit from its current economic adjustment programme at the end of Q3 2018. Indeed, 2018 will be a crucial year for the continuation of the real estate market recovery.
What do the macros say?
- Unemployment has started to show some notable shrinking signs; the rate was 20.7% at the end of Q3 2017.
- Latest Harmonized Consumer Price Index at 0.7%.
- Q3 2017 GDP has risen y-o-y 1.3%.
- Gross public debt remains high and totaled 177.4 % of GDP in the third quarter of 2017.
- Greece's general government deficit is projected to stand at 1.2% of GDP in 2017.
- The Commission is forecasting that Greece will have a primary surplus of 2% in 2017. According also to the Commission, the surplus is likely to rise to 3.9% of GDP in 2018, beating a target of 3.5%.
Which are the key determinants for the year ahead?
- Timely completions of the third and fourth fiscal adjustment programme evaluation in Q1 and Q2 2018 respectively would give the right to the country to receive the next loan tranches to cover the government’s outstanding debt of the state to the private sector, which would give a much-needed liquidity boost to the economy.
- The successful completion of the programme evaluations will include how the government will establish and expand electronic auctions of properties, seized to pay off debt to the state, insurance funds and banks. This will be overwhelmingly important not only for the survival of Greek banks but also for the expansion of the transactional and investment activity in the commercial real estate market.
- The successful completion of the evaluations is also a precondition for Greece to exit the current bailout programme, which ends in Aug. 20, and turn the corner like Ireland, Portugal and Cyprus did. This will boost business confidence and attract further investment in the Greek market including commercial and residential real estate. The exit could be followed by a credit line arrangement with close oversight by the institutions to help the country access the Europe Central Bank’s quantitative easing (QE) program and boost investor confidence; especially if the eurozone fails to deliver substantial and credible debt relief.
- Greece continues successfully with its fiscal consolidation and structural reforms in the next 6 to 8 months and it creates space for the European Commission and the Eurogroup to discuss and strike a deal on the conditions for any further debt relief and the post-program life for Greece deal in an adequate manner to averse any risk of a sovereign default
- The active management and successful sale of a series of non-performing loan (NPL) portfolios of the 4 systemic banks could lead to an indirect disposal of a large number of commercial and residential real estate assets to experienced investors that tend to follow a more hands-on approach and also consequently to capital investment upgrades in repossessed aged building stock.
- Politically difficult privatizations of strategic asset continue to gather pace after years of persistent delays to boost growth, gain the trust of investors and reboot the corporate economy Completions privatizations including TRAINOSE (railways), OLTH (Thessaloniki Port) and AIA (Athens airport), 17% of Public Power Corp., 65% of state-controlled natural gas supplier and 35.5% of Hellenic Petroleum SA
- Greek authorities complete in Q1 2018 the preconditions needed for the start of the Hellinikon project. Kick-off of the development of the former Hellinikon airport will turn the area into a world class metropolitan park with mixed use facilities, covering 2 million m² in total. An investment budget of more than € 4,5 billion is expected for the next 10 years.
- Planned public and private investment co-funded by EU funds and major international development bank (EIB, EBRD) in large scale urban regeneration programs could reshape derelict areas, develop new city hubs and result in capital appreciation in neighbouring building stock.
If we are to take a deeper look into the local market, what has really changed during the last 12months? What kind of investment interest was witnessed, and which asset classes were favored?
What is the domestic market indicating us?
In the residential market, ...