Booming Real Estate Development & Construction Industries

The past few years have been a golden age for Real Estate developers and the very closely linked construction companies. These firms were capable of doubling their investments within 2 years and the better ones each year. Such outstanding performance was achieved largely due to imbalances between supply and demand and significantly easier access to loans by the buyers. Many individuals and corporations invested their excess capital into real estate property which was perceived as absolutely safe and highly appreciated investments.

However, the credit crunch crisis is affecting Slovakia too. Some of the local real estate has for the first time in Slovak history started to decrease the market value. Developers have started to skim their profits by offering more for the same money or discounting the list prices. This is the case in most real estate markets in the world, but Slovakia has not been hit significantly yet.

The market will most consolidate in the coming months. Undercapitalized companies will probably be acquired by larger and more stable firms. Projects with shaky concepts will be brought to a halt. Investors may close their doors. Some companies interested in earning significant return on investment will move investments other industries. Purchase power versus real estate prices may be brought to a more balanced level. Due to this slow down in the industry, construction will get more effective, achieve higher quality and cost less.

Large real estate companies also entered the Slovak market. Unibail-Rodamco purchased the most successful Shopping mall for EUR75 mil. Axa Group invested 250 mil. to acquire a number of properties in Slovakia. Orco followed shortly with acquisitions of a number of properties in the country; however, the crisis hit at their other markets forcing them to sell-off most of their Central European assets.

Recent analyses performed by three international real-estate players (Cushman & Wakefield, CB Richard Ellis a Colliers International) confirmed that prices for renting out Bratislava’s old town office space remained at EUR 19 to 20 per m2 per month. Prices for out of the city center remained at EUR 12 to 14, with outskirts priced at EUR 9 to 12. However, developers finished 177,000 m2 of office space in 2008 while the rented space account for only 77,000 m2.

Real Estate and Construction had been a highly advisable investment field in the past few years. Now ROIs may substantially decrease, though experienced real estate developers and construction companies may still find the local market very attractive. Another area of opportunity will be in spotting undercapitalized projects and benefiting from joining forces with companies that may have trouble finishing projects.

The crisis’s more significant impact in Slovakia is expected to be realized in the first half of 2009, so well-positioned companies are strongly advised to prepare for entry, look for opportunities, and be ready to capture them as they come.