SUMMARY
Before the global pandemic outbreak, the macroeconomic outlook in Greece looked positive and demand was rising on all prime real estate market segments. However, as a result of this health crisis, certain assets classes are now exposed to a sustained long-term commercial impact if they don't adapt and adjust to address the anticipated social distancing protocols due to be implemented.
In general, impacts will vary, quality and spacious prime property assets with certified wellness specifications and digitally enhanced communication infrastructure are likely to be most resilient. Prime logistics and essential goods retail units could come out stronger. Quality housing has structural tailwinds, but there are potential implications for design, density, location and quality of life metrics. Hotel and leisure assets will suffer undoubtedly but mostly in the short term due to the imposed containment on non-essential travelling. Certain hospitality assets will also need to adjust revenue models and spaces in the long run. Non-food retail and F&B properties will need to adapt. Consolidation and restructuring in the retail sector is expected.
Currently, demand remains for logistic assets in strategic locations, quality residential properties and large hotels in important destinations that need to be upgraded. In the medium term, the demand is expected to grow for core prime assets due to lack of quality supply but also for commercial retrofits and/or new developments due to the lack of available modern building stock. The retail segment is expected to recover last.
On a positive note, prices remain affordable and the market is now experienced in managing crisis. After years of stagnation or low growth, it is imperative to continue with the planning of new developments and the completion of existing commercial projects that meet existing and long-standing needs in Athens and in other local markets. The big bet is to continue attracting international institutional investors and foreign buyers either through the acquisition of NPLs or due to the opportunities in the hospitality sector, holiday housing and "Golden Visa". The government's challenge will be to support the real estate sector through a series of PPP development and regeneration projects that will boost economic activity and business opportunities.
THE NPL OPPORTUNITY
- There is risk that a considerable number of business loans could turn non-performing, especially those recently restructured. In the current state of uncertainty, the banks are working in constant cooperation with the borrowers to avoid a new generation of NPLs. Ιn any case, we expect a 10-15% increase in 2020 in the existing NPL stock.
- The majority of corporate NPLs are and will continue to be, in essence, a real estate play.
- Despite their corporate nature, most of the collateralized assets in the sold and/or recently marketed NPL portfolios have been land plots or residential assets (>60%). Given the SME and family business dominated corporate sector, these assets were provided as guarantees from the business owners and major shareholders.
- However, despite their overall limited number, most of the value lies in industrial and hospitality collateralized assets (>40%) in combination with the residential assets, the latter mostly due to their larger volumes. There are also opportunities in certain urban land plots with commercial and residential development potential given the lack of quality and prime building stock.
- Value-add upside will come from upgrading, retrofitting, developing and/or holding the “star assets” for a period rather than exiting within a very short timeframe
- Professional REO management will play a significant role on this as well as tax efficient asset management structures (like Industrial or Hotel REITs) as complimentary strategies to maximise net capital gains.
You can access and download a copy of our related executive presentation in English here.