The Greek Real Estate Sector
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Capital Link Invest in Greece Webinar Series
Tuesday, July 16, 2024
In Capital Link's sixth webinar, part of the "Capital Link Invest in Greece Webinar Series," CEOs of ATHEX-listed real estate companies shared their outlook, strategies, and the challenges they face in the Greek real estate sector.
The “Capital Link Invest in Greece Webinar Series” will culminate with the Capital Link Invest in Greece Forum, entitled “Greece - Speeding Ahead Post Investment Upgrade” which takes place in New York City each year. This year’s event will be the 26th Invest in Greece Forum and will take place on December 9, 2024.
Moderator:
Mr. Alex Boulougouris, CFA , Head of Equity Research - Euroxx Securities
Panelists:
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Highlights:
During the discussion on the Greek real estate market, Mr. Alexandros Boulougouris, Head of Equity Research - Euroxx Securities introduced a distinguished group of experts in the Greek real estate sector. The panel explored the significant improvements in Greece's real estate market, noting that key indexes in offices, retail, and logistics have nearly returned to pre-crisis levels.
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Dimand SA
In order to receive a comprehensive view of the Greek real estate sector, Mr. Boulougouris passed the floor to each panelist to expand upon their company’s strategy and outlook on the industry, beginning with Mr. Nikos-Ioannis Dimtsas, Executive Member of the BoD, Deputy CEO - Dimand S.A. Mr. Dimtsas highlighted the company's focus on pure development, emphasizing the positive prospects for the Greek market over the next 3-7 years. Specifically, he highlighted growing opportunities in the development of sustainable offices and logistics but cautioned about rising residential prices and the sustainability of these upward trends. Mr. Dimtsas identified contractor capacity and supply as major challenges, noting that Greek contractors have not returned to their pre-Olympic capacity levels despite high prices. He stressed the need for caution due to various issues, including supply chain disruptions and financial costs from interest rate hikes.
Noval Property
For the part of Noval Property, its CEO Mr. Panagiotis Kapetanakos shared insights on its growth strategies, prospects, and risks. He explained that Noval Property, a Greek real estate investment company with assets worth approximately 670 million euros, follows a hybrid business model. They develop their own properties and maintain a diverse portfolio that includes offices, residential properties, logistics, retail parks, and shopping centers. About 25% of their portfolio is dedicated to their development pipeline, focusing on transforming old buildings into green, environmentally certified properties.
Noval Property’s CEO highlighted the company’s proactive approach to address the Greek market's shortage of quality income-producing properties, as their internal development pipeline allows them to generate new products without relying on the limited market supply. They have also maintained low leverage and a low cost of debt, all while retaining abundant liquidity from both a green bond and recent IPO proceeds.
PRODEA Investments
Continuing the panel discussion, Mr. Aristotelis Karytinos, CEO of PRODEA Investments, outlined the company’s current investment strategy, which aims to optimize its portfolio by improving quality and changing its asset mix. Focusing on green and sustainable developments, PRODEA is working to ensure that more than 50% of their 1.2-billion-euro office portfolio will soon be certified green, with a goal of reaching 100% certification in the future, Mr. Karytinos noted.
Their pipeline, exceeding 500 million euros, targets three main asset classes: green offices, logistics, and high-end hotels. PRODEA’s CEO highlighted the significant potential in the hospitality sector, crucial to the Greek economy and attractive to foreign investors. PRODEA aims to double its hospitality portfolio, currently valued at close to 600 million euros, to provide shareholders with substantial exposure to this sought-after asset class through a listed company.
Trade Estates
Mr. Dimitris Papoulis, CEO, Executive Member of the BoD - Trade Estates REIC, elaborated on the company's strategic focus and differentiation within the Greek real estate market. Trade Estates specializes in the development and operation of retail parks and large single-tenant logistic centers, addressing the significant shortage of supply in these sectors in Greece. Mr. Papoulis highlighted that the company has become the preferred partner for leading international and Greek retailers. Trade Estates has one of the lowest operating cost ratios in the industry, Mr. Papoulis stated, and its specialization fosters synergies, operational optimization, and risk management through a network of development and operating partners.
Moreover, Trade Estates' clear and repeatable model of asset performance and cash flow generation appeals to financial institutions, facilitating favorable financial terms for their expansion plans. This focus on specialization and efficiency places Trade Estates in a unique position in the Greek real estate market, providing substantial growth potential and operational advantages.
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Trastor REIC
During the panel discussion, Mr. Tassos Kazinos, CEO - Trastor REIC, provided insights into the logistics sector in Greece and Trastor's strategic approach. He emphasized that logistics is a highly attractive asset class, supported by strong fundamentals such as high and growing demand, fueled by e-commerce, inventory buffering, and nearshoring, alongside very tight supply. These factors make logistics a reliable investment with low vacancy rates, rising rents, and stable returns, even amidst economic shocks like interest rate hikes and increased energy costs.
Mr. Kazinos highlighted Trastor's proactive approach, starting their investments in logistics in 2019 and becoming a leader in the booming sector. They have developed the first LEED-certified logistics center in Greece, completed 14 acquisitions, and built a portfolio of 164,000 square meters. Recently, Trastor announced a significant forward purchase of a 75,000-square-meter facility in Fyli, expected to be completed by the end of 2025. By then, Trastor aims to have 80% of its logistics portfolio as new and 54% LEED-certified.
Impact of Macroeconomic Factors
When asked to expand upon the macroeconomic factors impacting the Greek real estate sector, Mr. Dimtsas of Dimand S.A. emphasized that interest rate hikes are the most significant macroeconomic factor affecting the sector. These hikes increase development costs during construction and raise the opportunity cost of capital for investors, which can lower net cash flows and impact expected returns. Despite these challenges, the Greek real estate market benefits from a shortage of supply. As long as demand continues to exceed supply, property prices can be maintained or even increased, mitigating some negative effects of higher interest rates.
Regarding stock performance, which Mr. Boulougouris of Euroxx Securities noted has been relatively weak for listed real estate companies, Mr. Dimtsas observed that real estate firms’ weak performance compared to the overall market, may reflect investor caution in the current macroeconomic environment.
However, Mr. Dimtsas expressed optimism about the future outlook of the sector and stock performance. As interest rates are expected to stabilize and eventually decrease, the reduced opportunity cost of capital should positively influence investor sentiment, potentially leading to a recovery in the stock performance of real estate firms. Despite the current challenges, significant investment opportunities exist in the Greek real estate market due to the growing economy and persistent demand-supply imbalance.
A number of Greek real estate companies have marked significant achievements after their listings. Since its 2023 IPO, Trade Estates has made gains, particularly with its swift acquisition of Smart Park, Mr. Papoulis stated. In Q1 2024, rental income surged by 70% to 9 million euros, with adjusted EBITDA rising 61% to 6.8 million euros year-on-year.
Trade Estates' vision includes a development plan through 2027, featuring three retail parks in Patras and the Ellinikon commercial hub, and two logistic centers in Elefsina, requiring at least 220 million euros in investments. The goal is to achieve a gross asset value of 1 billion euros by 2031. Mr. Papoulis also discussed risk management strategies, such as hedging interest rate fluctuations, focusing on essential consumer needs during downturns, and leveraging regional diversification.
To manage rising construction costs, the company builds strong vendor relationships and uses economies of scale. Trade Estates REIC is on a robust growth path with strong financial metrics and strategic plans, poised to seize market opportunities and manage risks, delivering sustainable value to shareholders and stakeholders in the real estate sector.
Sustainable Development and ESG in Real Estate
One of the most significant factors impacting the real estate sector is the wave of sustainable development and how companies can balance growth with climate goals. To that end, Mr. Kapetanakos of Noval Property emphasized the company’s holistic approach to investment, regardless of the type of property—be it offices, retail, or logistics. The core strategy revolves around developing flexible, innovative, and resilient designs that benefit both the people and the environment. Noval Property’s commitment to sustainability is exemplified by its landmark projects, such as the River West retail hub in Athens, which transformed 85,000 square meters of former industrial land into a thriving retail space. This project not only serves the community but also revitalizes the surrounding area by providing open spaces and improving the quality of life for residents.
Mr. Kapetanakos also discussed Noval Property's ambitious urban regeneration project of the first Viohalco factory, dating back to the 1930s, on Pireos Street, which aims to transform the old industrial site into a vibrant mixed-use development featuring hotels, offices, residences, and cultural spaces. The project’s design incorporates energy-efficient systems and sustainable building materials, setting a benchmark for future developments.
Noval Property is also focusing on developing low carbon buildings, catering to the demands of their clients, which include large Greek corporates and multinationals. An example is the redevelopment of an old office building on Kifisias Avenue in Maroussi, transforming it into a state-of-the-art, ultra-low-carbon office building. This project involves reusing existing materials, incorporating efficient and innovative designs, and using low-imported carbon materials from the local market. The building will feature efficient heating, air conditioning, and lighting systems, as well as natural lighting and air circulation.
PRODEA Investments is also committed to ESG principles in real estate, its CEO Mr. Karytinos stated. He emphasized that sustainability and green initiatives are not just temporary trends but represent a fundamental shift and new reality in the real estate industry. He highlighted the extensive regulatory framework from the EU, including directives, indices, and KPIs, which demonstrate the necessity for listed companies to comply with ESG (Environmental, Social, Governance) principles. Compliance with these standards not only impacts commercial relations with banks but also influences stock market valuation, investor interest, and broader social and commercial aspects affecting companies.
In the context of real estate, the green aspect is becoming dominant, especially in the office sector, where certified green buildings are essential to attract top-quality tenants and command higher rents. Mr. Karytinos noted that this trend is expanding to other commercial sectors, such as logistics and hospitality. He predicted that shortly, all new developments in the commercial real estate sector in Greece will likely be certified as green, with a substantial portion of existing stock, especially in offices, being upgraded to meet these standards or risk becoming economically obsolete.
The Office Sector: Adapting to Post-COVID Realities
Mr. Boulougouris of Euroxx Securities concluded the discussion by directing the final question to Mr. Kazinos of Trastor REIC, focusing on the challenges and prospects of the office sector, particularly in the context of post-COVID dynamics and remote work trends. Mr. Kazinos acknowledged the significant pressures faced by prime office markets in the US and Europe, exacerbated by the shift towards remote work as a standard practice in many companies. He emphasized that this shift is likely permanent, with hybrid work models becoming the norm globally.
In response to the impact of remote work, office investment activities have slowed down in major markets, leading to increased prime yields and discounts on office REITs' book values. In Greece, Mr. Kazinos noted a slower adoption of remote work compared to other European countries, which he viewed positively for the local office sector. He emphasized the demand-supply balance in Athens, which is driven by a lack of new construction and increasing demand for high-quality, green-certified office spaces.
Trastor REIC's strategy focuses on high-quality office investments and greenfield developments, such as its project in Maroussi. The company also prioritizes the refurbishment and repositioning of existing office assets to meet modern standards and attract top-tier tenants. Mr. Kazinos concluded by reaffirming Trastor's commitment to adapting to the evolving office landscape, ensuring their portfolio remains resilient and aligned with sustainable growth objectives.
The panel discussion provided a comprehensive view of the Greek real estate sector through insights from key players in the industry. By focusing on green development, innovative design, and strategic investments, companies in the Greek real estate sector are not only enhancing their portfolios but also contributing to the broader goal of sustainable urban development in Greece. As the sector continues to evolve, these efforts will be crucial in addressing environmental challenges and meeting the growing demand for sustainable real estate solutions.
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