Offices accounted for 42% or €2.5 bn of total investment volumes, with particularly strong transaction activity in Poland.

The research concluded that investors are hitting pause on investments due to the cost of debt and the uncertain macroeconomic and geopolitical backdrop.

Kevin Turpin, regional director of capital markets, CEE at Colliers said: 'A wait-and-see approach taken by many investors is, amongst other factors, a result of increased costs of financing, caused by rising interest rates and related costs such as interest rate swaps, which have increased significantly YoY.

'Early signs of price adjustments in some western European markets, moving out by between 25-50 bps, have already been recorded and we can expect similar pricing shifts to follow in CEE.'

Hybrid here to stay
The report finds that two and a half years after the onset of the pandemic, the shift in workforce expectations towards hybrid or remote work is here to stay. In a recent survey of C-suite professionals in Poland, 89% of respondents indicated that the hybrid work model was implemented in their organisations and 2/3 of them encounter resistance when trying to bring people back to the office.

Similar patterns were observed in other countries of the region. The average peak office occupancy in Q2 2022 remained at around 30% for the entire EMEA.

On top of the above, as the region slowly prepared to recover from the pandemic downturn, the first quarter of 2022 and the war in Ukraine brought new set of challenges and level of unpredictability not seen in many years. Supply chain disruptions, rising material and labour costs further reinforced the already prevalent conservative approach to spending and focus on business continuity.

Supply-side impacts
The impact is also noticeable on the supply side. Although many tenants are looking to downsize, the stock of the most desirable, premium office spaces remains limited in most markets of the region. This issue is further compounded by delays in decisions to launch new projects or extend construction schedules.

The overall economic uncertainty and soaring prices also means that landlords tend to be more conservative with regards to lease terms and incentives offered. This in turn makes it more problematic to find optimal, new locations or to adapt existing office space to the requirements of the hybrid work environment.

'As a result, tenants face increasingly difficult choices in procuring office space that responds to the needs of their hybrid workforce, has the potential to attract new talent and becomes a compelling enough proposition to merit the troubles of daily commuting and compete with the home office that most workers have grown comfortable with,' concluded Dominika Jedrak, director of research and consultancy services for Poland & CEE.

Office vacancy rates in the CEE capitals have been slowly stabilising, following a rise into double digits for many markets during the pandemic, as both supply and demand adjust.

Partially due to higher construction costs and low availability in some of the most sought-after locations, we are seeing increases in rents, especially for newly developed buildings. Furthermore, Colliers expects to see rates rise across the board as a result of inflation.