Tassos Kazinos: Acquiring LABS Tower signifies our entry into the Cypriot market

Acquiring LABS Tower signifies Trastor REIC’s entry into the Cypriot market, and exemplifies the quantitative and qualitative attributes it will seek in future investments, according to the Greek real estate company’s Chief Executive Officer, Tassos Kazinos.

In an interview with CBN, Kazinos talks about the company’s future plans in Cyprus as well as its strategic objective over the next three years to increase its asset base to close to €1 billion.

Tell us briefly about Trastor and its strategic goals?

Trastor REIC is the first real estate investment company to be established in Greece under law 2778/99 and it is listed on the Athens Stock Exchange since 2005. The company specialises in investing in high-quality commercial properties located in prime areas with creditworthy tenants, aiming to deliver superior risk-adjusted returns through strategic acquisitions and value-add initiatives, compared to direct investments in the commercial real estate market.

Currently, Trastor REIC manages a premier commercial portfolio of 60 properties, valued at €536 million, predominantly in the office sector (53%) and logistics (23%). Since 2017 and under new management, the company's portfolio has expanded nine-fold, reflecting substantial growth in both asset value and annualised income, with an impressive compound annual growth rate exceeding 32%. This growth has established Trastor as one of Greece’s largest and fastest growing institutional landlords.

Looking ahead and backed by our main shareholder, Piraeus Bank, our strategic objective over the next three years is to increase our asset base to close to €1 billion, with plans to invest at least €150 million in the coming year. By 2025, we also aim to expand our shareholder base through a new capital increase, aligning with our growth vision and new regulatory free-float requirements.

Our investment focus will remain on core office assets with significant value-add potential and prime logistics properties with green certifications. Concurrently, we will enhance our energy and operational efficiency initiatives to upgrade selected existing office assets, leveraging the strong rental growth in the Greek market for sustainable, green buildings. These energy-efficiency upgrade efforts will also extend to our potential investments in Cyprus, where the need for green buildings is even more pronounced.

What attracted you to Cyprus? Was it part of a broader investment strategy and what was the rationale behind the acquisition of Labs Tower in Nicosia?

The decision for Trastor to expand internationally for the first time since its inception, and in Cyprus in particular, didn’t come as random selection. Cyprus was chosen as a strategic investment destination due to its long-standing FDI partnership with Greece, while the significant presence of Greek financial institutions and other businesses, make the Cypriot market an attractive destination offering reliable and tax-efficient returns.

The Cypriot economy is diversified, with construction and real estate playing a significant role in driving growth, contributing 14% to the country’s GVA. Amid regional geopolitical risks, Cyprus’ GDP growth remains resilient and forecasted to record a 2.8% growth within the year significantly higher compared to the EU average (0.9%). Since 2020, the Cypriot labour market has been steadily strengthening which bodes well for the office sector, an area of focus for our company, and we anticipate the country will continue to attract regional business relocation interest.

Trastor’s office investment strategy for Cyprus is the same as that we have in Greece. Meaning, we are focused on extracting value from prime located assets that already have a dominant market position, or they can acquire one relative to their competition through active asset management. Consequently, properties whose asking prices fully reflect their future income potential will not be targeted by us.

Trastor’s maxim is “Focus on Growth” and growth in real estate is achieved by rental growth expectations and cap rate compression. With the latter component currently being restrained by the high-interest rate environment, we place more emphasis on the rental upside presented in the market and in specific assets.

LABS Tower in Nicosia

LABS Tower represents a distinctive opportunity situated in the heart of Nicosia’s business district, perfectly aligning with our investment strategy. It offers an optimal blend of office space and serviced apartments, while its unique layout and architecture allow for adaptive use-modifications to continually drive capital growth for our shareholders.

Acquiring LABS Tower is more than just adding a trophy asset to Trastor’s portfolio; it signifies our entry into the Cypriot market and exemplifies the quantitative and qualitative attributes we will seek in future investments.

LABS Tower interior

How do you compare the yields from real estate assets in Cyprus to the ones in Greece?

Properties in Cyprus have historically traded at significantly lower cap rates compared to the Greek market, typically by 100-200 basis points, depending on the economic cycle and sector specifics.

The reasoning can be partly attributed to Cyprus' long-term economic stability and government initiatives aimed at attracting foreign capital, such as headquartering and visa schemes. However, the dominant factor is that the Cypriot commercial market is a low-depth market with demand primarily driven by personal use and capital allocations decisions, instead of long-term real estate investment strategies.

Sellers and developers have been used to transact with specific types of buyers (i.e. high net worth individuals, banks, corporates, pension funds) who typically have lower cost of capital requirements than us, and whose main objective has been capital allocation and capital preservation, thus keeping yields stable and generally lower than those we achieve in the Greek market.

However, the rapid increase in Euribor rates commenced by the ECB in July 2022 and aimed at controlling inflationary pressures, coupled with the impact the war in Ukraine has had on real estate FDI in Cyprus, has led landlords and developers to adjust their pricing expectations narrowing the spread between Greek and Cypriot prime office yields. Leading us now to closely monitor several specific investment opportunities in the office sector.

What is your view of the country’s real estate environment? Are you interested in any other towns besides Nicosia?

The Nicosia office market posts healthy fundamentals with Grade A premises estimated at only c.270,000 sqm (30% of total stock) while demand of desk-based employees is growing by 2.3% annually over the last five years. It is expected that by 2027 at least 700,000 sqm of Grade A office space will be required.

Such demand is not only derived from new space requirements, but it is fuelled by a relocation trend to new modern or upgraded workspace incorporating recreational facilities and eco-friendly features as well as spaces that enhance the physical and mental wellbeing of employees. In addition, there is an increase in flexible co-working office needs which helps companies avoid long-term lease commitments and large upfront capital outlays.

A similar and more profound demand dynamic is witnessed in Limassol which is further fuelled by a regional headquartering trend from international corporates. Therefore, the city is definitely on our scope. The city’s topography and the restricted number of suitable land plots forces decentralisation to peripheral areas while the limited speculative supply, at present, has resulted in at least a twofold rent pricing level difference relative to the Nicosia market.

Limassol is also interesting to us because of its emergent status as a fintech and tech-startup regional hub, signalling further office demand increase for conventional spaces as well as flexible/serviced office products.

Are you also interested in developing greenfield real estate projects in Cyprus?

Although development undoubtedly provides better returns especially in fragmented and underdeveloped markets, complete greenfield investments will not be pursued by us in Cyprus since they carry higher operational and leverage risks. However, Trastor will explore opportunities to partner on progressed and mature development projects with established local partners and under specific deal structure terms that minimise construction and vacancy risk upon delivery. However, as we enter a new market, our focus and preference would be to acquire existing prime, value-add, income-producing properties at competitive prices.