Central and Eastern European Real Estate investment market maintains positive trend

Despite the fact that this total excludes activity in the final month of Q2 2010, the January-May 2010 investment total is already 150% higher than the first half of 2009. Investors continue to predominantly focus on the core Central European markets, accounting for 60% of total CEE investment so far in the second quarter (Q2) of 2010.
Poland alone has accounted for 47% of total CEE investment deals in Q2 2010, with levels not seen since mid-2006. This is largely due to Poland’s maturing real estate market and the continuing outperformance of CE’s largest economy. Russia was the second largest market in terms of activity, accounting for 25% of investment transactions in Q2 2010. The majority of other South-Eastern European (SEE) and Eastern European (EE) markets remain illiquid, with markets such as Serbia and Bulgaria having not seen any open market transactions since the beginning of the year. The average lot size transacted in CEE has increased to €41 million in April-May, compared to the €28 million average seen in Q1 2010. After some increased activity in the retail sector in previous months, the office sector has dominated investment activity so far in Q2 2010, powered by several large office transactions in April and May this year. The largest transaction in CEE on record so far in Q2 2010 was the €146 million sale of Capital Plaza in Moscow, purchased by Russian VTB Capital. In other larger deals, Union Investment purchased Horizon Plaza in Warsaw at €102 million, and Generali PPF bought City Empiria in Prague for approximately €72 million. This activity sits alongside increased activity in the Western European retail markets, mainly driven by large retail portfolio sales in Germany. Jos Tromp, Head of CEE Research & Consulting, CBRE, commented: “CEE prime office yields remained stable at the end of Q1 2010, with some compression reported in the shopping centre sector. Whilst there is still investor demand at prime end of the CEE market and availability remains limited, some yield compression may still take place later this year. Yet the expected slowdown of German Open-ended Fund investment activity and sovereign debt issues across Europe may ease the downward pressure on prime yields in CEE.
Provisional turnover in the Central & Eastern European (CEE) commercial real estate investment market totalled €783 million in April-May 2010. This is a 150% increase on the same period last year and a slight increase (+13%) on the Q1 2010 results. While this quarter’s results were influenced by a number of large transactions, the increase in activity reported so far in 2010 reflects growth in investor confidence in closing transactions in CEE after a period of low activity. Year-to-date turnover is close to €1.5 billion, up by 150% on H1 2009.
Polarisation continues, with main focus on Central Europe and Russia. Core Central European (CE) markets continued to attract most interest, accounting for 60% of the total CEE investment so far in Q2. A number of large transactions took place in the Polish market, boosting its share of the CEE total to 47% - a level not seen since mid-2006. The continuing outperformance of CE’s largest economy forms the basis for this interest, as well as Poland’s maturing real estate market, its size and availability of good quality modern stock. Russia was the second largest market in terms of activity, with 25% of the total.
Increased transaction volume is mainly based on a small amount of relatively large transactions. As a result, the average transaction size has increased to €41 million – close to the €45 million level reported at the peak of the market in 2006-2008. After some increase in retail sector activity earlier this year, offices dominated so far in Q2. The largest CEE transaction on record in Q2 was the €146 million sale of Capital Plaza in Moscow, purchased by Russian VTB Capital. Union Investment’s purchase of Horizon Plaza in Warsaw for €102 million and Generali PPF’s €72 million purchase of City Empiria in Prague are other notable office transactions. Panattoni portfolio in Poland (€91 million) and the distribution centre of Konzum in Croatia (€77 million) confirm some interest in the industrial segment. The largest retail transaction was the €50 million sale of Galeria Pomorska in Bydgoszcz, Poland.
It might be though that yield compression in the prime segment of the major Western European markets may spread into the CEE as well. However, CEE prime office yields remained stable at the end of Q1, with some falls reported only in the prime shopping centre segment. Whilst there is investor demand at the very prime end of the market and availability remains limited, some yield compression may still take place later in the year. However, the expected slowdown of German Open-ended Fund investment activity and the worries over sovereign debt issues may ease the downward pressure on prime pricing in CEE.
Source: CB Richard Ellis, Friday 25 June 2010