CEE property investment volumes set for record year

Commercial property investment volumes in Central and Eastern Europe (CEE) totaled Euro8.7 Billion at the end of November 2011, twice the level registered in the same period in 2010, according to the latest data from CBRE.

Based on the pipeline of deals waiting to be closed till the year-end, 2011 investment turnover could become CEE's third strongest year in history. The year's total is significantly below the peak achieved in 2007 (Euro.14.6 billion); however, it's already close to the third strongest achieved in 2008 of Euro.9.5 billion.

Jos Tromp, Head of CEE Research & Consultancy, CBRE, commented: "Despite the volatile market sentiment in recent years, CEE has managed to attract a significant amount of capital to be invested in real estate. On the one hand this is to be explained by value-add and opportunistic money flowing to Russia. On the other hand, Poland and the Czech Republic, in particular, are continuing to attract risk-averse investments. It is likely that CEE will keep this ambivalent character into 2012, with one difference compared to recent years: a significantly reduced pipeline under construction which is expected to lead to a further divergence in the performance of prime versus non-prime."

Despite the strong performance to date in 2011, continued uncertainty surrounding the sustainability of the eurozone has now started to affect property investment deal flow in most CEE markets. Based on October and November results, the total amount in the fourth quarter of 2011 (Euro.550 m) is currently significantly below the quarterly average measured during Q1-Q3 2011 (at least Euro.2.5 billion per quarter).

Despite a slowdown of activity the continued domination by the Polish, Russian and Czech markets is visible, based both on transactions closed as well as on the significant pipeline of deals waiting to be closed. Increased risk perception across Europe has also started to affect the Hungarian and South Eastern European (SEE) markets again in recent weeks. This is reflected by generally less interest in these markets by the international investment community. With the exception of some activity in Romania, Southeastern Europe has remained quiet since the summer, whilst several transactions closed during H1 2011.

Patrick O'Gorman, Director of CEE Capital Markets, CBRE, added:"A new wave of uncertainty has started to significantly impact the availability of financing. Since CEE is still strongly dependent on Western European banks, this is likely to restrict deal flow into 2012. The direct impact is that transactions take longer to complete or collapse. Larger scale transactions are particularly feeling the impact, with some postponed to 2012 depending on bank finance. With all of this uncertainty in the market, it is unlikely that investment volumes will increase further during the first quarter of 2012. Recent strong increases in investment volumes in CEE were dependent on some large transactions taking place, a factor less likely to remain a driver in the short to medium term future."

With many investors struggling to negotiate bank finance, equity investors are now seeing less competition for conservative prime investments in most markets. Based on their risk/return-profiles it is likely that these investors will continue to focus their attention largely on prime assets in Poland and Czech Republic."