Provisional figures reveal CEE commercial real estate investment activity totalled €783 million during April-May 2010.
A total of 19 transactions took place. Influenced by a number of large transactions, the average lot size increased to €41 million, compared to €28 million in Q1.
Core CE markets continued to dominate, with the Polish market reporting strongest activity.
Polish office market has reached the moment when the demand starts gradually to recover, but the new supply still lags behind. Numerous projects have been suspended as a beginning of construction depends on large pre-let transactions to be secured. While in the Western markets build-to-suit agreements in offices are quite common, in Poland pre-construction transactions are scarce, even if the pre-let take-up share has been claimed to be high.
The global economic downturn and changing economic environment have created a challenging time for the Prague office market. Because of the downturn, key market indicators changed direction in 2009, with the vacancy rate increasing, prime rental levels decreasing, and lease incentives reaching levels previously unseen. The overall market moved from favouring landlords to strongly favouring tenants.
Investment in property totalled a provisional €600 million in 29 transactions in CEE in Q1 2010. This turnover was up 140% y-o-y, but down about 55% on strong Q4 2009 results.
Institutional investors continue to focus on core CE markets, while investment activity remains low in SEE and Ukraine.
Limited distressed activity occurring with local investors driving regional markets.
Prime yield compression was recorded for prime product in certain CEE market segments in Q1 2010.
The majority of economic indicators show that Poland turned out to be remarkably resilient to the effect of the global financial crunch. The Polish economy is perceived as one of the most stable and developing economies in the CEE region and was the only one with economic growth the last year. The GDP growth for 2009 reached 1.7% with an increasing trend for 2010. Interest rates were cut to a record low level of 3.5%, inflation remained low and the growth of unemployment rate was restrained (12%). However the commercial property market did not cope with the crisis as well as the rest of the Polish economy, limiting its rapid development in terms of both supply and demand.
Poland has proven to be considerably resilient to the current economic downturn. Poland outperforms several Euro zone countries in terms of international ratings and is the only European Union country that avoided GDP decline in any of 2009 quarters. Domestic market remains poised for further growth, but Polish economy as a 'host country' relies heavily on the Western European sources of investment and financing as well as their markets for export. Therefore further performance of the neighbouring economies, especially Germany's, remains crucial to the long term economic prosperity.
Investment in property totalled a provisional €275 million in 15 transactions in CEE in January and February 2010.
Investors continue to focus on core CEE markets, with just under 90% of investment turnover so far in 2010 occurring in Warsaw, Prague, Moscow and Budapest.
The rebound to retail investment turnover seen in Q4 2009 has continued, with retail investment transactions accounting for over half of turnover in January-February 2010.
Investment activity picked up in H2 2009, albeit from a very depressed level, bringing total annual turnover to only ca. $18 million (€12.5 million)
While direct turnover was meager compared to previous years, the market has seen a proliferation of other activities, most notably that of debt settlements by non-cash trading of distressed projects
As in H1 2009, cross-border investors’ appetite for local real estate remained diminished and the market was driven almost entirely by small local parties acquiring non-prime properties for opportunistic rather than strategic reasons
Economic recovery has surfaced towards the end of 2009, but remains feeble and primarily driven by baseperiod effects
Election-induced political uncertainties are expected to remain in place for an extended period of time, as even in case of smooth transition of power, the next president will be tempted to call for early Parliamentary elections to consolidate his position
Financial services industry continued to lose jobs in H2, shedding some 20,000 payrolls since the crisis began, but business confidence turned positive towards the end of the year for the first time in twelve months.
The majority of occupiers have by now processed the effects of the economic crisis on their operations, but demand for space remains heavily weighted in favor of upgrades rather than expansions.
Total competitive stock barely exceeded 1 million sq m on the back of 90,000 sq m of total annual development completions. Previous milestone of 500,000 sq m was reached in 2006.
Rents and vacancy have both stabilized in Q4 but whereas vacancy could rise further over 2010 on account of new deliveries and sluggish demand, rents will most probably stay unchanged, subject to a stable exchange rate.
The credit crunch and subsequent economic downturn have combined to reduce significantly the confirmed office development pipeline in Central and Eastern Europe (CEE) since year-end 2008. The current outlook for delivery of new office space in 2011 is far below recent years and, surprisingly, even below deliveries back in 2000 and 2001.
Considerable negative sentiment has surrounded CEE as a region since fall 2008. While this sentiment has probably been justified with regard to certain parts of the region, other parts of CEE have been unfairly swept up by it. It has become clear that certain CEE property markets will have to go through a phase of restructuring before resuming sustainable growth.
In 2009 take-up all but disappeared. The total figure for quarter three of 2009 was less than 10% of the previous year.
There is very little development activity with no major projects under construction meaning that for the next 2 years we expect no new space to be delivered.
Rents have decreased to just below EUR 17.00 and though a further decrease can be expected this should be minimal with vacancy rates remaining below 3%.
In the middle of June, the state approved a social program called “First Dwelling”, with the purpose of facilitating access to purchasing a dwelling through mortgage loans.
The “First Dwelling” Program will provide guarantees of approximately €1 billion for mortgage loans to the persons who want to buy their first dwelling.
Sales prices for new residential units have dropped by 15-40% in H1 2009 compared to H1 2008.
Property investment volume in H1 2009 came to €56 million, three times lower than in H2 2008.
Hotels were the most traded type of property inthe first six months of 2009, with 60% of the total volume being directed toward four hotels in three cities across the country.
The intensifying impact that the financial crisis is having on real economies across CEE began to negatively affect retail sales after strong growth in recent years.
Prime rents are going down in some markets, expecially for samller units (80-100 sq m), and retailers are asking for more flexibility from landlords. On the other hand, aveeragerents in prime shopping centres in markets as Poland an Czech Republic, have remained resilient thus far.
Investment in retail properties was slow in H1 2009, down by 92 % on H2 2008 and 94 % on H1 2008 levels. Yields moved out somewhat for shopping centres in Q2 2009, but were generally more stable than in recent quarters giving some hope that yields will bottom out later this year.
After feeling the full effect of economic contraction in mid-fall 2008 activity on the office property market declined considerably.
Occupier markets in H1 2009 remained weak as businesses continued to process the effects of the economic crisis on their operations.
The supply growth remained broadly in line with the January forecast, which was adjusted to reflect the dire liquidity situation in the country as a whole.
Rent and vacancy levels deteriorated significantly but first signs of stabilization may appear in H2 2009.
The economic situation has deteriorated substantially over H1 2009, but first signs of stabilization – particularly, on the supply side – surfaced towards the end of Q2.
With the global crisis exposing numerous weaknesses of the nation’s economy, Ukraine now finds itself in urgent need to finally implement serious structural reforms.
The volume of direct property investment in H1 2009 was extremely small with most deals occurring across highly discounted and readily available work-in-progress assets, such as project on various stages of construction, land holdings, etc.
Banks’ unwillingness to foreclose remains one of the major impediments to capital movement, as forced sales of distressed properties have not yet occurred on the level necessary to revitalize the market.
In Q1 2009 total take-up exceeded 200,000 sq m – 55% decrease when comparing with Q1 2008.
Total modern stock amounts to over 5.6 million sq m with 16% vacancy rate.
The number of new projects handed over remained high, however the amount of space under construction decreased.
Developers, expecting lower demand in the next few years, have limited the number of buildings planned speculatively and are looking to build-to-suit projects.
The majority of modern office buildings are located on the fringe of the historical city centre, concentrated mainly along Glogowska and Roosevelta streets and in close proximity to the Old Town market. Many modern office schemes can be also found in the western district of Grunwald and in Winogrady, a non - central area of the Stare Miasto district.
Wroclaw’s increasing economic role as a capital of the province guarantees stable future growth in the service sector. It is now the second most attractive city, after Krakow, in terms of the number of BPO’s. Companies such as Siemens, Hewlett – Packard, Credit Suisse and Google have already chosen Wroclaw.
According to estimates of the Statistical Office of the Republic of Serbia, total annual GDP in 2008 grew by 5.4 percent when compared to 2007.
Industrial production contracted by 19,7 % y-o-y in February 2009. Manufacturing output has dropped even more (23% y-o-y) as global trade and demand for steel and chemicals, Serbian key exports, have fallen.
Around € 85 million was invested in institutional property in CEE in May 2009.
The outlook for the CEE investment market has diverged by segment. Investors continue to express interest in prime office properties in core CE markets and strong regional shopping centres with large catchment areas, but are largely avoiding the industrial market as weaker market fundamentals and short lease security create uncertain pricing.
Thanks to an excellent central northern location, Poland is well predisposed to be one of Europe’s key business regions. The Polish economy remains poised for further growth, but it relies heavily on the Western European economies as markets for both its exports and for investment and financing. As a consequence, Poland’s economy can be viewed as very vulnerable and if the economic climate in Western Europe continues to deteriorate the situation may prove to be very challenging for Poland.
At the beginning of the year in Poland there was around 4.7 million sq m of
modern office cities located in Warsaw and seven major regional cities. The
largest and the most established market is Warsaw. However, when comparing
with other European capitals, Warsaw is still behind the mature markets. Office
density in Warsaw is currently around 1.7 sq m per capita, while the average for Europe is estimated at 6 sq m.
The more challenging economic environment across CEE caused prime office rents to fall in many CEE cities in Q1 2009.
Prime office yields continued to move out across CEE causing the spread with the EU-15 weighted average prime yield to increase. Significant differences in prime office yields now exist by CEE sub-region.
Prime office capital values across the region fell due to the comined effect of lower prime rents in many cities and continued yield decompression.
The investments volume in 2008 was of € 1,020 million, with 64% lower than in 2007, but with 420% higher than the volume of 2005.
65% of the investments volume was realized by closing 3 purchases, thus confirming the fact that there is a small number of investors present on the market, but very active and with a strong buying power.
As an overview, Bucharest continues to have the highest ADR (average daily rate) from Romania and remains the most attractive city for the international investors with around 64% of the total influx of foreign direct investments (FDI) in 2008.
Bucharest hotel market grew with 30% in 2008, the biggest room supply increase after 1989.
Ukraine Property Investment Market View full year 2008
A total of $413 million worth of investment transactions were completed in Ukraine in 2008. Although quite high historically, the volume is 28% down from 2007 results.
With developers halting active construction due to curtailed financing, the stock of distressed assets has grown substantially, potentially creating opportunities for entrepreneurial investors with a longterm perspective.
Following the spread of the global financial crisis to Ukraine in H2 2008, the previously booming retail market saw activity level drop for the first time in years.
The evaporation of consumer confidence and the corresponding decline in population purchasing power observed in H2 2008 led to a fall in retailers’ demand for premises.
Total warehouse stock doubled in 2008 as a record level of new supply entered the market
Investment turnover set a record too with $89 million worth of transactions recorded in H1 2008
As the occupier market weakened significantly in the face of the growing crisis, the market turned from undersupply to oversupply in H2 2008
Instead of the anticipated boom, the market is entering a deep recession in 2009, with development activity slowing down and rents expected to fall considerably
Following the spread of global financial crisis to Ukraine, the macroeconomic situation has deteriorated sharply, depressing the previously upbeat business confidence
Construction activity began to ease off in Q3 with many developers cancelling or postponing the realization of office schemes
The demand for space subsided in Q4 and is likely to remain weak throughout 2009
As a result of cost-containment and downscaling campaigns unleashed by occupiers, vacancy rose steeply, pushing rental rates down for the first time in years
Investment Market Accumulator in Poland Spring 2009
Investment activity slowed down, amounting to nearly EUR 2 billion in 2008 from EUR 3 billion in 2007.
The retail and office sectors continue to dominate the investment market, although there is an increasing interest in the industrial and hotel sectors.
In 2008 take-up reached a record level of 1.4 million sq m leased in the whole country.
Total modern stock, as of the end of 2008, amounted to over 4.8 million sq m with 10% vacancy rate.
The number of new projects handed over still remains very high, however the amount of space under construction has decreased.
Developers, expecting lower demand in the next few years, have limited the number of buildings planned speculatively and are looking to build-to-suit projects.
Approximately 200,000 sq m of modern SC space was completed in 2008, which was the third strongest year in terms of new completions.
Only 30% of international retailers are present in the Czech retail market, which means there is space for new international brands to enter the market.
The prime rental levels in shopping centres across the Czech Republic remained stable in comparison to H1 2008.
CEE office markets continued to perform strongly in 2008 despite worsening economic conditions.
Demand remained strong, with CEE establishing a record for take-up in 2008. Despite this, CEE markets could not completely absorb a record amount of development completions across CEE, leading to higher vacancy rates in many markets.
How CEE office markets perform in the near term will depend to a large extent on individual markets’ positioning in terms of continued economic growth, vacancy rate and size of pipeline.
The total investment volume in H2 2008 reached EUR 257 million which is 80% higher than in H1. The total annual investment was EUR 410 million representing an 80% drop on previous year, and means a volume comparable with the level in the first years of the Hungarian commercial property market.
€ 9.5 billion was invested in institutional property in the CEE property market in 2008. This is 37% down from the 2007 figure, but 47% up on 2005 results.
Banks will remain risk averse in the first half of 2009 and therefore trading anything but the best properties will be difficult.
In Q3 2008 the annual growth rate of the Czech economy slowed in real terms from the level of 6% at the end of 2007 to 4.2%. The slowdown was caused both by external and internal factors.
The National Statistical Office announced year-on-year (y-o-y) GDP growth of 7.6% in Q2 2008. This is in line with consistent GDP growth in the last few years, which has resulted in Slovakia having one of the highest GDP growth rates in Europe. GDP growth has been, in part, supported by increased spending, while increases to wages have slightly outstripped increases in production output, and further decreasing unemployment has also facilitated this.
The third quarter of 2008 brought a lot of uncertainty in terms of the further development of Polish property market. The global financial crisis, by no means, is expected to harm to some extend, the Polish economy and as a consequence, the development of new warehouse and logistic projects.
The demand for modern office space in Warsaw has remained at a relatively high level from the beginning of the year resulting in a strong take up of 381,000 sq m so far in 2008.
The residential market in Poland is currently facing a period of adjustments of apartment prices in relation to potential buyers’ creditworthiness and financial standing.
Total take-up for 2008 reached 264,896 sq m in Q3 2008. This means that take-up has now surpassed total take-up for the whole of 2007 (253,000 sqm) and has surpassed take-up in the same three quarters of last year by 37%.
In Q3 2008 the modern industrial stock in Hungary grew to in excess of 1.3 m sq m. New supply in Q3 reached 51,700 sq m which is almost three times as high as in the same quarter of 2007.
Total modern office stock within Prague comprises of 69.3% new build and 30.7% refurbished stock. The majority of office space in the pipeline is new built, therefore, its share of the total stock will continuously increase in the future.
CEE weighted capital values retained their positive year-on-year (y-o-y) growth, but the growth rate declined from 35.1% in q2 2008 to 5.6% in q3 2008. The q3 results marked the second consecutive quarterly decline this year.
Approximately 60,000 sq m of modern SC space was completed in H1 2008 and another 194,300 sq m are expected to be completed in the second half of the year. Year 2008 is expected to be a record breaking year in terms of the new modern SC supply.
During H1 2008, there was no new supply delivered, however, with the expected completion of the Orchard complex there will be an additional 22,000 sq m coming to the market in the second half of 2008.
During H1 2008, only 8,400 sq m of new space was completed in Brno. New developments coming to the market within the next 6 months represent 14,100 sq m.
In total, € 5.9 billion was invested in institutional property in the main CEE markets in H1 2008. This is 14% down from H1 2007 figures, but 22% up on H1 2006 results.
As the industrial market of Budapest, and surrounding districts, has been rapidly evolving in recent years, CB Richard Ellis has decided to revise its approach to research for the industrial market sector.
After the record volume in the previous year, the Hungarian property investment market witnessed a significant slow down in terms of investment turnover.
Solid economic growth is forecast in most parts of Central and Eastern Europe (CEE) in 2008, despite the global economic slowdown and lower economic growth in the Eurozone and U.S.
At the beginning of Q2 2008 the modern industrial stock is close to 1.1 m sq m. New supply in Q1 reached 71,000 sq m which is three times as high as in the same quarter 2007.
After a record breaking year 2007, take-up during Q1 2008 remained, with 220,000 sq m, very strong representing just a 24% quarter-on-quarter decrease and a 45% yearon- year increase – as a result setting new Q1 take-up records.
Russian economic performance remained robust in Q1 2008. The country's foreign currency and gold reserves, the world's third largest, rose to a record $508 billion as of beginning of April.
The majority of modern office buildings are located on the fringe of the historical city centre, concentrated mainly along Glogowska and Roosevelta streets and in close proximity to the Old Town market.
Austria