CEE property investment volmes set for record year

Commercial property investment volumes in Central and Eastern Europe (CEE) totalled €8.7 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 (€14.6 bn); however, it’s already close to the third strongest achieved in 2008 of €9.5 bn. 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 (€550 mln) is currently significantly below the quarterly average measured during Q1-Q3 2011 (at least €2.5 bn 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.”

Gábor Borbély, Head of Research & Consultancy at CBRE Budapest, added: “Hungarian property investment market is also highly dependent on cross-border buyers. Although in the first half of the year, Hungarian purchasers were really active, large value transactions are still done only by international investors. As any example for this, recently published purchase of the Four Seasons Hotel by the Oman based State General Reserve Fund, was the largest single asset transaction in Hungary this year. Overall investment volume in 2011 will far exceed EUR 500 million compared to less than EUR 200 million last year. We expect to see more transactions to close in the prime segment but beyond this category the market is likely to remain untested by foreign institutional buyers.”