CE Investment volumes exceed € 2 billion H1 2011

According to Cushman & Wakefield investment activity in Central Europe in H1 2011 continues to gain momentum, with € 2.09 billion invested so far in the core markets of Poland, Czech, Slovakia, Hungary and Romania. This is ahead of the € 1.83 billion invested in the second half of 2010 and suggests that total volumes for the region could reach € 4.8 billion by the year end.

Not surprisingly, Poland continues to dominate the region, however, it was the only market to see transaction volumes fall in the first 6 months of 2011, to €875 million compared with € 1.27 billion for the second half of 2010. In contrast, Czech and Hungary experienced strong recoveries over the same period, with Czech volumes increasing from € 295 million to € 744 million, and Hungary increasing from € 78 million to € 233 million. In all Central European markets, transactional activity still lags behind the 5 year average.

Portfolio deals were prevalent in H1 2011, occurring in all markets and accounting for over 60% of the total transaction volume. The CA Immo acquisition of Europolis extended to €850 million, whilst others included the VGP / AEW Europe industrial joint venture at € 300 million and CPI’s acquisition of the Family Centers retail portfolio at € 63 million in Czech and Slovakia. Overall, 69 properties were transacted in H1 2011.

Investor’s sector preferences saw a move to the office sector in H1 2011. We expect this to be short-lived, however, as a significant increase in retail investment activity in recent months will see retail volumes accelerate in Q3 and Q4 as these deals are finalised. Retail volumes for the first 6 months of 2011 fell back to € 623 million from € 1.12 billion in H2 2010, whilst office volumes increased to € 947 million, up from  € 466 million. Industrial investment volumes were also up significantly, from € 128 million to € 511 million, largely as a result of the VGP transaction.

As investment activity in Central Europe continues to accelerate, investor types and capital sources remain varied. Notwithstanding the dominance of CA Immo’s acquisition, ‘big ticket’ investors in H1 2011 include AEW Europe, Atrium, Deka, Union, Invesco, Pradera and ECE. CPI and Erste remain the key domestic investors in the Czech/ Slovak and Hungarian markets respectively. New investors are now emerging, as they adjust their risk tolerances and expand their interest from core western markets.

Weighted average yields increased marginally in the retail sector from 7.2% in H2 2010 to 7.5% in H1 2011 reflecting increased investor activity in Polish secondary cities. Retail yields are expected to fall further though in the second half of the year following the sale of a number of core retail assets in Czech and Poland, with prime yields moving towards 6%.  Weighted average yields in the office sector compressed from 7.4% to 7.1% over the same period and industrial yields also came in from 8.5% to 8.2%.

Commenting on the outlook for the remainder of the year, Charles Taylor, Partner at Cushman & Wakefield added “Transaction activity is expected to accelerate further in Q3 and Q4 with investment volumes in all markets expected to outperform 2010 levels by some margin. Whilst activity in H1 2011 might suggest investor’s sector preference has moved to offices, the limited retail activity is more a reflection of the constrained supply. As prime retail yields fall, willing vendors are coming forwards and there is a healthy appetite from investors. We expect retail activity to dominate by the year end and Unibail Rodamco’s recent announcement that it is to purchase the remaining 50% of Galaeria Mokotow confirms continued interest in the retail sector.”