Central European real estate market investment activity mixed with only Poland seeing growth, report shows

Written by Ray Clancy

Thursday, 28 October 2010 08:45

Investment activity in the three core Central European real estate markets has proved uneven in the first half of 2010 with stronger growth only coming through in Poland, a new report shows.

The CEE region industrial investment and occupier activity saw an upswing in the first half of 2010. But despite this increase, volumes remained below pre-credit crisis levels with recovery in the industrial investment market still fragile and uneven, according to Jones Lang LaSalle’s latest European Industrial Markets Autumn 2010 report.

Compared to the first half of 2009 when no investments were recorded, 2010 started with more activity but volumes have still declined by 21% compared to the weak second half of 2009. Outside the core markets, €96 million was invested in Croatia, the first major institutional investment in some years and with hardly any product in the market JLL expecs this to remain an exception.

The report points out that prime yields have benefitted from the overall recovery in investment sentiment with compression in the Czech Republic and Poland of 25bps respectively in the first half of the year.

Outside the core markets, yields have hugely compressed, for example by 150bps in Bucharest, but these markets are untested and yield shifts are so far only happening on paper.

‘Industrial investment volumes in the CEE reached a record share in European volumes in H1 2010. The market is dominated by forward funding transactions, the only feasible way for investors to secure healthy long term returns in a compressing yield environment,’ said Tomasz Puch, national director of capital markets at Jones Lang LaSalle Poland.

A recovery in demand was achieved in the first half of 2010 when compared with the almost non-existent take up in the first six months of 2009. However, take-up declined 21% on the second half of 2009 and remains significantly below the 10 year average.

Only Poland recorded growth, up 19% on the second half of 2009, accounting for 60% of the regions total take up. Nevertheless, owing to low development activity over the last two years, take up is now higher than new completions. As a result vacancy fell across the region. Pipeline volumes have stayed low as developers focus on reducing voids in units built speculatively in the pre-crisis market although a small number of build to suit developments did start in the second quarter. Rental movements over the last year have seen rents up in Prague, down in Warsaw and stable in Budapest.

‘Increased activity on the investment market and improving moods of the investors have also very positive influence on developers new activity. We are seeing increased demand for build to suit projects, especially production related, and easier access for funding will help developers to materialise a lot of these investments,’ said Tomasz Olszewski, head of industrial CEE, at Jones Lang LaSalle.