Central and Eastern Europe (CEE) recorded a total turnover of approximately 85 million of property transactions in the month of May, through two investment transactions in Russia, according to CB Richard Ellis' latest monthly CEE Property Investment MarketView. This result is close to the average CEE monthly investment volume tracked so far in 2009. With the addition of several transactions from Q1 2009 that were recently made public, the region's year-to-date property investment volume reached 419 million by the end of May. Transactions in Russia now account for about 40% of CEE's 2009 investment volume, an increase from 34% during 2008.
Jos Tromp, Head of CEE Research & Consulting, explains: "Continued investment activity in Russia can be attributed to several factors, including sharper price movement than elsewhere in CEE, the size of Moscow's office and retail markets, rising commodity prices and the more local nature of the Russian investment market. Nonetheless, most institutional investor interest remains in Central Europe despite the low volume achieved there so far this year."
The outlook for the CEE investment market has begun to diverge by way of different commercial property segments. Offices remain the most liquid property segment across CEE. According to Pavel Schanka, CEE Capital Markets at CBRE: "Institutional investors' focus is on truly prime office buildings in core Central European markets such as Prague and Warsaw. Despite this interest, buyers are now very careful in their decision making and transactions continue to take longer to close than in previous years. Price expectations of buyers and sellers are drawing closer, with prospects for higher liquidity in the medium term."
Tim O'Sullivan, Head of Capital Markets at CB Richard Ellis, Hungary agreed with the above and said: "Income producing offices in Budapest are presently the most liquid property segment; particularly those offices of less than 25 million are proving most popular with investors."
Meanwhile, investment in retail remained slow in May. Tromp comments: "Retail investment markets remain slow across CEE for three primary reasons: (1) core investors are unwilling to sell prime stock in the current market environment; (2) interest in smaller scale regional shopping centers is limited as their future cash flow is less secure; and (3) many retail assets are difficult to finance because of their relatively large lot sizes."
The industrial segment has become less liquid since mid-2008 as investors have shied away because of typically relatively short leases and already high rental values. Schanka comments: "Industrial market fundamentals have weakened in recent quarters as vacancy rates have increased in many markets and net effective rents have come under pressure. Nonetheless, some industrial transactions are under negotiation in Central Europe and are likely to close in the near future. Long-term leases of around 10 years are likely to become key in transactions across CEE."
"Across all sectors the income profile of any property in the medium to long term is a key factor for investors when considering investment opportunities." - added Tim O'Sullivan.