According to the latest data from CBRE, the leading global real estate consultancy, commercial property investment volumes in Central and Eastern Europe (CEE) were 60% lower in the first half of 2012 compared to the volume achieved during H1 2011.
Despite the region's performance and continued uncertainty about the direction in which the Eurozone is heading, combined with a focus on prime assets, investments in Poland and Russia remained strong, with the two countries accounting for 83% of all deal flows in the region.
Overall commercial property investment volumes in CEE amounted to almost 2.1 billion during H1 2012, with transactions in Poland worth 854 million. The largest transactions across CEE during this period were the sale of Zlote Tarasy in Warsaw from ING Real Estate Development to a fund managed by AXA REIM, and a 50% stake in Golden Babilon Rostokino in Moscow - where IMMOFINANZ bought the remaining shares from its co-owner.
In Poland other large transactions included a deal in which Prologis sold part of its portfolio to Hines for 96 million, and the purchase by Rockspring of the Alfa Olsztyn Shopping Centre from the Arka BZ WBK fund for 84 million.
"Alongside France, Germany and the UK, the Polish market is still a preferred destination for numerous investors. German funds, investors from Britain and Spain, as well local entities, are active here. Even so, this year Poland might not achieve the transaction volume of 2.5 billion which we saw in 2011. It is worth bearing in mind that 2011 saw Poland reach its third result in the history of the Polish investment market.
"2012 poses other challenges to investors due to turbulence in the Eurozone. For example, average transaction times have become more protracted. As always investors are mainly interested in the retail and office sector, however this year we also expect the warehouse market to see significant growth. The 96 million transaction between Prologis and Hines was harbinger of this trend and we expect other warehouses to change hands this year," said Przemyslaw Felicki, Associate Director, Capital Markets at CBRE Poland.
The most significant decreases took place in markets perceived as more risky. For example, in Romania deal flow contracted fivefold to 50 million in H1 2012 compared with H1 2011. In the Czech Republic a steep decline in activity has been noted due to a strong H1 2011 combined with reduced availability of top quality retail product after a period of strong retail trading in 2011.
The surge in CEE property investment activity in recent years has been driven mainly by increased product availability. Significant deal flow in some CEE markets has rapidly reduced the amount of available quality space, a factor which is likely to result in lower product availability in the years to come. Based on an analysis of the profiles of investors currently active in CEE, it is very likely that the search for top quality product will continue, with limited spill-over effects into the secondary market.
Patrick O'Gorman, Head of CEE Capital Markets at CBRE Poland commented:
"A trend seen across Europe is that the level of equity in the markets has remained relatively stable over the last decade or so. Therefore, despite the fact that bank lending generally is on a downward trend it is believed that equity buyers will remain active to fill this gap to some extent in markets as Poland and the Czech Republic."
Jos Tromp, Head of CEE Research and Consultancy, CBRE, commented:
"Continuing Eurozone uncertainty combined with an almost pure investor focus on core product has caused market activity to contract in a similar way to that seen in 2009 / 2010. With the issues in the Eurozone unlikely to be resolved soon, the negative spin-off this turbulence has on banks is therefore likely to prevail for longer.
"A consequence for real estate markets will be that the available amount of capital to be invested in real estate across CEE will remain lower than the market has previously been used to."