Central and Eastern European commercial property market performance returned to positive territory in 2010, delivering a 3.1% euro-denominated total return, according to the IPD CEE Annual Property Index. This was a strong improvement on 2009's -6.5% return.
However, Central and Eastern European markets comprised of Czech Republic, Poland, Hungary and Slovakia, as well as a composite return for the rest of CEE still delivered capital depreciation, at -3.8% at the all property level. The region's composite markets have all delivered three consecutive years of capital depreciation, losing a cumulative -20.5% from property values.
Capital decline was driven by a -1.3% decline in market rental values and continuing risk perception in valuations. Initial yields stabilized over 2010, at 7.6%, identical to the previous years. Overall, last year's capital depreciation was significantly milder than 2009's -12.5%, suggesting some attenuation in the pressures on market values. The headline positive total return, therefore, was driven by a continuing strong income return of 7.2%.
The multi country index comprised of 511 properties in 28 portfolios worth €11.7 billion has shown large divisions among its constituent countries. Poland delivered the strongest return, of 5.3%, while the Czech Republic and Hungary, delivering 2.4% and 2.5% respectively, lagged behind. The rest of CEE just edged into positive territory, at 0.3%.
At the sector level, Retails delivered the strongest returns across the region, at 6.2%, while Industrials and Offices delivered 2.3% and 1.8% respectively. Income return remained relatively stable for all sectors, but capital decline varied, with Industrials and Offices suffering a -5.3% and -4.6% respectively.
Dr. Nassos Manginas, Director for Central & Eastern Europe at IPD, said: "2009 was a year of heavy re-adjustments, as a result, returns were still suffering last year - capital value write-downs continued, and rental values, tellingly, continued to fall. However, a number of other European indices have continued to record declines in capital value, and while Central and Eastern Europe is often seen as an emerging market, the recovering returns and general trends in the region are very much in line with the rest of Europe.
"2011 will be an important year, as we wait to see if the market has stabilized, as evidence from investors seems to suggest, or if it continues to decline in value. Much of this, of course, may be determined by the wider macro-economic situation."
Polish capital values continue to fall, but returns indicate recovery
Capital depreciation continued in Poland through 2010, at -1.8%, according to the IPD Poland Annual Property Index, but at a reduced rate, compared to its neighboring central European counterparts.
Total return rose to a healthy 5.3%, an improvement on the -4.7% recorded in 2009, driven by income return of 7.2%, which increased 50 basis points last year. Rental values were flat for the year, implying a stabilization after the heavy write downs of 2009.
Polish Retails were the only sector in the entire CEE index to record capital growth, at 4.3%. Industrial properties continued to suffer the steepest capital write-downs, at
-4.0%, but still at a far shallower rate than in previous years in 2009, capital values fell by -15.5%.
Manginas added: "2010 was a year of mixed fortunes for Poland, the largest country in our CEE index. Capital decline was minimal, and a robust income return pushed total returns into positive territory. Though returns have been varied in the last three years, I think these results hint at a bottoming out for the market, and a possible recovery in 2011 at an all property level."
Czech real estate returns suffer from continuing capital decline
2010 also saw the launch of the first IPD Czech Republic Annual Property Index. Including an updated history back to 2005, the index is based on a sample of 116 properties worth 2.7 billion in 2010.
Total returns for Czech commercial