Jones Lang LaSalle presents its next edition of quarterly market reports - CEE City Reports Q2 2009 which refers to the following markets: Bucharest, Budapest, Prague and Warsaw. CEE City Reports cover the main trends in the economy and demand and supply in the investment, office, retail and industrial markets together with information on the hotel markets contributed by Jones Lang LaSalle Hotels and on the residential markets in all four CEE markets, contributed by REAS.
New evidence suggests that what began as a relatively simultaneous economic downturn may become a recovery that is notably uneven. This is particularly true for the CEE region, with some country economies proving more resilient than others. Poland is forecast to have its positive or at worst neutral GDP growth during 2009, with the Czech Republic following in mid-2010. Romania and Hungary are forecast to follow towards the end of 2010.
Real estate key performance indicators have been mixed across the region and despite a lack of transactional evidence in the capital markets, our in-house view is that prime yields have moved out on average by 160 bps in Prague and Warsaw, 220 bps in Budapest and 260 bps in Bucharest since Q2 2008. Some additional readjustments are however, still likely through to the end of the year. Investment volumes in the first half of the year across the 4 countries (Czech Republic, Hungary, Poland and Romania) remained very low at approximately 430 million. This figure represents an 84% decrease when compared to the same period in 2008. With only one deal above 100 million, the average deal in H1 2009 was under 25 million. Much of the limited activity and larger sized deals can still be attributed to the lack of available debt and the misalignment in pricing expectations between buyers and vendors.
Rents have decreased across the Office, Warehouse and Retail sectors in the last 12 months but, we believe, have now stabilised at sustainable levels. Some pressure remains, particularly at the prime headline end of the market, however landlords are in some cases able to offset this by using tailor made incentive plans for tenants who are also feeling pressures to cut their costs.
In comparison with H1 2008 office demand has slowed in Warsaw and Bucharest but has remained stable in Prague and Budapest in the first half of 2009. Retailers across the region are cautious about their expansions plans and even more selective over the schemes that they intend to occupy. Demand for warehousing has also slowed across the region as industrial output and consumer markets decline.
New projects across all sectors that commenced or secured financing prior to the crisis, will continue to be delivered throughout 2009 and into 2010. The future supply pipeline, when compared to previous years is significantly lower and some cities may eventually start to see an undersupply situation developing, due to the emerging gap in development activity.
John Duckworth, Managing Director of JLL in the CEE comments "Looking forward into the second half of 2009 and into 2010 we expect to see markets stabilising and gradually start to recover in line with national economies and the ability of Banks, Investors, Developers and Occupiers to begin trading again more confidently."