CEE offices see occupier recovery as investors return

EUROPE - Offices in central and eastern Europe (CEE) saw take-up by occupiers increase by 31% in the second half of 2010, according to CB Richard Ellis (CBRE).

CBRE's latest research shows this was driven by significantly increasing demand for offices in key markets Warsaw, Bucharest and Moscow over the past six months.

The strength of the headline figure was slightly offset by declines in office take-up in Belgrade and Prague.

The picture was helped by deceleration of new office stock coming on to the market, with new supply falling to 10% for 2010, down from 20% two years ago.

This slowing trend will benefit the markets, as it is likely to result in declining vacancy levels that should help rebalance market fundamentals, CBRE said.

Only a few cities have slowly been seeing increased development activity, albeit coming from a low basis. The result is that Prague and Bratislava are the first to see more completions coming to the market in 2011 compared with 2010.

The findings should increase the comfort for those investors considering making investments in the region.

According to latest figures from Real Capital Analytics (RCA), 2010 saw a marked increase in commercial real estate transactions in the CEE region compared with 2009.

Russia saw the fifth highest volume of transactions in Europe in 2010 at €5.4bn, a remarkable increase of 932% on 2009 numbers, according to RCA.

Poland was ninth, witnessing €1.9bn in transactions, itself an increase of 150% on the previous year.

CBRE's own estimations suggest CEE office investment turnover totalled €2.5bn in 2010, almost double of the volume in 2009.

CBRE said investment activity was particularly strong in Russia and Poland. The Russian office investment market registered the highest investment volume on record in the second half of 2010, and many large fund managers were particularly focused on the Polish market.

Investor activity changed considerably as local investors' market share went up from 35% in 2009 to 69%, denoting a significant increase in activity, while German open-ended funds became less active.

Prime yield compression was seen across most CEE markets in 2010m, although the pace dropped in the last six months.

Jos Tromp, head of CEE research and consulting at CBRE, said: "Despite the fact the prime end of the market in several cities has started recovering, secondary office markets have continued to struggle.

"An analysis of the office buildings acquired in 2010 across the region provides a clear overview of the current structure of the investment market.

"Almost all buildings transacted in Prague, Warsaw and Budapest were either of A or B class standard, leased to a strong tenant and sold mostly via a sale and/or leaseback transaction."

Tromp pointed to another trend in 2010 - the majority of the buildings were sold by a developer or property company to an investor.