EUROPE - Total returns from central and eastern European (CEE) commercial real estate recovered strongly in 2010, according to Investment Property Databank (IPD).

Latest figures from the IPD CEE Annual Property index show the region delivered a 3.1% euro-denominated total return last year, up significantly from its loss of 6.5% in 2009.

As with the southern European markets of Italy, Spain and Portugal, the positive result was a case of a strong income return (7.2%) offsetting further capital value declines.

Capital values fell on average across the region by 3.8%, marking a third consecutive year of capital depreciation, leading to a cumulative 20.5% fall in values.

IPD said the capital decline was driven by a 1.3% decline in market rental values and continuing risk perception in valuations.

Initial yields stabilised over 2010, at 7.6%, identical to the previous years. Overall, the capital depreciation in 2010 was significantly milder than it was during the preceding 12 months (12.5%).

The multi-country index, which covers Czech Republic, Poland, Hungary, Slovakia and a composite of the rest of the region, showed strong divisions among the constituent markets.

Poland delivered the strongest return at 5.3%, while the Czech Republic and Hungary delivered 2.4% and 2.5%, respectively. The rest of CEE just edged into positive territory at 0.3%.

Nassos Manginas, director for CEE 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 CEE 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."

Manginas added: "2011 will be an important year, as we wait to see if the market has stabilised, 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 macroeconomic situation."

Capital depreciation continued in Poland during 2010 at 1.8%, according to the IPD Poland Annual Property index, but at a reduced rate, compared with its neighbouring central European counterparts.

Poland's total return rose to 5.3% in 2010 from a loss of 4.7% in 2009, driven by income return of 7.2%, which increased 50 basis points last year.

Manginas said: "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, these results hint at a bottoming out for the market and a possible recovery in 2011 at an all property level."