EUROPE - Central and Eastern European (CEE) countries where a high level of equities has been accumulated over the past decade will see their property markets grow in the coming months as institutional investors look increasingly to save their capital, according to Austrian real estate firm S IMMO.
In an interview with IP Real Estate, Holger Schmidtmayr, a board member at S IMMO, argued that CEE markets remained highly fragmented, with a few markets such as Germany and Austria offering a large pipeline of opportunities.
"Residential property in Vienna currently yields at 1.5-2%, while prices for similar property in Berlin are also catching up with an increase of 15% recorded over the last year," he said.
"The fact those two countries have accumulated large equity reserves means the transaction market is increasing, driven by investors who are not yield-orientated but want to save their capital due to the current financial context."
In addition, both Austria and Germany concentrate a significant number of listed real estate companies that are yield driven, he said.
"These two opposite effects put together have clearly helped the market to improve recently," he added.
Schmidtmayr said property would become an important asset for pension funds because it generates regular income and is also seen as a good inflation hedge.
"Currently, both the German and Austrian sectors are significantly below NAV," he said. "The importance of property as an income-generating asset will increase, and the importance of property shares that pay dividend will also rise."
However, the debt funding level might pose some issues in the near future for financing new projects in the region, as banks are looking increasingly to shorten their balance sheets by selling non-core loans.
One option, according to Schmidtmayr, could therefore be the use of instruments banks will be able to finance such as covered bonds.
"In addition, real estate projects in the CEE region could also have the support of small local banks, which usually have a surplus in funds," he said.
Another real estate investment firm, Tristan Capital, also stressed that recent volatility in some CEE currency markets - and concerns over credit availability stemming from Western European banks cutting lending due to the euro-zone crisis - should not undermine confidence in the long-term prospects for the region's property markets.
Daniel Harris, managing director for Central Europe, said: "The current currency weakness and uncertainty in some Central European markets may actually play to the advantage of firms with capital.
"A lower currency basis makes the underlying economy more competitive, reduces competition for assets and may lead banks to offload real estate that they might otherwise have held on their balance sheets."