EUROPE - Western investors are mistaken in withdrawing from "resilient" Central and Eastern European (CEE) markets, according to Austrian property company S-Immo - despite a freeze on some of its development projects as it awaits an economic recovery.

In a bullish defence of its eastward-looking strategy, board member Holger Schmidtmayr told journalists this week that the company would hold existing assets and increase its investment in Bucharest.

Defending his company's 20% allocation to riskier CEE markets, including Romanian retail, he said: "Romania raised concerns for investors - but what doesn't raise concerns for investors? Bucharest is getting better, and new tenants are moving in."

He added: "In Romania, secondary cities are better developed in terms of supply - and the financial crisis helped in the sense that no one was able to get financing for a Bucharest shopping centre, which lowered the risk of oversupply."

Despite its otherwise robust risk appetite, Schmidtmayr and other board members said the firm currently would not consider investing in Russia - because of its opaque business environment - or Ukraine.

"We tried Kiev, but found nothing investment-worthy," he said.

Despite strong GDP, Slovenia was too small a market with "liquidity issues".

"It's too expensive for our taste," he added.

The Vienna Stock Exchange-listed company has also been cautious about sector allocations, eschewing logistics even in its domestic market because of regulatory volatility.

"It's too dependent on regulatory changes - two inches higher, and the whole asset is in question," Schmidtmayr said. "We want property that's irreplaceable."

Of the overall portfolio, office accounts for 35.7%, retail 26.5%, residential 23.9% and hotels 13.9%.
Residential - "a no-no four years ago" - is now the best-performing segment. The firm, which sells only around 5% of its overall portfolio, recently sold German residential to take advantage of aggressive pricing.

Residential pricing in its domestic market is moving in the same direction.

"The smart money is selling," said Schmidtmayr.

S-Immo has invested in CEE states, previously as Sparkassen Immobilien, since 1999.

Despite having written down €100m after the financial crisis hit, Schmidtmayr said CEE remained "a healthy regional market".

"If you've lived through Ceauşescu, you tend to be resilient," Schmidtmayr said. "Eastern Europeans are a lot more resilient than us."