BRIEFING: Property investors focus on income security in CEE

Central and Eastern Europe is lagging behind as Western Europe surges ahead in terms of real estate investment activity, PropertyEU's latest CEE investment briefing has heard.

And, while the universal real estate mantra used to be ‘location, location, location’, in the CEE it’s ‘lease, lease, lease,’ which is driving value due to lack of product, according to Michael Atwell, head of CEE capital markets at CBRE.

Speaking at the PropertyEU CEE Investment briefing, held in London on 18 September, Atwell said that CBRE's Polish business is seeing prime long-leased assets trading at very low yield levels. 'It’s all down to income security,' said Atwell.

But he urged investors not to be so cautious. While on the face of it developers such as Skanska appear to be building too much office space in the Polish capital, and investors might consider the Warsaw office market a ‘basket case’, 'If you understand the market there are very strong reasons to invest in offices in Warsaw,' said Atwell.

There is zero growth forecast in the industrial market, but occupation demand is very good, he said. There is also great retail sales growth, but shopping centre owners and asset managers complain about the difficulties in leasing.

He predicts investment volumes in the second half of 2015 will be way down on last year mainly due to a lack of big volume deals.

But with the gap between Government bonds and real estate the widest it’s ever been, it’s the best time to invest in real estate, he says.

Warsaw’s loss, however, has been gain for the country’s regional cities, which have been ‘super active’ according to Atwell.

Elsewhere across the CEE, the highlight sale this year was Palladium shopping centre in the Czech Republic, the largest single asset ever transacted in Central Europe. There has been lots of activity in Hungary, but while investors are looking at the country, there is still hesitancy, due partly to high finance costs but also to political uncertainty there.

Investors frustrated by core Central Europe (Poland and the Czech Republic), will now start going further into Romania, Slovakia and Croatia, the briefing heard.