CEE BRIEFING: Weight of equity to drive yield compression

Further yield compression of between 10 to 30 basis points is on the cards for Central Europe real estate over the next 12 to 24 months due to the weight of equity descending on the region, CBRE believes.

Jos Tromp, head of CEE research & consulting at CBRE, said that continent-wide, including Central and Eastern Europe, the amount of equity in the market is higher than in the peak period of 2005-7.

'This really indicates how much money is out there at the moment, driven by institutional investors who were already in the market but also a lot of new players,' Tromp said during PropertyEU's latest investment briefing on the region. The event was hosted by CBRE in London.

'A lot of these players are increasing their allocations to commercial real estate because they feel the returns they can get are more positive than the returns available on corporate bonds or in the equity markets,' he added.

Debt financing, Tromp said, almost disappeared after the outbreak of the financial crisis in 2008 but banks are now coming under increasing pressure to increase their loan-to-value ratios. 'As a consequence we feel over the next 6-24 months there will be a very strong investment market unless something unpredictable happens.'

CBRE expect yields to compress by a further 15-30 basis points for real estate investment in CEE over the next 12 to 24 months.

Click on the link for more on the CEE Investment Briefing