The real estate market in Central and Eastern Europe is set for another strong year as rising consumer spending feeds through into the retail and logistics sectors, according to analysis from CBRE.

The real estate market in Central and Eastern Europe is set for another strong year as rising consumer spending feeds through into the retail and logistics sectors, according to analysis from CBRE.

Bucharest and Budapest are expected to benefit from increased investor activity, as well as more established destinations such as Prague and regional Poland. CBRE’s CEE Market Outlook singled out the Hungarian capital as ripe for an influx of capital, pointing to its strong household consumption supported by cheap energy, low interest rates and relatively low exposure to the slowdown in China.

Demand in Budapest’s office market was up by 51% year on year, boosted by the expansion of ICT services, a cautious development market and more affordable financing. Yield levels are expected to compress further and narrow the gap with other core CEE markets.

In the retail sector tenant turnovers have increased by double-digit figures in some cases as household spending rises. Across the region CBRE said the dominant factor was consumer spending, which has benefited from a number of factors including low oil and commodity prices, low interest rates, falling unemployment and rising house prices.

Yield compression is expected to continue, though at a slower rate than in 2015, while capital value growth will be achieved through cap rates compression rather than rental growth.

Demand in the office sector is at record levels, driven largely by IT and outsourcing occupiers, the majority of which are international companies. The pipeline is relatively low, with the exception of Warsaw, where more than 670,000 m2 of new space is scheduled for delivery in the next two years, representing 15% of existing stock, and Bucharest, where the proportion of pipeline to stock is 21%.

Retail development is limited, with only Warsaw, Bucharest and Kiev of the capital cities due to see new shopping centres open in 2016. In total CBRE expects 972,000 m2 of new shopping centre space to come to market, less than in previous years.

The logistics sector had an exceptional year in 2015, with all markets recording take-up levels well above 10-year averages and as much as 65% higher in some cases. Speculative construction is limited, with the exception of Poland, where almost 900,000 m2 was being developed as of early 2016.