CPB: yield gap in CEE fully eliminated by 2009

The existing yield gap in countries in Central and Eastern Europe (CEE) compared to the western part of Central Europe will be fully eliminated in the next 12 to 18 months, according to Michael Ehlmaier, ceo of property adviser CPB. 'There is simply no objective reason any longer as to why yields in Warsaw should be higher than those in Berlin or those in Budapest higher than in Vienna,' Ehlmaier said during a press conference at the Real Vienna property fair in Vienna on Thursday. 'After three years of EU membership, risk factors such as greater legal instability no longer exist. The economic prospects which ultimately determine the potential of the markets are even better than in the West.'

At present, the yield gap between the CEE and the western part of Central Europe amounts to 0.5 to 1 percentage point, Ehlmaier said. 'The markets in CEE, or those countries such as Hungary, the Czech Republic, Poland and Slovakia which joined the EU in the first wave on enlargement, are not developing markets any longer. They are mature markets for which no other assessment criteria apply than those valid in cities in the western part of CEE, that is, in Vienna or Germany's big cities.'

Ehlmaier is also optimistic that the high growth rates - average GDP growth in the CEE is more than twice as high as in the eurozone - will lead to increasing rents. He anticipates moderate but steady increases in prime and average rents for office and business space. 'But there will be an even stronger differentiation than in the West between prime, state-of-the-art properties and older properties which are refurbishable at best at an enormous expense. Moreover, in the CEE capitals there are certainly several locations in which larger new building projects have been realised without the existence of appropriate conditions. There will also be losers there. But this must not distort the outlook regarding the general upward trend.'

The elimination of the yield gap compared to western markets and the anticipated increase in rents will boost returns bz 20% by the end of 2009, Ehlmaier predicted.

The situation is somewhat different in Southeastern Europe (SEE), especially in the two new EU countries, Romania and Bulgaria, and in former Yugoslavia’s successor states. Yields there are still appreciably higher than in CEE, Ehlmaier said: 'The spread compared to the western markets will continue to decline, but in 2007 and 2008 will not entirely disappear.'

Ehlmaier believes that SEE will follow the development in CEE with a certain time lag, but remains convinced that the potential is even greater in the short and medium term.

CPB is one of the leading property advisers in CEE with offices in Vienna, Budapest, Prague, Warsaw, Bratislava and Bucharest. The company has an alliance with UK-based Savills.