Cross-border demand drives down mall yields in Central Europe

Cross-border demand for large retail schemes in Central Europe has pushed down prime shopping centre yields in the region below that for offices in the first time for years.

The weight of money pursuing large shopping centres was highlighted during PropertyEU's latest CEE Investment Briefing hosted by CBRE in London recently.

Just seven transactions accounted for 75% of the retail property investment volume in Central and Eastern Europe (including Russia) in 2012. (See attachment)

The top deals include the joint venture purchase of the retail element of Zlote Tarasy in Warsaw for €475 mln; Immofinanz acquiring the 50% it did not own in Golden Babylon Rostokino in Moscow for €540 mln, and Union Investment buying Manufaktura shopping centre in the Polish city of Lodz for €390 mln.

Jos Tromp, head of CEE research and consulting at CBRE, said this weight of money plus the fact high quality shopping centres are available in the region today had resulted in prime shopping centre yields slipping below office yields for the first time in several years.

Tromp also showed that the spread between 10-year government bonds in Germany and the weighted average prime yield for central Europe had risen to 540 basis points. Such a wide spread was last seen in 2002 when it stood at 530 bps.

Tromp: 'This is a very interesting time for real estate which is obviously very much driven by low bond yields and the expectation is that this situation will continue for a bit.'

But the office sector in Central Europe is seeing a downward pressure on yields due to the level of demand. For instance, CBRE recently reduced the prime office yield for Prague from 6.5% to 6.25% based on transactional evidence.