Investors are not spooked by Ukraine crisis, CEE briefing hears

Real estate investors are monitoring the Russia-Ukraine crisis but the flow of capital into Central and Eastern Europe is continuing unabated for the moment, PropertyEU's latest CEE briefing has heard.

Jos Tromp, head of CEE research & consulting at CBRE, gave a presentation showing that a combination of existing investors increasing allocations and new players coming into the market has driven volumes in Q4 2013 and Q1 2014 to record levels not seen since before the outbreak of the financial crisis in 2008. Total investment rose to €5.6 bn in 2013 from just under €4 bn the year before.

A panel of real estate professionals all agreed at the briefing hosted by CBRE in London that although it was difficult to say exactly what was going to happen in Ukraine, there seemed to be no tangible impact on the CEE property markets to date.

NO ESCALATION
'If there is no further escalation (in Ukraine) we think there isn’t going to be any impact on CEE real estate,' said Gordon Black, co-head of Europe private real estate equity at Heitman. 'Some people may say this is naïve, but if you look at the public equity markets or the debt markets the region is not trading as an emerging market...Russia has gone in that negative way, but CEE is not trading in that way: we don't see it in the occupiers' market, we don't see it in the capital markets for real estate, we are not seeing it in the debt capital markets.'

Poland, Black said, is not happy with the border dispute between its neighbours, but added, 'this is more of an emotional issue than an economic one'. The US-based company owns an office building in Moscow and almost $2 bn (€1.4 bn) of real estate in Central and Eastern Europe.

Martin Sabelko, managing director CEE at CBRE Global Investors, said the Ukraine crisis had not generated a negative response among its end-investors. The firm manages two funds, with total assets of $1.8 bn, in five countries with a direct border with Ukraine. Potentially, a worsening of the crisis could therefore have an impact, according to Sabelko, but projections suggested this could be below 100 basis points 'if something materialises'.

'We are not seeing an impact at the moment, particularly in relation to the dry powder (new investors) coming form the US,' Sabelko added.

Michael Atwell, head of capital markets, CEE at CBRE, said that everyone was 'watching to see what happens' but investment was continuing as normal. 'There is not any nervousness or concerns, and we still see the same weight of capital trying to get into Poland and the rest of CEE.'

Atwell recalled being asked about the Ukraine crisis at an event in Budapest a few weeks earlier. 'I bounced it back to the audience. There were representatives of Starwood there, AXA Investment Management, CBRE Global Investors and Heitman. They all said the same thing: they were not reducing their allocation to real estate in CEE. They said they watched the news every day and if things kept escalating there would be a change in attitude. At the moment, there's not.'

Click on the link for more on the CEE Investment Briefing