Investors urged to hitch wagon to CEE's 'rising stars'

International real estate investors have a 'great opportunity' to tap into strong but not yet fully appreciated growth in cities in Central and Eastern Europe, a new report backed by some of the leading players in the region claims.

CEE is an increasingly attractive region for investors as its products offer both profitable yields over the long term and low investment risks, according to the ‘Rising Stars 2015’ report launched by Skanska, JLL, Colliers International and the Association of Business Service Leaders (ABSL).

CEE offers a 'great opportunity' as there is a huge investment gap and the region attracts only a few percent of the total value of investment in Europe, the report says. At the same time, it is one of the biggest engines of growth on the continent with an average 4.6% GDP increase, according to forecasts from McKinsey.

Required fundamentals
CEE cities have a lot of the required fundamentals in place to drive continued investment and development activity, according to Colliers International. JLL adds that this situation could change quickly with funds becoming more open to pursuing ‘non-core’ strategies. The value of total transactions on the global market is expected to rise by 5% to 10% in 2015.

'There is a lot of money to be spent in the market due to the robust recovery of the global economy. The number of available, attractive investment products in the countries that are at the top of investors’ lists is limited – which is why investors are increasingly attracted to safe products in CEE which offer good yields and long-term profits,' said Adrian Karczewicz, transaction director at Skanska Commercial Development Europe.

Safe lands of opportunities
The report notes that most of the countries in the region are members of the EU and the region has a population of more than 100 million, creating a strong internal market.

Some 24% of workers in the region have university degrees, which helps convince many companies to locate their service centres or factories in CEE. The biggest engine of growth is the business services industry, which will continue to develop in CEE cities for many years to come.

Higher yields
Prime yields in CEE are higher than in western countries, averaging 6-7,5% in 2014 depending on the city, according to JLL. However, the growing maturity of the CEE market is leading to yield compression. As Skanska states, prime yields in 2015 in CEE capitals could average 5.75-6% in Warsaw, 7.5% in Bucharest, 5.75-6% in Prague and 7% in Poznan – a regional city in Poland.

'Although it is naturally Warsaw that leads Poland's office investment market with the most spectacular deals, we have observed growing interest in regional cities. So far, the clear front runners in terms of investment volumes have been Krakow, Wroclaw and Tricity.

'At the same time, other regional cities (Poznan, Lodz and Katowice), where tenant demand continues to grow, are expected to catch up very quickly with investors trying to benefit from more relaxed yield profiles,' said Tomasz Puch, head of office and industrial investment, JLL.

ABSL conference in Krakow
The ‘Rising Stars 2015’ report was drawn up by Skanska, JLL, Colliers International and ABSL. It will be pre-launched at PropertyEU's European Outlook investment Briefing in New York on 11 June and officially presented in full during the ABSL Conference in Krakow on 16-17 June 2015.