Supply shortage pushing down CEE property investment

Foreign buyers are the major force at the prime end of the market in CEE, even though the cross-border element as a percentage of the volume has dropped from almost 100% in 2005 to just above 60% now.

However, cross-border investors are facing a shortage of prime assets following a bumper year in 2011, according to Jos Tromp, director, head of research & consulting CEE at property adviser CBRE.

Trump was addressing PropertyEU's second CEE Investment Briefing in London on 3 September. Over 100 real estate professionals - investors, advisers and financiers - attended the event, which was hosted by CBRE. PropertyEU’s investment briefing comprised a presentation, a panel discussion and networking.

According CBRE, deal volumes fell 60% to EUR 2.1 bn in the first half of 2012 compared to the same year-earlier period.

A few large prime real estate transactions dominated volumes in H1 this year. The largest was the corporate-style acquisition by CBRE GI and AXA Real Estate of a 77% stake in Warsaw’s Zlote Tarasy mixed-use scheme for an estimated EUR 475 mln.

Trump noted that a comparison with 2011 did not tell the full story. European investment volumes are around 50% off the peak of 2007-8. CEE volumes are traditionally around 6% of the European total. They spiked to 12% in 2011due largely to high availability of prime shopping centres and offices but are now back at 6%.

Trend shifts in Europe tend to take six to eight months to filter through to CEE so it took some time for growing risk aversion to materialise in the region. ‘This is the realistic normal,’ he said.

Investment in the third quarter has continued to focus on prime assets in the strongest economies in CEE. At end-August Tristan Capital Partners and Allianz Real Estate teamed up to acquire the Warsaw Financial Center for EUR 210 mln.

Daniel Harris, managing director, Europe and Central Europe for Tristan, was one of the panellist at the briefing.

He said Poland would probably get to a volume of EUR 2 bn for the full year but it would not match last year’s result. ‘A lot of transactions closed by end-2011 so effectively there were not a lot in discussions at the start of 2012. If you start the year on zero, Q1 and Q2 are never going to be particularly exciting.’

Harris said the situation was changing and a significant amount of transactions are in the works. One property adviser has said the firm has EUR 1 bn of deals.

Mike Atwell, head of CEE capital markets at CBRE, confirmed there is a high level of investor interest in prime assets. But both Atwell and Harris noted deals are taking far longer to close, with 12 months seen as normal. In many cases, Atwell said, it is the length of due diligence and negotiations rather than a lack of finance that is limiting deal volumes.

Tristan’s Harris said the initial investment memorandum for the Warsaw Financial Center was drawn up in October 2011, after the agents probably began work in June 2011.

‘We signed the transaction at the beginning of August and anticipate closing either early-November or early-December. So, for the agent that will be a 15-16 month process to sell a single building.’