Ukraine crisis casts shadow over investment prospects in CEE

Investment volumes in Central and Eastern Europe (CEE) could dip in the first half of 2014 as a result of buyer concerns over the Russia/Ukraine conflict, according to a new report by Colliers International.

Whilst the Ukrainian investment market is yet to materialize, a weakening of sentiment for investment in Russia could temper total Central and Eastern European (CEE) volumes.

Investment volume in Central and Eastern Europe rose 26% to €11.14 bn in 2013, according to the international adviser. This is almost back to the level before the global financial crisis. A best-case scenario would see 2014 investment volumes close to the cyclical peak of 2007 at around €16 bn. By 2016 this figure could potentially reach almost €19 bn, setting a new all-time high in terms of transactional volumes for the region.

A more optimistic scenario for 2014 foresees further growth in investment from a range of investors including sovereign wealth funds (SWFs) and the more traditional pension funds and insurers who are looking to take on a greater volume of real estate within their current portfolios. At the other end of the scale are the private sector buyers who, Colliers said, will be increasingly active seeking out opportunities.

A more modest mid-case scenario, factoring in limited product choice and some transparency/pricing concerns in the tier 2 markets, could slow down transaction activity across the region over the next two to three years, despite an increase in buyer appetite. Overall, however, Colliers expects to see an increase in investment volumes in the region as investors seek positive yields in markets with rental and capital value upside.

Commenting on the report, Damian Harrington, regional director of research for Colliers International, Eastern Europe, said that a significant amount of untapped potential existed with a number of the markets outside the core region yet to fully secure investor interest. ‘A good example is Romania – it looks best positioned out of the tier2 markets to see an immediate uplift in investment activity in 2014 although it won’t reach maturity until cost-effective debt availability improves.’

Colliers expects the Czech Republic to turn in good transactional results for 2014 while the region’s behemoths, Poland and Russia will continue to dominate. Investor interest in the tier 2 countries of Hungary, Romania, Bulgaria, Serbia and Croatia began to filter through during the second half of 2013 but Colliers does not expect to see this interest translated into deals until Q2 or Q3 of 2014.

‘We expected to see improvement in economic and business sentiment during 2013, and it certainly appears the European economy has continued to recover from its recessionary trough at the end of 2012. In particular, those economies that were underperforming in 2011 and 2012 – notably those in South Eastern Europe - showed sure signs of recovery,’ Harrington said.

Click on the link below to read Collier International's full report on the CEE region