Warsaw, Prague prime office yields hold steady at 6.25%: DTZ

Warsaw and Prague remain the most attractive real estate investment markets in Central and Eastern Europe, with prime office yields in both cities steady at 6.25% during the second quarter of 2012, property adviser DTZ said in its latest investment update for the region.

The Polish and Czech markets continued to dominate real estate investment in CEE in the period from April to end-June as investment slowed down significantly across the region due to the ongoing economic uncertainty in Europe.

DTZ tracked just EUR 327 mln of investment activity in CEE during Q2 compared with EUR 834 mln for the previous three months. After two years of steady growth in 2010 and 2011, real estate investment in the region declined by 47% in H1 2012, with only EUR 1.2 bn recorded.

Poland, and more specifically Warsaw, had a subdued second quarter with a volume of EUR 122 mln compared to EUR 717 mln in the first quarter. It is worth noting that ING Real Estate’s sale of a 75% stake in Warsaw’s Zlote Tarasy retail-led mixed-use complex for EUR 475 mln represented 66% of Poland’s Q1 volume.

DTZ said that Poland remains a number one target for cross-border real estate investors in CEE. ‘As the second half of the year has been usually stronger than the first when it comes to the volume and number of transactions, and given the quality of investment products currently available on the market, we may still expect the volume of transactions for the whole year to be similar to those recorded in 2011.’

Prime yields during the first six months of 2012 were relatively stable, oscillating around 6% for retail properties, 6.25% for office and 7.75% for industrial. ‘Given the increase in uncertainty and wider reassessment of short- and medium-term growth prospects, no further yield compression is expected for the remainder of 2012,’ according to the DTZ report.

The Czech market was the strongest performer in Q2, generating EUR 159 mln of investment, or 48% of the total CEE volume. Helped by two deals in the EUR 50-100 mln range compared to one in Poland, the Czech Republic experienced a significant rebound from the first three months when DTZ recorded a volume of just EUR 20 mln. Nevertheless, combined Czech performance for the first half of the year was marked a 76% decline on H1 2011.

'The (Czech) investment market is negatively impacted by a high level of uncertainty regarding the future of the economy and banks' lending capacity. To this is added the expected impact of Basel III and even tougher European regulations,' DTZ said in its report.

International investors are nevertheless still chasing Grade A properties, as evidenced by US-owned L88 Companies acquiring the Hagibor Office Centre (Radio Free Europe) in Prague from Orco Property Group for EUR 75 mln in May. Czech private investors and private property companies are instead focusing on regional properties and Grade B retail and office properties in Prague.

Prime yields remained stable quarter-on-quarter in the Czech market. For prime office space they reach 6.25%. For prime industrial properties with a minimum of 10 years secured rental income yields stand at 8%. Prime yields for high street retail and prime shopping centres stand at 6.25%. Prime yields are expected to remain stable in 2012 for all sectors.

DTZ recorded voumes for Romania and Hungary of just EUR 25 mln and EUR 20 mln since the beginning of the year.