Investing in central and eastern Europe (CEE) is attractive because real estate is driven by strong fundamentals, making it a mainstream investment with an emerging market upside.

CEE real estate provides investors with a unique combination of core developed market returns and emerging market potential. Considering the relatively short 20-year time period during which democratic and economic transition occurred in CEE, the region has made excellent progress.

The most attractive real estate investment markets in the CEE currently are Poland and the Czech Republic. They are less volatile than the rest of the region, as well as many of the more mature western European markets where virtually every global market segment has been adversely affected due to the over-extension of credit and too much leverage in the system.

Across CEE, Hungary and Slovakia have been more adversely affected than Poland and the Czech Republic, but somewhat less affected than Bulgaria and Romania due to their overall maturity and the tough political and economic decisions that have already been taken.

Markets such as Ukraine and the other former Soviet Republic countries, as well as south-eastern Europe at this time, are generally considered too risky for mainstream institutional investors due to lack of transparency, corruption and overall business conduct.

The Baltic countries are interesting markets but suffer from being small. The investor into Russia needs to be accustomed to taking an inordinate amount of market risk since the country is much more difficult to quantify, and they should also have a close local partner to help navigate the country's challenging business and regulatory environment. In time, all of these markets will become mainstream real estate markets. However, this is not the case just now given current global financial challenges.

Poland and the Czech Republic are extremely attractive markets for a variety of reasons. Both have several major business hubs, with Poland, like Germany, having more dynamic in-country centres due to its overall population of 38.5m. Each capital city is considered a major business centre in Europe. Prague (pictured above), the ‘jewel of Central Europe', is one of Europe's primary tourist and quality-of-life destinations for western business expatriates, while Warsaw offers a large, vibrant and dynamic market with a population that is expected to double over the next 20 years.

The primary rationale for global business expansion into CEE - and more specifically in Poland and the Czech Republic - is a well educated, young, and relatively inexpensive workforce with the hunger and passion to achieve the same standard of living as seen in western Europe, the US, Canada, and other mature economies.

While western Europe is still suffering from the aftermath of the global economic crisis and is dealing with the consequences of both the Greek and euro crises, Poland's and Slovakia's GDPs are forecast to be approximately 2.6% and 3.4% respectively in 2010, while the Czech Republic's should be positive as well.

While riskier for a variety of reason due to issues related to its budget deficit, Hungary should not be overlooked and may be a more attractive destination in 12-18 months.

Poland and the Czech Republic are certainly the leading CEE countries in terms of the quality of investment grade real estate and therefore continue to attract significant institutional investment.

Wayne Vandenburg is chairman, TVO Groupe