DTZ Research CEE Investment Market Overview Spring 2009Until the autumn of 2008, Central and East Europe (CEE) appeared relatively resilient to the global credit crunch, with “decoupling” remaining a fashionable theme.

However, following the collapse of Lehman Brothers in September 2008, and the ensuing sharp rise in risk aversion, CEE emerged as the most vulnerable Emerging Market region to financial deleveraging because of many countries’ heavy reliance on external finance.

In 2008, real GDP growth slowed noticeably in all countries in the region, with the Czech
Republic and Poland expanding by 3.5% and 4.8% respectively, and Russia growing by
6%. Much steeper falls in GDP are forecast for 2009, with outright recessions predicted
for several markets in the region.

In Q4 2008, industrial production and exports in the core CEE markets fell rapidly. With
the exception of Poland, these markets are heavily reliant on external demand and
therefore more exposed to the collapse of the car industry. Some of the growth
drivers in CEE went into reverse, with some international firms postponing their expansion plans and/or cutting costs by reducing their employment in the region. Retail sales in CEE, which were growing rapidly over the last several years, slowed dramatically in Q4 2008, particularly in Russia.

The external value of many of the region’s local currencies fell sharply in Q4 2008
as investors worried about the region’s financing requirements and growth
prospects, often failing to differentiate between markets.

The CEE banking sector, which is 75%-owned by West European parent banks, came under severe pressure in Q4 2008 as deleveraging provoked fears about the ability of parent banks to keep financing their CEE subsidiaries. Developers and investors were suddenly confronted with severely restricted debt facilities.

Equity-rich buyers remained the most active players on the market. The rise in risk aversion led to an even sharper focus on property fundamentals, with investors seeking long-term rental income secured on a braod range of tenants in good quality properties in the best locations.

However, the enduring mismatch between buyers’ and sellers’ price expectations led to
a sharp fall in transactional activity in 2008 and precluded new benchmark transactions..

The prospects for the CEE investment markets hinge heavily on vendors’ willingness to accept higher yields and lower capital values. CEE is less advanced in its market correction and needs to demonstrate pricing levels which are more attractive to institutional investors on a riskadjusted basis vis-à-vis West Europe.

Direct investment in CEE commercial property has been weakening gradually since early 2007. DTZ estimates that approximately 160 properties were
traded in the six main markets of Poland, Hungary, the Czech Republic, Romania, Russia and Ukraine in 2008, constituting a total transaction volume of €8.9 billion. This represents a 43% fall on 2007 volumes, underscoring the continued uncertainty and risk aversion across CEE. To date, the total capital allocated to the six markets has reached
almost €50 billion.

Despite the severe weakening of its economy in H2 2008 due to the collapse in oil prices, Russia remained the most actively traded market, and the only country which witnessed a rise in volumes relative to 2007. The largest falls in investment occured in Hungary, Ukraine and the Czech Republic.
The average size of transactions in the region continued to decrease, from €85 million in 2006 to €55 million in 2008.

This can be attributed to properties of a lower lot size being transacted and a smaller number of portfolio transactions.
The share of deals over €100 million increased from 52% in 2007 to 60% in 2008, with a large portion of these transactions occuring in Russia.

Purchases by local investors rose from 16% in 2007 to over 22% in 2008, with most of the activity taking place in Russia, Ukraine and the Czech Republic.

German investors remained the most active buyers on the market in 2008, accounting for 31% of the capital allocated to the region. They were followed by Russian purchasers, with a 14% market share. UK investors, which previously led investment activity in the region, saw their share of purchases drop to 10.6%.

Private property vehicles dominated investments across the region, while the share of institutional investors decreased significantly.

In 2008, the repricing of the CEE investment market significantly lagged the market correction in the UK because of an overall lack of liquidity and transparency.

Many transactions were put on hold as a result of the persistent gap between buyers’
and sellers’ price expectations. There was a much smaller number of institutional-grade
assets brought to the market in 2008. CEE commercial property lost some of its appeal relative to other asset classes in 2008, with many investors turning to higher yielding and relatively safer investments.,

This caused German open-ended funds to suspend their redemptions in October and
put their investments on hold.

Prices of prime properties that had remained fairly resilient to the global credit crunch in the first-half of 2008 began to soften towards the end of the year.

In some markets the upward pressure on yields resulted in a return to 2004/2005
pricing levels.

Descarcati intreaga analiza  aici.

14 April 2009