Central Europe performs best in commercial sector

Central Europe is the only region worth continuing with speculative development according to a leading European property investment and development company.

UK based Segro has reined in development in the UK and Western Europe due to the credit crunch. It is now concentrating on countries like Poland and the Czech Republic where it is experiencing good gains.

'In the UK we are concerned that we'll see values continue to fall, and we don't see any sign of the bottom yet,' said chief executive Ian Coull. 'We're focusing on Central Europe as that is where we are seeing good returns, but in the UK there will be good value at this point in 2009,' he added.

This is a direct result of the global downturn. The value of the company's European Portfolio has risen 0.7% to £1.2 billion, whereas the UK portfolio dropped in value by 10% to £3 billion, an initial yield of 6.3%.

But the company, a leading provider of Flexible Business Space in Europe, does not expect a huge impact on its business. 'There have been few signs to date that the economic conditions are having a significant impact on our customer base. Our leasing levels have remained strong, with low occupier insolvency levels, in line with recent years,' said Coull.

Moving into Eastern Europe has helped to spread risk. 'Our strategic move has delivered the expected benefits of diversifying the risk profile of our portfolio and giving us the flexibility to target our investments in the locations where we can achieve the best returns,' he added.

The general picture in this sector of the property industry is backed up by the latest analysis from Merrill Lynch. 'We remain concerned that the underlying industrial market in the UK and increasingly Western Europe remain slow with little sign of much rental growth and the potential for yields to keep moving-out,' said analyst Bhupen Master.