Skip to content

Injection of equity needed for property investment in East and Central Europe

Investment in commercial real estate in central and east Europe was very slow in the fourth quarter of last year, according to the latest report from CB Richard Elli. But analysts say there is equity out there to invest in real estate.

The firm's CEE Property Investment Market View Full Year 2008 report shows that total investment turnover in commercial real estate in Central and Eastern Europe reached €9.5 billion in 2008, down 37% from the 2007 figure, but up 47% on 2005 results.

The fourth quarter was extremely slow with a deal volume of around €580 million and this was a direct result of limited lending, unclear prospects on pricing and the temporary freezing of a number of German open ended funds that were active earlier in the year.

Jos Tromp, Head of CEE Research & Consulting said that banks are likely to remain restrictive in their lending policies so equity will be key in 2009. 'Even though the amount of available capital in the market has declined sharply, there is equity available to invest in real estate,' he said.

Based on a survey done by CBRE among active, mainly opportunistic, investors across Europe, it was calculated that more than €3.5 billion of unleveraged equity is available to be invested in property across CEE, excluding German Open Ended Funds which might return to the market in 2009.

The main reason behind falling investment volumes has been banks' unwillingness and or inability to lend money, which is entirely related to the global financial crisis, the report points out. The number of banks financing property investments in CEE is limited and, as some of them are facing tight liquidity levels, the situation is not likely to change in the short term.

'Banks will remain risk averse in 2009 and therefore trading of anything but the best properties will be difficult. Equity is essential in concluding deals,' the report says.

'A light at the end of the tunnel is that banks need to issue loans to support their shareholders' expectations. Therefore, they are likely to start lending to certain key clients again in the latter half of 2009, but will be restrictive on LTVs and will not finance speculative developments,' it continues.

If all office and retail projects under construction are delivered as planned in 2009, real estate with a potential value of around €3 billion will come onto the market. Even though no significant forced sales took place on the open market in 2008, there may be more products being forced onto the market in 2009.

'The price correction that is currently under way in property worldwide will offer chances for investors, and also in CEE. For equity investors who are currently preparing a market comeback, markets will present opportunities in 2009. Now that repricing is under way, we expect pan-European investors to start looking at CEE again,' concluded Tromp