The Eastern European investment market saw €7.7 billion worth of investment transactions close during the whole of 2012*. This represents a significant downturn in trading across the market in Eastern Europe, with turnover reduced by over one third in comparison to the €12.2 billion in 2011.
However, Damian Harrington, Colliers International’s Director of Research in Eastern Europe commented: “This figure should not be taken at face value. The closing of large deals has a tendency to distort statistical year-on-year trends.”
The research shows that looking back at the deals which closed in 2011 turnover in the investment market was driven by some very large ‘one-off’ deals. Most notable were the Europolis Portfolio and Galeria St Pete’s deals, which at a total of €2.3 billion accounted for almost 20% of the total transaction volume of 2011.
Secondly, there were four deals in Moscow which equate to over €2.2 billion in value which were due to close in 2012; however these deals eventually closed in 2013. If they had closed in Q4 2012 this would have halved the year-on-year drop in activity to 20 per cent. Furthermore, if the Galeria St Petersburg deal had closed in Q1 2012, rather than Q4 2011, the annual difference would be as low as 5 per cent.
Damian Harrington went on to comment that: “Whilst the year-on-year statistics depict strong volatility, the clear underlying trend which is visible to us is that the markets which continue to attract real estate capital share a number of features. These are the availability of strong, core assets at a reasonable price, a liquid capital market and positive economic; and property market growth conditions.”
The two countries which most benefit from these conditions are Russia and Poland. In 2012 they accounted for over 80 per cent of all transactions and this trend will continue into 2013.
Ukraine posted the highest year-on-year growth in 2012, although this figure was inflated by the sale of the Ocean Plaza Shopping Centre in Kyiv. There were very few other deals completed in Ukraine outside of this high profile transaction. Such one-off transactions are unlikely to be repeated every year, especially given the emerging nature of the Kyiv investment market.
All other markets posted a fall in activity, bar Romania and Poland. However an uplift in volumes in a number, if not all, of the Eastern European markets is expected longer term.
Harrington concludes: “The Eastern European investment market has performed well over the last couple of years despite the negative factors it has had to contend with. Looking ahead, whilst the European economy should bottom-out in 2013, leading to improvements at the end of the year, the operational capacity of banks and investors will remain hindered, curtailing activity outside of the larger, core markets.”