Colliers International, a leading real estate advisory business, released the 2011 New Europe Real Estate Review covering 12 markets including Albania, Bulgaria, Croatia, Czech Republic, Greece, Hungary, Poland, Romania, Russia, Serbia, Slovak Republic and Ukraine.
The report from Colliers International consists of summaries (data as of December 31, 2010) of all commercial property sectors in 12 countries in 2010 as well as forecasts and trends for 2011 onwards.
According to Colliers International’s research all national economies in the region continue to stabilize and improve, with positive GDP growth of 3.6% on average forecast for the New Europe region as we head into 2011. This expansion comprises a combination of high industrial/manufacturing production growth and falling unemployment, but rather muted growth in the demand for goods and services in most markets, bar Poland and Russia.
On the downside, austerity packages, concerns over government bond defaults, the rising cost of international debt and increasing inflation, which reached approximately 6.1% on average in 2010 – a similar figure is forecast for 2011 - could curtail the forecast for the year, although by varying degrees per country. In particular rising prices of energy, food and basic commodities could constrain any significant economic expansion.
Vacancy appears to have peaked on average and is set for a period of slight stagnation or moderate decline over 2011. Average rents are likely to remain stable over the year, but we could start to see prime rental growth in some markets – Kiev has already jumped back from 50% falls at end 2010, Warsaw is likely to see prime rents climb in the first half of 2011. It will take until at least year-end 2011 for other markets to see a comeback in prime rents as a result of excess availability versus limited take-up.
Industrial production grew significantly in 2010 driving demand for modern warehouse/logistics space. This activity was predominantly focused on Poland, the Czech Republic and the Moscow region, driving a more fall in vacancy in these markets. Outside of these regions, demand remained weak as a result of the lack of proximity to market – the export trade partners in Western Europe, notably Germany. At the end of 2010, interest was picking up in Slovakia from developers seeking land opportunities, but such interest is yet to migrate further south or east. It will eventually, but many markets are likely to be driven by retail demand in the short-term.
From an occupational and development perspective, retail continued to be the poor man in New Europe. Continued job uncertainty and austerity packages continue to drive low domestic consumption levels bar the usual anomalies of Poland and the Czech Republic. Retail sales took such a significant hit during the crisis, it will take at least another year before retailers get close to par which will subdue any further expansion or growth in rents. That said, the long-term prospects for growth are much more positive – double the growth forecasts of western Europe to 2020. Given the large number of international retailers yet to penetrate New Europe, occupational growth prospects are positive but will place greater demands on shopping centre quality at the prime-end of the space spectrum.
Investment transaction volumes over the year show a significant recovery compared to 2009, coming in at €6.36 billion - an increase of 47%. That said, volumes are still somewhat short of a longer-term turnover rate of €10bn, market cycles accepted. They only represent approximately 7.3% of total European transaction volumes. While the transaction cycle is on the way back up, the future for 2011 is a little opaque. Investor interest continues to move further south and east in search of acquisition opportunities which should increase turnover volumes for the region. With a €100m, prime office deal happening in Bucharest at the very end of 2010 – the first deal this market has witnessed since 2006. Money is moving beyond the core markets of Poland and Prague.