Unlike yields in some of western Europe, those in core central and east European property markets - Poland, Czech Republic, Slovakia, Romania and Hungary - have not yet hit cyclical lows, says adviser CBRE. The region attracted €11bn in inward RE investment last year, down slightly from €11.3bn in 2016.
Yields in some CEE countries are still attractive and high, and have not yet reached their cyclical yield low - unlike cities such as Vienna, Berlin, Paris or London, CBRE Austria noted in a year-end report. Budapest, Bucharest and Bratislava, for example, have not yet reached lows, with commercial real estate still ranging at a relatively solid 6% to 7.5%. "Warsaw and Prague are at the level of western Europe, which means that even there the cyclical low was reached in 2017," said Andreas Ridder, Managing Director CBRE Austria and Chairman CEE in a release.
CEE office space is still in high demand, however, and last year 1.59 m sqm were let in Warsaw, Prague, Bratislava, Bucharest and Budapest. This result stems from the trend toward business service centres, which are still being opened on a regular basis. "Large corporations are still shifting their back office agendas into central and eastern Europe so that more and more office space is needed," said Ridder. Out of the 1,400 or so business centres in the region, 900 are located in Poland, which is why demand for new office space is highest in Warsaw.
Prime office rents held largely stable last year: in Slovakian capital Bratislava at €17 sqm pcm, in Prague at €21, up slightly, and the same level in Hungarian capital Budapest, but down somewhat from 2016. "Warsaw remained the most expensive CEE office capital in 2017 with a prime rent of around € 23 sqm pcm," he added. But although the Polish capital has the highest amount of office space, it also still exhibits the highest vacancy in the region at around 12.5%. In all other cities in the CEE region, median office vacancy is below 10%.
"In 2018, we continue to expect demand for office space in the CEE countries to converge with the highest economic growth in Europe and the process of relocating back office activities from western to eastern Europe that shows no sign of ending," Ridder said.