Over the past five to 10 years, eastern European property markets have undergone a remarkable transformation. While there are still great investment opportunities to be had, the market is maturing and investors need to carefully research not only the area, but the type of property they should be buying. Here are some of the key countries in these emerging markets and their property sectors.

Czech Republic

From having virtually no investment activity in Prague five years ago, huge progress is being made towards making the city a well-established investment market. However, in light of its initially low prices and high returns, nobody expected it to reach western yield levels so fast, with Class A office buildings now trading at sub-7% yield levels.


The debt market is also becoming increasingly competitive and yield decline is being matched by low interest rates, thus providing attractive leveraged margins. Nevertheless, it must be pointed out that the dramatic yield compression is caused by the sheer volume of capital pushing into the market, combined with the market’s maturity and lower-risk investment environment.

The major challenge for those looking to invest in the Czech Republic remains the sourcing of suitable products. The supply of Class A office and retail developments in Prague and the Czech Republic cannot keep pace with demand. Investors who are able to take advantage of market niches such as forward funding co-investments, hotels, opportunistic investments, Class B properties or secondary locations outside of Prague are taking the chance to do so. Those remaining within the main market segment are bidding smartly and aggressively, which is driving the market to its current position.

Prague is emerging as a major tourist market and investors should give closer consideration to the hotel sector, which has a unique, sustainable position and would offer good opportunities for diversification away from the office and retail areas. This is also a reflection of the fact that investment opportunities in logistics real estate are rare at the moment, and that competition for retail properties is likely to match that which has been seen for Class A offices in Prague.

The forecasts for tourist numbers translates into demand for rooms, and cash-flow from hotel properties. The market will continue to favour sellers, and yields will fall. Only when interest rates rise significantly will we see the balance between sellers and buyers change and a slowdown in transaction volumes.


The country has had a couple of record years of investment activity in the commercial property market. The normal story of yield reduction continues; by the end of 2004, yields for prime A-class office investments were sitting at about 7.75%. Today, the figure has edged down to almost 7%.

While the cost of funds remains low and investors from outside (and inside Europe) chase the higher returns offered throughout central Europe, further falls in yields are expected, especially in the office sector.

Notable sales in the office investment market were DB Real Estate’s purchase of a new office building developed by Ablon, on Vaci ut, for a yield of approximately 7.5%. In addition, the Vienna-based fund CA Immo closed deals for two office buildings, both of which are in Buda. One of them, known as Canada Square, which is leased for 15 years to the Canadian government, sold for about €13m, and the other larger office building, known as Bartok Haz, sold for more than €40m. The yields for both are about 7.5%.

Skanska sold its office development known as Light Corner to the occupier, CIB Bank, for just under €30m. Using market rent levels to analyse the transaction, the yield appears to be approximately 7.25%.


Poland is an attractive destination for foreign real estate investors. Increased economic and legal stability following its accession to the EU and the harmonisation of certain financial and commercial regulations with EU norms are encouraging new companies to develop and buy new properties in Poland.

The country’s biggest investor is the US company Apollo-Rida, which has already invested some $800m. Another important player is AIG/Lincoln Polska, which has a presence in the office, light manufacturing, warehousing and residential sectors. It is planning to enlarge its portfolio through the creation of two new warehouse/office facilities, Diamond Business Parks, in Gliwice and Stryków.

Numerous real estate property funds are also interested in acquiring modern, well-let real estate developments, especially with rents becoming more stable and leasing activity at a relatively high level.

Vacancy levels in Warsaw’s office market are dropping, making it the favourite type of investment of recent months. Investment yields are also falling, reaching 7% for Class A office buildings. The retail sector is the next most popular, especially for new investors from Ireland, Austria, France, the UK and the Netherlands. Benchmark yields on retail properties are also 7%.

Warehousing and industrial developments are still waiting for their best times to come around, although there are a growing number of investors looking at the logistics market.

Increased transparency in the Polish market, and the lower risk premiums on real estate investments that result, will bring about further yield compression in the future.


The office investment sector has seen, and will continue to see, a continuation of the steep yield compression experienced over the past couple of years. The market is still caught between a scarce pipeline of investment grade products and large amounts of money looking for yields above the central and eastern Europe (CEE) average. During the first half of 2005, the first transaction below 10% was recorded, and yields are now closer to, or below, 9% on the best products in town.

With virtually no shopping centres for sale, the retail investment market has seen only high street retail portfolio deals in 2005. As even in this sector the supply of properties is small, the yield for top-end products matches that for offices, the most recent transactions being closed at 9.7%. Given the weak pipeline in the sector, many potential investors are focusing on either developing shopping centres themselves or doing so through joint ventures, either in Bucharest or in the other major cities in western and eastern Romania.

The industrial segment is by far the least developed on the Romanian market. The lack of investment grade products has naturally led to a lack of transactions. As is the case in the retail sector, the lack of products has pushed investors towards taking positions within development schemes, by joining either international or local developers.

There are still great investment opportunities in CEE, but for some sectors yields are fast approaching western European capital city levels, so time is of the essence. Relatively strong economic growth will drive the real estate sectors in these emerging markets, but some are more mature than others. Already questions are being asked about the risk-return rewards available, given the beneficial size and liquidity of many major western European markets.

Ewen Hill is head of international investment at Colliers CRE.

Tel: 020 7487 1956

E mail: ewen.hill@collierscre.co.uk