Office block blues

Although office skyscrapers are springing up across Central and Eastern Europe (CEE), a huge amount of capital and investors is still chasing any available quality space. "The total office space in all the CEE capital cities equals the office space available in Paris only," says Anna Starczewska, a senior analyst for Europe, Middle East and Africa at CB Richard Ellis.

The actual size of the CEE markets can also be illustrated by the investment volume. Half of the total real-estate investment committed to the CEE region in 2005 was directed at Poland, and equaled approximately EUR 3 (zł.12.2) billion out of EUR 6 (zł.24.5) billion. At the same time, investment in the UK reached EUR 70 (zł.286) billion.

Retail is starting to hold sway over the office market when it comes to investments. "Offices are capital-city investments, retail is over the country," says Alan Colquhoun, managing director at DTZ. In order to get a good return on offices, banks and advisers are telling investors to "sell your building twice." This is unsurprising in light of the fact that yields have dipped to below six percent in recent months.

Colquhoun admits that if rents stay at the same level as they are now, there is not much point in investing. "I would not expect rental growth in CEE in the next two years," says Starczewska, stressing that in the long-term, growth is possible, which might give a solid return on investment.

The market observers also say provincial cities are going to grow in importance, especially as location for off-shoring business operations centers, such as in Wrocław. "Tense competition can be expected between the cities of Romania, Bulgaria and Poland as to these outsourcing centers," says Starczewska. "The CEE countries will try to attract investors with their skilled labor and office space." She points out that countries such as Romania and Bulgaria are already hot spots for investors due to their low costs.

Agnieszka Barteczko