Reasons to be cheerful
That there wouldn't be any noticeable upturn in the market for some time was not an uncommon sentiment. There's nothing wrong with realism, of course. Listening to or reading what the researchers at the major real estate consultants have to say, however, can give one a more upbeat notion of how this country and its CEE neighbors are going to fare in the years to come, strange as that may seem. The impression often given of 'researchers' is of dour people fiddling with data while the real world carries on outside the confines of the office. The truth is, of course, that they give us all a more reflective slant on the world in which we live and work.
Rather than just simply sending out copies of its latest report via e-mail or courier, CB Richard Ellis invited members of the local press along to a presentation of its latest findings on June 1 at its HQ in Warsaw. The company's head of research Central Europe, Cory Hrncirik, introduced the research results to the small audience and did so in a slightly unexpected way. The subject was CEE Commercial Property post-EU accession, but its terms of reference were broader than one might have anticipated. Central and Eastern Europe was treated geographically rather than in the political manner that would seem natural after the accession to the EU by so many countries in the region. In other words, currently non-EU countries such as Romania and Russia were given a comparative assessment, alongside those nations in the CEE that have just joined the Union. This approach managed to achieve a level of honesty, in that it was acknowledged that EU accession still hadn't quite severed connections between the new members and their, let's say, less affluent and less transparent near neighbors. At the same time, it struck a very optimistic note, in that Romania was clearly identified as being close behind Poland and the other new entrants in becoming an EU member and that perhaps even Russia might eventually join the European family at some point in the distant future.
There were, in fact, strikingly common factors at work among the countries under review (Poland, the Czech Republic, Hungary, Romania, Russia and Slovakia), and compared to some countries in the rest of the continent, unemployment was found to be high across the CEE, but the levels were generally most acute in the newly acceded EU nations. Twenty percent of Poles are out of work, compared to 7.5 percent of Romanians, for example. That latter statistic is clearly not a good omen for any sector of the economy, let alone real estate. Inflation is, however, considerably lower, at 1.7 percent in Poland, than it is in Romania, where it is 12.7 percent.
GDP growth is higher throughout this region than elsewhere in Europe and this does, naturally, bode well for the property market, particularly in the office and retail sectors. Prospects for Poland are looking particularly bright right now. However, this point was qualified by the fact that GDP per capita in the eight acceding countries was only about 24 percent of that enjoyed in the rest of Europe and that it would take several years for them to catch up.
The issues of privatization and foreign direct investment (FDI) were then addressed. As the former accelerates in this region, stated Hrncirik, so will it naturally stimulate the latter. FDI, in his words, "was currently pouring into Central and Eastern European countries at a higher rate per capita than in most Western countries." This has, and will continue to have, a very favorable effect on the office market in the region. Attention was drawn to recent decisions by a number of Western companies to outsource some of their back office operations to the CEE, with particular emphasis on Philips' move from Dublin to Łódź, where it has set up a shared services center for its EMEA accounting operations that will occupy 8,000 square meters over two phases of re-location. The lesser risk that is now perceived to exist here for companies to do business would also boost FDI. A recent international study found that Poland, the Czech Republic and Hungary were in the top 11 'least risky' countries in the whole world for new investors.
The office market in this region is still undeveloped by Western European standards. Across all the markets in the CEE, the total modern office stock amounts to just over 10 million square meters, which means there is still a lot of room for development in the sector. Rental levels in these countries tend to fall within E18-22 (zł.83.80-102.44) per square meter, though Moscow is somewhat more expensive with an average of E43.65 (zł.203.21) per square meter. These rents are still cheaper than in cities such as Frankfurt and Paris, however, and in general will stabilize over the next twelve months. The highest vacancy rates in the region are in Bucharest, with 18.5 percent, and the lowest in the Russian capital, with 6.7 percent. Over the next year the completion rate for the CEE as a whole will decrease slightly by 1.7 percent and will only increase in Bratislava and Bucharest. In Warsaw, however, it will fall.
Whereas the office sector in the CEE region is concentrated in the capital cities, the retail market is a lot more broadly spread throughout the provincial areas, and this is something that will continue because the ratio of people per square meter of retail space is still high compared to Western Europe. An indication of the growth that will take place in this market is given by the fact that the rate of completion in this market will increase in almost every major center over the next twelve months (with the exception of Prague). "At the moment," said Hrncirik, "retailers just cannot afford not to be located in this region."
In the industrial market, the CEE region has benefited from a good deal of interest from the automotive industry because of its cheap and plentiful high-skilled labor and short supply chains to the West, but some other manufacturers are already looking further east and Russia is beginning to gain from this. Those goods that don't require a high skill and short supply chain are increasingly being produced in larger quantities in India or other parts of Asia. The industrial market will, however, continue to grow rapidly throughout the region, but in Prague and Warsaw the rate of completions over the next year will remain the same as in 2003. One marked tendency in this sector will be that regional hubs will continue to grow and vie with one another for dominance. "Cities such as Kraków, Brno and Bratislava are all trying to become important logistics hubs," said Hrncirik, but how well they succeed will depend a lot on how the infrastructure can be improved in the different countries.
Rather than just simply sending out copies of its latest report via e-mail or courier, CB Richard Ellis invited members of the local press along to a presentation of its latest findings on June 1 at its HQ in Warsaw. The company's head of research Central Europe, Cory Hrncirik, introduced the research results to the small audience and did so in a slightly unexpected way. The subject was CEE Commercial Property post-EU accession, but its terms of reference were broader than one might have anticipated. Central and Eastern Europe was treated geographically rather than in the political manner that would seem natural after the accession to the EU by so many countries in the region. In other words, currently non-EU countries such as Romania and Russia were given a comparative assessment, alongside those nations in the CEE that have just joined the Union. This approach managed to achieve a level of honesty, in that it was acknowledged that EU accession still hadn't quite severed connections between the new members and their, let's say, less affluent and less transparent near neighbors. At the same time, it struck a very optimistic note, in that Romania was clearly identified as being close behind Poland and the other new entrants in becoming an EU member and that perhaps even Russia might eventually join the European family at some point in the distant future.
There were, in fact, strikingly common factors at work among the countries under review (Poland, the Czech Republic, Hungary, Romania, Russia and Slovakia), and compared to some countries in the rest of the continent, unemployment was found to be high across the CEE, but the levels were generally most acute in the newly acceded EU nations. Twenty percent of Poles are out of work, compared to 7.5 percent of Romanians, for example. That latter statistic is clearly not a good omen for any sector of the economy, let alone real estate. Inflation is, however, considerably lower, at 1.7 percent in Poland, than it is in Romania, where it is 12.7 percent.
GDP growth is higher throughout this region than elsewhere in Europe and this does, naturally, bode well for the property market, particularly in the office and retail sectors. Prospects for Poland are looking particularly bright right now. However, this point was qualified by the fact that GDP per capita in the eight acceding countries was only about 24 percent of that enjoyed in the rest of Europe and that it would take several years for them to catch up.
The issues of privatization and foreign direct investment (FDI) were then addressed. As the former accelerates in this region, stated Hrncirik, so will it naturally stimulate the latter. FDI, in his words, "was currently pouring into Central and Eastern European countries at a higher rate per capita than in most Western countries." This has, and will continue to have, a very favorable effect on the office market in the region. Attention was drawn to recent decisions by a number of Western companies to outsource some of their back office operations to the CEE, with particular emphasis on Philips' move from Dublin to Łódź, where it has set up a shared services center for its EMEA accounting operations that will occupy 8,000 square meters over two phases of re-location. The lesser risk that is now perceived to exist here for companies to do business would also boost FDI. A recent international study found that Poland, the Czech Republic and Hungary were in the top 11 'least risky' countries in the whole world for new investors.
The office market in this region is still undeveloped by Western European standards. Across all the markets in the CEE, the total modern office stock amounts to just over 10 million square meters, which means there is still a lot of room for development in the sector. Rental levels in these countries tend to fall within E18-22 (zł.83.80-102.44) per square meter, though Moscow is somewhat more expensive with an average of E43.65 (zł.203.21) per square meter. These rents are still cheaper than in cities such as Frankfurt and Paris, however, and in general will stabilize over the next twelve months. The highest vacancy rates in the region are in Bucharest, with 18.5 percent, and the lowest in the Russian capital, with 6.7 percent. Over the next year the completion rate for the CEE as a whole will decrease slightly by 1.7 percent and will only increase in Bratislava and Bucharest. In Warsaw, however, it will fall.
Whereas the office sector in the CEE region is concentrated in the capital cities, the retail market is a lot more broadly spread throughout the provincial areas, and this is something that will continue because the ratio of people per square meter of retail space is still high compared to Western Europe. An indication of the growth that will take place in this market is given by the fact that the rate of completion in this market will increase in almost every major center over the next twelve months (with the exception of Prague). "At the moment," said Hrncirik, "retailers just cannot afford not to be located in this region."
In the industrial market, the CEE region has benefited from a good deal of interest from the automotive industry because of its cheap and plentiful high-skilled labor and short supply chains to the West, but some other manufacturers are already looking further east and Russia is beginning to gain from this. Those goods that don't require a high skill and short supply chain are increasingly being produced in larger quantities in India or other parts of Asia. The industrial market will, however, continue to grow rapidly throughout the region, but in Prague and Warsaw the rate of completions over the next year will remain the same as in 2003. One marked tendency in this sector will be that regional hubs will continue to grow and vie with one another for dominance. "Cities such as Kraków, Brno and Bratislava are all trying to become important logistics hubs," said Hrncirik, but how well they succeed will depend a lot on how the infrastructure can be improved in the different countries.
