Russia among CEE markets seeing increased deal flow

Certain Central and Eastern European markets – Russia in particular - have seen an increase in levels of activity, while competition for prime assets in Western Europe remains ‘intense’, according to a report by CB Richard Ellis.

The Russian real estate market has seen a significant uptick in activity in the past few quarters, Richard Ellis said today, in research that suggested some CEE markets are gaining ground on parts of established Western Europe.

The Q2 2011 European Capital Markets report by global property services firm Richard Ellis highlighted which countries had seen increased activity in terms of investment volume and which ones had weakened.

One clear conclusion was that Russia in particular has seen a “significant” increase in activity. Along with Poland, the country saw just as much activity in the first half of the year as during the whole of 2010.

Calling the level of transactions “high”, Richard Ellis found €1.7 billion of deals completed in Russia in the second quarter alone. There were deals in all three main property sectors with the largest being the purchase of the Ritz-Carlton hotel in Moscow. The report did not detail the transaction, but the Ritz-Carlton was bought for a reputed $600 million by Verny Capital, the Kazakh private investment vehicle of billionaire Bulat Utemuratov.

Moscow and Warsaw appear in the report’s top 10 largest markets for the first half of the year, Moscow behind Central London, Paris, and Manchester. It accounted for 3.8 percent of total transactions. Warsaw was in ninth spot with just over €1 billion of deals, or 2.2 percent of the market.

“The presence of Moscow and Warsaw testifies to the growing level of activity in main CEE markets,” said the report. “With competition for prime assets in Western Europe intense, both markets offer large, relatively liquid alternatives, with the added advantage of a yield premium.”

The finding that the CEE region is rising in terms of property investment activity is mirrored by the increase in deals being announced in the region, albeit from a low base. Europa Capital Partners and BPT Asset Management, for example, have both announced recent investments. In the case of BPT, it bought an office in Tallin, Estonia, on behalf of a new Baltics opportunity fund, while Europa just completed a deal to buy the Mall of Sofia in Bulgaria for 100 million.

Richard Ellis’ report summed up Europe by suggesting Germany, the Nordics and selected CEE Markets were attracting interest while there was “corresponding weakness” in the UK and Southern Europe.

It said activity remained the strongest in Germany and the Nordic region, which are both seen as markets with strong occupier fundamentals. That said, extremely weak economic data came out of Germany on Tuesday this week. Growth has slowed to a virtual standstill at 0.1 percent, disappointing economists who were expected a figure closer to 0.5 percent.

See the September issue of PERE for a report on Europe’s emerging markets.