Eastern europe: a retail property mecca?

Current economic events provide both high risks and potentially high rewards for investors in the Central and Eastern European property market, claims one expert...

According to Patrick Young, Chairman of Projekt Vistula, the retail explosion in Eastern Europe during the past two decades has been considerable but there remain significant opportunities for judicious investment.

Judicious is of course the key factor. Simply piling into capitals whether it is Budapest, Moscow, Riga, Warsaw or any point thereabouts has proven an expensive option in recent years. Nevertheless, yields are rising as capital values have fallen, so opportunities will re-emerge.

Infrastructure improving

However, the biggest opportunities currently can be found in second and third tier cities. Road infrastructure is improving in many countries. For instance, the expansion of the Polish motorway system joining north and south and east and west by 2012/2013 will revolutionise traffic movement.

This will have a huge impact on logistics, permitting much cheaper and easier transportation across not merely Poland but in fact all the way through much of CEE and farther east from the EU (and vice versa). Moreover, the opportunity to drive intercity distances of 100-300 kms much more easily will be a huge fillip to the retail emporia themselves.

In that respect, investment in retail property in secondary or tertiary cities will be an interesting option - particularly if property prices continue to sag in much of Eastern Europe.

Outside the EU, even in major cities, retail opportunities can be highly significant in coutnries such as Belarus or Serbia for instance.

Domino effect

However, often retailers are nervous about supply chains and existing product distribution arrangements which they feel may be anti-competitive to their expansion into these countries.

This may impact upon investment decisions although in many of these countries, property prices are relatively low and indeed existing retail operations make the market ripe for new entrants.

At yields around 15% developers/buyers are probably interested, presuming they can find the finance. Another difficulty right now is the instability in currency rates and the general panic in western markets about an Eastern European domino effect.

Ultimately, the western media love the "wild east" tag but right now the opportunity to find great deals is coming closer in many parts of the CEE/SEE retail market.

Source: www.glgroup.com