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Stefan Wundrak

Are Investors missing out on opportunities further east of Europe?

​​Stefan Wundrak, Director of Research, Property, provides a summary of the general sentiment from The GREET conference in Vienna recently. He explores the possiblity that while investors wait for "old Europe" to sort itself out, they may be missing other opportunities right next door in Eastern Europe.

​With most of Europe mired in recession and obsessing about debt, one could almost forget that there are countries further to the east of the continent. From Poland, via Russia and down to Turkey, these countries still qualify as high(er) growth emerging markets and are in no need of bailouts or haircuts. The GREET conference in Vienna last week shed some light on this somewhat forgotten region, east of Vienna.

Eastern Europe follows the pattern of emerging markets, as its capital investment still depends on investment flows from developed markets. Apart from Russia which relies much less on the West, property developers, lenders, investors and even commercial tenants in Eastern Europe are largely headquartered in Western Europe. In the wake of the crisis, investment flows in the easterly direction have dried up, with many focusing on their core markets. Of those targeting the east, Poland, Turkey and Russia have attracted the most significant amounts of capital, whereas Hungary, Romania and Bulgaria have struggled to get any interest at all.

Given that Russia is by far the largest market in the region, it is not surprising that it attracts the lion's share of the volumes, even if one might have expected the recent political cross fire to have put a lid on investment growth. According to the delegates at the GREET conference, Russia works in a very similar vein to China, in that looming political concerns do not deter investors from taking advantage of a large growing market, providing of course the government offers a stable framework and does not interfere too much in commerce.

Poland, on the other hand, benefits from a deep economic integration into the European Union, notwithstanding its exceptionally strong economic performance since 2007, avoiding recession even at the height of the global financial crisis. Poland attracts the widest variety of active investors, banks and developers in the market. Most notably, at the end of May, Immofinanz (listed in Vienna) sold"Silesia City Centre" shopping centre to Allianz for €412m, this is rumoured to reflect a net yield in the mid-to-low 5%. Poland is also the most advanced with regards to home grown industries, which bolsters stability by making the market much less dependent on Western European companies. In contrast to the rest of the region, Polish domestic fashion retailers often beat international chains and occupy significant shares of shopping centres and retail parks. Some of them are now ready to expand to the West: CCC, a leading polish fashion retailer with a number of brands, is targeting Austria as its first Western expansion market.

The message of the conference could be summarised as, while investors wait for"old Europe" to sort itself out, they are missing other opportunities right next door.

Stefan Wundrak

Stefan Wundrak

Head of European Research

Stefan's biography