Aug 03, 2012
EASTERN EUROPE
MARKET SNAPSHOT
2012
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Eastern Europe: What lies ahead in 2012?
JANUARY | 2012
EASTERN EUROPE REGIONAL OVERVIEW This brief report provides a review of property markets in Eastern Europe during 2011, with a view to the key trends we anticipate in the year ahead. The regional overview ranks the likely performance of the main real estate sectors in each of the thirteen markets we cover. This is followed by a one page market snapshot of the key trends in each of these markets. MACRO-ECONOMIC OUTLOOK The last two months of 2011 were somewhat frantic, with the media focussing on the European sovereign debt crisis, painting very dark clouds over Europe. The situation was exacerbated by the inability of governments to agree on measures to alleviate the crisis and put the fundamental structural changes in place to ease the markets. Despite the doom and gloom, with threats of the Euro collapsing followed by the break-up of the entire EU, our own reading of the situation is that the Euro will not collapse, nor will there be a disorderly exit of poor or strong countries. The cost of doing so is simply far too great for any country to bear. The EU will sort itself out, it has no choice...as the choice to go it alone for any country is way too expensive in the short and long i.e. a cost of ca. 10,000 per person for the first year alone, followed by 4-6,000 for several subsequent years. This would equate to around 45-50% of a poor country's GDP, and 20-25% of a strong country's GDP. There would be similar costs over several subsequent years, according to UBS research. Although the EU summit on the 9th December provided the platform for short- and long-term change, discord remains on how to deal with the issues at hand. Some `extra-treaty' measures are being put in place, however, which will alleviate the pressure on markets over the first half of the year. It will take much longer for the EU to be re-structured, including a move toward greater fiscal union. Over the next 2 years we expect some countries to be allowed an orderly workout, or see significant structural change of their EMU membership. FINANCE OUTLOOK One undesirable output of the recent crisis has been the recent withdrawal of bank lending, even though the European Banking Authority (EBA) `re-capitalisation' tests look to have been fairly well met by the banks as things stand. The November 2011 decision of the Austrian Banking Authority (ABA) to place a moratorium on any new lending in Eastern European markets where banks run over a 110% Loan Deposit Ratio (LDR) threshold created the biggest negative impact in the region, even though Austrian banks are in relatively good health. That said, while everyone waits for the dust to settle and the EBA banks tests to be met by mid year, bank financing will be limited. Outside of Poland, Russia, the Czech Republic and Slovakia reduced banking activity will dampen economic growth and real estate investment turnover in the short term. Countries with greater political and economic difficulties face rather longer levels of restructuring pain, notably Greece. Banks will be back into all markets in the long run. Eastern European markets are too profitable for them to ignore. INVESTMENT OUTLOOK Following the regions second best year in terms of investment turnover, reaching ca. 12 billion, we expect investment turnover to fall back in 2012, in response to contractions in economic growth and the availability of real estate debt. It will be a primarily core/equity driven market. We may, however, finally see some distressed assets/loan books coming through the system to help stack up deal volumes. For the last 18 months we have highlighted that 2012 would be the year when distressed sales come to market, if at all. A combination of regulatory and market pressure, plus changes to senior management within the banks could finally remove the `pray and delay' legacy of the previous property boom. This could be a great year for those waiting in the wings with equity seeking the right opportunities.
ECONOMIC GROWTH: 2012 GDP % PA FORECAST
4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0
EASTERN EUROPE: INVESTMENT VOLUMES & YIELDS
20 18 16 14 12 10 8 6 4 2 0 16% 14% 12% 10% 8% 6% 4% 2% 0%
02
03
04
6
07
00
08
01
05
09
10
20 0
20
20
20
20
20
20
EE Inv Volumes
20
Warsaw Prime Yields
20
20
Moscow Prime Yields
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20
20 11
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Eastern Europe: 2012 Forecasts
JANUARY | 2012
Office Prime Rent Moscow Albania Bulgaria Czech Rep. Croatia Greece Hungary Poland Romania Serbia Slovakia St. Pete's Ukraine
Retail Prime Rent
Industrial Prime Rent
Transaction Volumes Greece Albania Bulgaria Czech Rep. Croatia Hungary Moscow Poland Romania Serbia Slovakia St. Pete's Ukraine
Prime Yields Czech Rep. Albania Bulgaria Greece Hungary Moscow Poland Romania Serbia Slovakia St. Pete's Ukraine Croatia
Moscow St. Pete's Czech Rep. Croatia Hungary Poland Romania Serbia Ukraine Albania Bulgaria Greece Slovakia
Czech Rep. Moscow Poland St. Pete's Bulgaria Croatia Hungary Romania Serbia Ukraine Greece Slovakia Albania
n/a
represents markets where we expect the chosen metric to grow or increase when referring to rents. When referring to yields, green would represent a hardening yield (effectively lowering in value from say 6.5% to 6.2% for example). For example, Moscow is the only city across the region where prime office rents are expected to increase in 2012. Moscow prime yields on the other hand, are expected to remain largely stable. The only market where yields are expected to harden is Prague. Warsaw, Prague, Budapest, Bucharest, Belgrade and Kiev during 2012.
represents markets where we expect the chosen metric to be relatively stable. For example, we do not anticipate any major change to prime retail rents in
represents markets where we expect the chosen metric to be reduce or decline when referring to rents. When referring to yields, red would represent a
softening yield (effectively increasing in value from say 6.5% to 6.7% for example). For example, Bratislava is the only city across the region where prime industrial rents are expected to decline in 2012. In Greece and Croatia yields are expected to increase over the year.
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Albania: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH
TRENDS 2012
RETAIL MARKET OUTLOOK During H2 2011, the retail market continued to be dynamic in terms of supply and demand activity. On the supply side 41,200 m2 was added to the traditional shopping centre stock with the opening of Tiran East Gate, the biggest shopping centre in Albania. On the demand side, a number of new brands entered the market in H2 2011 including Carrefour, the second largest retail chain in the world; Jumbo Kids, Greece's largest toy retailer and other retail brands. Most of these new brands are all present within the new Tirana East Gate shopping centre. On a more negative note, however, Praktiker - the German DIY company - closed in Q4 after two years of operations in Albania. New demand has been already absorbed by the opening of Tiran East Gate in Q4 2011. No significant increase in demand is foreseen in 2012, bar activity driven by renewals. Even though there are planned retail components in mixed-used projects, there are none expected to enter the market in 2012. Overall, due to the significant increase in retail stock recently we expect a slight decrease in both shopping centre and high street rental prices.
According to IMF, Albanian GDP growth was 2.5% in 2011 and is estimated to be around 3.5% in 2012. This makes it one of the highest economic growth markets in the south eastern European region.
PRIME OFFICE RENTS
The unemployment rate continues to fall, and is estimated to be around 13% by year-end, from closer to 14% the year before. As of November 2011, inflation fell to its lowest level in the last 13 months, supporting this economic growth rate. Looking further forward, political will continues to push reforms in anticipation of acquiring EU candidate member status - a priority of the Albanian government. OFFICE MARKET OUTLOOK
PRIME YIELDS
TRANSACTION VOLUMES
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
There was no major development of new supply during 2011. The delay of construction work to Tirana Business Park has postponed the previously announced increase in modern office stock for the year. No Class A or B office building is foreseen to enter the market in 2012. Equally, there was limited new demand during 2011. The only highlight was the relocation of large utility companies from central Tirana to buildings in outer city locations. Given the lack of new supply in 2012, we expect that vacancy rates will decrease slightly as the market addresses natural office demand. We predict that rental prices will remain stable in 2012 overall. There will be a slight decrease in rents within business centres with high vacancy rates, especially for lower quality offices located in the Tirana-Durres highway due to refurbishments and new stock entering that geographic area.
Albania is one of the highest economic growth markets in the south eastern European region. The main office market highlight from 2011 was the relocation of large utility companies to outer city locations. The retail market was dominated by the opening of Tiran East Gate shopping centre.
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Bulgaria: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
Despite the prospect of an economic downturn in Europe GDP is currently forecast to increase marginally in 2012, reaching 2.3%, following 2.2% growth in 2011. Although we suspect there may be a greater negative impact on GDP prospects resulting from the economic situation in Europe, we expect the economic situation will remain stable. The political situation will also remain stable. OFFICE MARKET OUTLOOK The inventory of office space in Sofia increased by approximately 12% in H2 2011. At present, the total stock of Class A and Class B office premises is estimated to be 1.54 m2.
Planned supply is dominated by three schemes to be delivered to the market in Sofia in 2012/2013. Sofia Ring Mall, Paradise Centre, and Bulgaria Mall. Cumulatively these three projects will deliver approximately 180,000 m2 GLA to the market. Although international discount operators in the fashion, DIY and sports good segments are setting plans for expansion in Bulgaria, only the fashion discount operators are expected to support the additional GLA being built. Most of the DIY and sports good segments will build their own premises. As a result rental levels are expected to fall in 2012, despite remaining relatively stable during the second half of 2011. INDUSTRIAL MARKET OUTLOOK Total industrial stock in Sofia increased by approximately 90,000 m2 in 2011, reaching 546,174 m2. The growth in speculative stock was the main component behind this increase. Speculative supply will not increase further in 2012 - no new projects are currently under construction. Investors are waiting for clients in order to start their projects. We do, however, expect demand to increase. Mainly as a result of international companies planning to outsource their production facilities to Bulgaria. The low operational costs and the qualified employees in the country are key drivers for this growth in demand, as is the ever-expanding logistics network. As a result we expect vacancy levels will decrease and absorption increase over the coming year. Rental levels will remain stable. INVESTMENT MARKET OUTLOOK Bulgaria had a strong 2011, with high investment turnover driven by greater macroeconomic stability of the country in terms of attracting more investors for Bulgaria. However, the shortage of sizeable stable income-generating assets may cause turnover in 2012 to be flatter than in 2011 levels. Yields are expected to remain at their current level, varying between 9 to 9.5%.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
Net absorption for 2011 is estimated to be 120,000 m2. Demand was driven mainly by multinational companies from the IT and pharmaceutical industries. Over 2012, vacancy levels will decrease and net absorption is expected to increase mainly for premium Class A office premises, which meet the requirements of international companies. No new office projects are expected to be finished during 2012. At the same time no new office premises are anticipated to start construction. Average asking rental rates will remain unchanged during next year. RETAIL MARKET OUTLOOK The retail property market remained unchanged during 2011 regarding new centre openings. This is in stark contrast to previous years when twelve new shopping centres opened to the public. The major retail opening for 2011 in the country was the first IKEA hypermarket in Sofia (30,000 m2 total built-up area) that opened in September. The average vacancy level as of H2 2011 in the shopping malls in Sofia was around 6%. Vacancy is expected to stay at the same levels until new schemes open to the public in 2012.
No new office projects are expected to be finished in 2012. New retail supply will be dominated by the Sofia Ring Mall, Paradise Centre, and the Bulgaria Mall. We expect industrial/logistics demand to increase. Mainly as a result of international companies planning to outsource their production facilities to Bulgaria.
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Croatia: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
By the end of 2011 Croatia has witnessed positive economic growth of 0.4%, leading to a fall in the unemployment rate. FDI increased markedly by 109% from 2010 (232,5 million) to H1 2011, (485,3 million) pointing to a renewal of foreign interest in Croatia. Croatia's new government, elected in the December 2011 parliamentary elections, took office in January 2012. Led by the Social Democratic Party (SDP), much of their attention is being given to fiscal consolidation and reduction of the budget deficit. Unfortunately, GDP is expected to contract by 0.2% in 2012.
Supply will grow by 300,000 m2 GLA (23%) over the year ahead. Leading to a general fall in rents and a rise in vacancy levels. Demand for prime locations and best properties will remain stable allowing both to remain at 2011 levels. INDUSTRIAL MARKET OUTLOOK Zagreb was marked by stable vacancy levels (11%), stagnating prime rents (5/m2/pcm) and limited new supply. Take-up amounted to 65,000 m2. Demand for modern Class A industrial premises will outstrip the supply of the same in 2012. Limited modern arrivals will keep prime rents (which are still above the European average) at current 5/m2. Vacancy across the market sits at 11%. INVESTMENT MARKET OUTLOOK 2011 was a year of moderate investment activity. Several notable transactions took place a hotel portfolio sale worth 129 million (Adriatic Luxury Hotels Group d.o.o); the Grand Centre office building sale (undisclosed amount) and Konzum's transaction of three supermarkets for 41 million. Investment sentiment for 2012 is showing optimism, supported by the positive expectations of the new government although the nearing accession to the EU in 2013 is dividing opinion. The end of 2011 adjusted prime yield levels upwards by between 0.25-0.5% - they now stand at between 8-8.5%.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
OFFICE MARKET OUTLOOK Five new buildings were completed in the Zagreb market over 2011, bringing additional 40,400 m2 of office space to the market. Despite positive demand, vacancy increased to 10%. As a result average office rents in Zagreb decreased by between 5.57% during 2011. Prime headline rents decreased by 3%. Take-up will increase by 10%, predominantly driven by lease expiries and renewals on the expectation of more favourable leasing conditions. New supply, comprising of eight commercial buildings, will bring an additional 100,000 m2 to Zagreb's office market, which will put a downward pressure on office rents in general. Prime headline will remain stable in 2012. RETAIL MARKET OUTLOOK Retail rents decreased as vacancy levels increased during 2011. However, prime shopping centres (25/m2/pcm) and high street locations (75/m2/pcm) saw rents and vacancy levels (25% shopping centres) remain stable.
Office take-up will increase by 10% in 2012, predominantly driven by lease expiries and renewals on the expectation of more favourable leasing conditions. Demand for prime locations and best properties will remain stable allowing for prime rents and vacancy levels to remain at 2011 levels.
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Czech Republic: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
INDUSTRIAL MARKET OUTLOOK Total gross take-up reached ca. 800,000 m2 in 2011, which is 20% lower than in 2010. In 2012, gross take up is expected to be ca. 700,000 m2, 12.5% lower than in 2011. Gross take-up will largely be driven by built-to-suit developments and lease renewals. New supply will be restricted to projects where pre-lets or pre-sales have been secured as speculative construction will be relatively low in volume. Demand for industrial space will outpace new supply resulting in a drop in vacancy rates from the current country wide average of 7-8%. As vacant industrial space is absorbed, variances in prime industrial rents across the Czech Republic will narrow, with the highest rents ranging from 4.30-4.70/m2/pcm in the Prague and Brno submarkets. INVESTMENT MARKET OUTLOOK Bearing in mind a further deepening of the Eurozone crisis, we expect investment activity in the Czech Republic to be moderate to strong. However, trading volumes are unlikely to match the 2 billion of deals transacted in 2011. Investor origin will continue to comprise of a mix of foreign and domestic funds, mirroring the trend of 2011. Purchasers are expected to deploy larger portions of equity as debt financing will prove difficult to source. As banks seek to downsize their exposure to property lending, the number of distressed real estate opportunities is set to increase. Marginal yield compression is expected in 2012 as new benchmark yields are achieved on some landmark transactions. Prime yields could reach close to 6.0% in 2012, down from 6.5% in 2011.
Constrained consumer demand coupled with government cut-backs will keep economic growth sluggish in 2012 at 0.8% in comparison to 2011's GDP growth of 1.8%. Czech exports are positioned to benefit from an improving German economy in late 2012 or early 2013. In 2011, the unemployment rate in the Czech Republic was 6.7%. It is expected to decrease to 6.5% in 2012 but not without a medium term increase as public job cuts outweigh private sector job creation. OFFICE MARKET OUTLOOK Following two years of tepid demand, the office vacancy rate in Prague fell to 12% in 2011 thanks to renewed net demand.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
In a repeat of 2011, lease renewals and renegotiations will play a significant role in gross office take-up over the year. The number of speculative office projects will be low or non existent this year as most banks continue to show a limited interest in financing new office projects. An estimated 110,000 m2 of new office space will come onto the market in 2012. Around 47% of this inventory is currently pre-leased/pre-sold. Prague prime city centre office rental rates are anticipated to remain at 20-21/m2/pcm and effective rents across Prague will stay at 10-15% below quoted headline rents. RETAIL MARKET OUTLOOK Several retailers are planning moderate store expansions, including Interspar, H&M, Orsay, New Yorker and Paul (bakery). In the luxury sector, Tiffany & Co. (jewellery) plan to open in Prague. Whilst E-retailing will continue to grow its market share, demand for the best retail locations will remain competitive due to the limited new supply of shopping centres coming on line across the Czech Republic.
The number of speculative office projects will be low or non existent - banks continue to show a limited interest in financing new projects. Several retailers are planning moderate store expansions, including Interspar, H&M, Orsay, New Yorker and Paul (bakery). Gross industrial take-up will largely be driven by built-to-suit developments and lease renewals.
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Greece: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH
TRENDS 2012
RETAIL MARKET OUTLOOK Rents have decreased 25-30% during 2011 and are expected to continue this negative trend in 2012. Retailers will be demanding `turn key' delivery conditions on new properties and will be paying only turnover rent. Whilst large retail chains will continue their expansion in both the Athens market and in other major Greek cities, this may not keep pace with new supply. According to market data, up to 30% of middle and small store owners have their properties available to lease and as it is estimated that this percentage is going to rise to 35% within the next few months of 2012. Demand will be mainly for large stores in central market locations. Shopping Centres and Retail Parks have become the preferred format of foreign retailers as well as local retailers. INVESTMENT MARKET OUTLOOK Investment volumes dropped to historical lows in 2011 as the recession affected the investment market harder than the rest of the economy. The majority of investors were on a standby mode waiting for investment product to become distressed. 2012 will see the privatisation of state-controlled assets. These projects should finally regenerate the investment environment and mobilise the market. We may also see the disposal of assets from Greek banks as they conform to conditions in their IMF bail-out package. Yields will see an additional increase at least of 0.25% to 0.5% in 2012 mainly due to new taxes being enforced on real estate assets and the pessimistic forecast regarding the Greek economy.
The well documented economic and political problems of Greece are unlikely to change over the year ahead. The speculation whether Greece will remain within Euro zone has increased investment risk and reduced dramatically investment transactions.
PRIME OFFICE RENTS
PRIME YIELDS
High uncertainty remains as to whether the structural reforms the government has launched will be successful or not. Even if the country was led to elections, under the pressure of needing to meet scheduled reforms, the political status would not change drastically. The current situation has forced Greek government to accelerate reforms that could revive national economy. Some of them are the privatisation of state controlled assets and the new planning framework for tourism development. Some of them are the privatisation of state controlled assets and the new planning framework for tourism development. OFFICE MARKET OUTLOOK A fall in supply of new office premises in Athens and a slow-down in leasing activity were key trends during 2011 mainly due to the decline of GDP and high economic uncertainty. The upcoming year will be dominated by strong sub-leasing activity and lease renegotiations. Kifisias Avenue and Athens CBD are expected to be the focus of most sub-lease activity in the market. Vacancy rates should remain stable for prime office locations as demand is concentrated in these areas. This should also create stable prime rents. Vacancy and rents in secondary sub-markets, however, are expected to reflect a further drop estimated to be around 25%, notably as a result of relocations in order to reduce operating expenses.
TRANSACTION VOLUMES
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
The office market will be dominated by strong subleasing activity and lease renegotiations. Retailers will be demanding `turn key' delivery conditions on new properties and will be paying only turnover rent. 2012 will see the privatisation of state-controlled assets. These projects should finally regenerate the investment environment and mobilise the market.
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Hungary: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK The European debt crisis has hit the Hungarian economy hard.
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
fashion brands. FMCG companies are also expanding. Several banks, however, will close their branches as they optimise their portfolio. Due to new government `Plaza stop' regulations, any new retail development over 300 m2 will be subject to far greater scrutiny during the planning approval process. This will delay and further dampen development growth in the retail sector. INDUSTRIAL MARKET OUTLOOK 2011 did not bring recovery, the year was characterised by low market activity (in terms of absorption, take-up, new leases and new developments) and an absence of large transactions (leasing and sales markets). Take-up will remain flat and will mainly be driven by renewals in 2012, similar to 2011. There will also be limited expansion/ take-up activity by 3PLs. Speculative new supply will remain extremely limited, close to zero, due to around 20% vacancy, limited access to (real estate) financing and weak demand. Rents remain flat at a low level and are amongst the lowest in the region. Budapest remains the dominant location in the country. INVESTMENT MARKET OUTLOOK 2011 saw a much improved transactional volume (close to double) compared to 2010. H1 2011 saw mainly CEE portfolio sales, whereas H2 saw Hungary specific deals on significant prime office stock in Budapest, reviving confidence towards the end of the year. There may be a window of opportunity for investors with strong equity bases to acquire prime properties at advantageous yields. Financing will become more challenging in 2012, with lenders placing more emphasis on property fundamentals and tenant covenants. Properties which may change hands in 2012 will show yields which reflect the perceived increased risks of the region. The cost and ability to raise finance will be crucial in 2012.
Rather unconventional Hungarian economic policies have not stabilised the economy. 2012 is set to bring a new economic stabilisation package and a moderate decrease in purchasing power. OFFICE MARKET OUTLOOK The overall office vacancy rate decreased from 23.4% in 2010 to 22.2% in 2011 and is forecast to decrease to 21% in 2012. In the more sought after markets such as the Váci út office corridor the vacancy rate is lower and will drop to around 18.5% in 2012.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
Due to the lack of financing the development pipeline has dried up. Skanska's Green House, is the only development to be handed over in 2012. There are limited options for requirements above 5,000 m in high quality buildings.
2
Budapest rents are nearly the lowest in the region, at an average of 12/m2/pcm. They are likely to remain this way during 2012 with incentives like rent free periods, fit out, moving contributions continuing to create even lower actual effective rents. Demand will predominantly come from shared service centres. RETAIL MARKET OUTLOOK 2011 was not the expected turning point of consumption which retailers predicted last year, as retail turnover and rents were stable during the 2011. The Hungarian retail market saw the opening of two successful shopping centres: KÖKI Terminál in Budapest, and Árkád Szeged. No new commercial development will open in 2012, apart from the upper floors of Vaci1 centre, both postponed from 2011. Some selected sub markets, notably the prime high street locations such as Andrassy út and Váci út, continue to be in demand from
2012 is set to bring a new economic stabilisation package and a moderate decrease in purchasing power. Budapest office asking rents are nearly the lowest in the region, at an average of 12/m2/pcm. Financing will become more challenging in 2012, with lenders placing more emphasis on property fundamentals and tenant covenants.
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Poland: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
In 2011 the Polish economy continued to perform strongly in comparison to other European countries. According to the Ministry of Economy GDP growth in 2012 will reach ca. 3%. Notwithstanding the ongoing crisis in Europe, the Polish economic situation will remain stable in 2012, with growth of 3% forecast for the year ahead. Despite weaker economic growth forecasts, the unemployment rate in 2012 is forecast to reach 12% and will be slightly lower than in 2011, according to the Gdask Institute for Market Economics (IBnGR) forecasts.
financial markets and an unstable exchange rate may however, result in revising tenants' expansion plans and a more careful approach to new stores openings. The pipeline of supply will be slightly lower (by approx. 10%) in comparison to new modern retail space completions in 2011. Vacancy in the best locations will stay at low levels of sub-1%. Rental levels in 2012 should stabilise, however some rental decreases will be recorded in older generation shopping centres. INDUSTRIAL MARKET OUTLOOK In comparison to 2010, the industrial market in Poland recorded a significant increase in demand throughout 2011. We predict that in 2012 leasing activity will remain stable or moderately lower as compared with the previous year. The new supply in the upcoming year will be similar to the levels recorded in 2011. Due to decreasing vacancy rates, rents are expected to continue on an upward trend. INVESTMENT MARKET OUTLOOK 2011 recorded another strong performance in terms of the total volume of closed transactions reaching in excess of 2 billion. As there are a number of deals in due diligence, the first months of 2012 are expected to witness strong activity and appetite for core investment product. That said, market dynamics will be significantly influenced by the availability of senior debt financing, which will also have an influence on pricing next year. We note that set several post-Lehman yield benchmarks have been set in 2011, with prime offices reaching 6.25% and shopping centres sub-6%. We do not anticipate yields falling much further than this over 2012.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
OFFICE MARKET OUTLOOK 2011 was driven by increasing tenants' activity in Warsaw and the regional cities. The demand for office space should remain stable in 2012, although the volatile economic situation may translate into a slightly weaker leasing performance. In the upcoming year the office market will witness a significant growth in supply levels not only in Warsaw, but also in regional markets (especially Wroclaw and Szczecin). As a result the overall vacancy rate would solely rise slightly in Warsaw as well as in regional cities. Rental rates will register no major changes. Nonetheless, due to the abundance of new office space entering the market, tenants may profit from better leasing terms, especially in regional cities. RETAIL MARKET OUTLOOK In 2011 the retail market in Poland revived, both on the supply and demand side. Many international retail chains continue to be interested in entering the Polish market. Uncertain economic conditions on the global
The Polish economic situation will remain stable in 2012, with growth of 3% forecast for the year ahead. The office market will witness a significant growth in supply levels not only in Warsaw, but also in regional markets. Rental rates will register no major changes. In the industrial market, due to decreasing vacancy rates, rents are expected to continue on an upward trend.
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Romania: Market Snapshot
JANUARY | 2012
MACRO-ECONOMIC OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
Both gross and net absorption increased slightly compared to last year. As European markets are surrounded by uncertainty, we do not see any noteworthy change on the Romanian industrial market for 2012. We may witness some relocations, due to contract endings and thus landlords will make an effort to retain current tenants but also to attract new demand. INVESTMENT MARKET OUTLOOK The real estate investment market saw an increase in activity in 2011 with investors looking more actively at the Romanian market. The most important deal of the year was the joint venture transaction for Victoria City shopping centre development. CD Capital, advised by Colliers, attracted the South African developer NEPI to jointly develop the project. The end of the year brought more uncertainty, however, due to the European debt crisis. Although only a few deals have closed during this period, a number of transactions with a total estimated value of around 200 million were initiated and may close in 2012. Although the fundamentals of the Romanian economy remained stronger than expected, the tightening of financing conditions is expected to significantly limit investment activity in the first half of 2012. LAND MARKET OUTLOOK 2011 continued the trend started in H2 2010, with transaction activity picking up, albeit at a tempered pace We foresee a similar evolution of the market for 2012, demand being driven mainly by big box retailers (the whole country) as well as office developers (Bucharest). The supply of land put up for sale is expected to increase, which may put downward pressure on prices, especially in those areas perceived to have less immediate development potential.
While it may look like "back to 2009" all over again, Romania is in a far more stable position to weather the temporary storm than it was three years ago. As soon as the banks are back growth will return sharply. OFFICE MARKET OUTLOOK In terms of office space, 2011 witnessed a rise in consolidations. This trend led to an increase in take-up compared to last year and also to a drop in good available space. For 2012, limited new supply will determine a comeback for pre-lease transactions, especially for large space requirements. We believe that take-up will be similar to 2011 levels and the space optimisation trend will continue. Overall rent levels will remain stable. RETAIL MARKET OUTLOOK In 2011 we witnessed a supply level similar to 2007 and 2009, the most prolific years of modern retail in Romania. 2012 is expected to bring only half the GLA delivered in 2011, as only a few projects are currently under construction with a strong chance they will complete by year end. Based on the small but steady increase in sales witnessed by retailers during 2011, and their forecasts for 2012, demand is expected to increase. The focus will not only be on Bucharest and the top 5 cities, but also on the medium size cities in the countryside, in the top performing centres. Thus, rents and vacancies are expected to remain stable, with small rent level increases in the top performing malls. INDUSTRIAL MARKET OUTLOOK If we had to characterise the Bucharest industrial market in 2011, the word would be `stable'. The stock remained almost unchanged and the vacancy rate stabilised at 15%.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
For 2012, limited new office supply will determine a comeback for pre-lease transactions, especially for large space requirements. The retail market focus will not only be on Bucharest and the top 5 cities, but also on the medium size cities in the countryside, in the top performing centres. Although the fundamentals of the Romanian economy remained stronger than expected, the tightening of the financing conditions is expected to significantly limit investment activity in the first half of 2012.
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Russia, Moscow: Market Snapshot
JANUARY | 2012
MACRO-ECONOMIC OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
The Russian economy had another robust year of growth in 2011, with GDP set to increase by around 4% at year-end. Most economists put growth slightly lower in 2012 at around 3.6%. Inflation is likely to continue falling to about 6.8% by year-end and is expected to flatten out at around this level for 2012. Net trade has been slowing and growth has become more dependent on domestic demand. Output growth in the crucial oil and gas sector has been poor but the agricultural harvest was much better than 2010 and added to export sales in 2011. The rouble has lost value to the dollar as investors have fled from euro-denominated assets and taken refuge in the dollar. The Bank of Russia has reported significant capital outflows as subsidiaries of US and EU banks have borrowed roubles in order to replenish parentbanks' reserves and improve liquidity at home. Gradual recovery for the rouble over 2012 and 2013 is expected as capital outflows are stemmed and the eurozone moves toward a debt solution. But bouts of volatility are inevitable, and slower growth over 2012 is expected as global conditions hit export sales and political uncertainties wear on consumers and businesses. OFFICE MARKET OUTLOOK A lot of positive trends were notable in the Moscow office market over 2011. This included growing demand, decreasing vacancy rates and positive growth of rental rates. In the case of Class A stock, rents grew by 26%. In 20122013, no more than 0.50.8 million m2 of office space will be completed annually. The largest proportion of construction will take place in non-central districts. Rental rates for Class A premises in the central business district will be at US$9001,300 m2/per annum, and for Class B premises US$650900 m2/per annum. Vacancy rates in the central business district may decline to 34% for Class B properties and to 1012% for Class A At some point, vacancy rates outside the CBD will rise up to 1819% for Class A space, and to 1113% for Class B space.
Average asking rental rates in these districts are expected to remain at between US$500US$600 m2/per annum in Class A and US$300 US$450 per m2 per year in Class B. RETAIL MARKET OUTLOOK Five new shopping centres entered the market in 2011 comprising 300,380 m2 of GBA, equating to 171,740 m2 of GLA. A further seventeen shopping centres comprising 593,500 m2 of GLA are announced to be open in 2012, although we expect many of them to be delayed until 2013. We expect retail demand to continue growing in 2012, meaning that vacancy rates will remain at very low levels of between 3-5%. Combined, this growing demand from retailers and low availability will see rents increase by 5-10% over the year. INDUSTRIAL MARKET OUTLOOK High demand for warehouse premises led to vacancy rates descending (from 6% at the beginning of 2011 to 1.5% at the end of the year). This has driven the growth of rental rates by 21% in Class A and 24% in Class B space. Development completions in 2012 will be approximate 500,000 m2. Even though take-up will remain flat, we will still see vacancy rates decrease to 1%. Rental rates may well grow a further 5% in 2012. INVESTMENT MARKET OUTLOOK 2011 has seen the highest volume of investment deals in Moscow history, as more than US$7.5 billion worth of assets transacted by the end of the year. This is 106% higher than in 2010 and 37% higher than in 2008, previously the most lucrative year for the industry. However, yields have remained more conservative than in pre-crisis times and should remain relatively stable in 2012 given the current turbulence in Europe and the financial markets We expect a slight decrease in investment volumes for 2012.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
The largest proportion of new office construction will take place in non-central districts. 17 shopping centres comprising 593,500 m2 of GLA are announced to be open in 2012, although we expect many of them to be delayed until 2013. 2011 has seen the highest volume of investment deals in Russian history. We expect a slight decrease in investment volumes for 2012.
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Russia, St.Petersburg: Market Snapshot
JANUARY | 2012
OFFICE MARKET OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
INDUSTRIAL MARKET OUTLOOK The positive market trends that appeared in the St. Petersburg warehouse and industrial market in 2010, were also observed in 2011. During 2011 demand activity grew, leading to an increase in the number of large deals transacted in the warehouse letting market. Consequently there was a reduction of the average vacancy rate down to 6%. Due to the prevalent downward trend in vacancy rates coupled with a poor choice of suitable premises available for lease, we expect the appearance of new development projects as well as built-to-suit projects in 2012. As a result of market behavior, rental rates for warehouse premises will continue to grow in the year ahead. INVESTMENT MARKET OUTLOOK 2011 was a record year for the St. Petersburg investment transaction market. There are a number of driving factors behind this. Firstly, pent-up demand from 2010 rolled-over into 2011. In addition to the entrance of new major players, there were closed investment. This includes the US$1.1 billion transaction of the Galerea shopping mall completed at a yield of around 9%. Perhaps unsurprisingly the majority of transactions were for retail properties, representing 78% of the market. Office properties accounted for only 7%, while transactions for land plots for residential development were more than 15% of the total volume of investment transactions for the period. In 2012 active investor policy will continue for shopping centres with a successful concept, residential development and assets with a stable cash flow. Although the volume of transactions during the first 3 months is planned to be US$200 million, we expect overall volumes to be down on 2011 given the size of the `one-off' Galerea deal for US$1.1 billion.
About 140,000 m of new office space (18 office centre projects) were put into operation in 2011. Around 80% of this space is located outside the city centre.
2
PRIME YIELDS
Take-up amounted to 150,000 m2 in 2011 leading to a fall in vacancy rates to 13.5% by year end. The projected amount of new office space in 2012 comes to some 187,000 m2, although we expect several of these projects will be postponed to 2013. Projected take-up for 2012 is set to grow to around 150,000 160,000 m2 this is normal for the St.Petersburg office market. Therefore we expect a slight decrease in average market vacancy rates down to 12-13% over the year ahead.
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
A slight growth of rental rates nominated in Rubles was registered in 2011 of 2-3% in Class A , and 8-9% in Class B offices. We expect that rental rates nominated in Rubles will remain stable during 2012 (there might be some fluctuations in rental rates nominated in US$ or ). In part this is due to the fact that new office space will be spread in different office zones and won't be concentrated in one place. RETAIL MARKET OUTLOOK
We expect that rental rates nominated in Rubles will keep stable during 2012. We expect about 160,000 m GLA of new retail space to enter the market in 2012....which may result in a slight deficit of retail space on the market.
2
Shopping centre stock increased by 200,000 m2 of GLA in 2011 which amounts to 81% of the same figure in 2010. This is a reaction to growing demand for quality retail space from most retailers as consumer appetite for retail products remains on the march. In particular, retailers active in the fashion segment are most active. Occupancy levels in shopping centres remain high at 92-95%. Rental rates have shown a slight growth in 2011. We expect about 160,000 m GLA of new space to enter the market in 2012 (20% lower than in 2011) which may result in a slight deficit of retail space on the market.
2
Active investor policy will continue to be focussed on shopping centres with a successful concept, residential development land and assets with a stable cash flow.
As a result, we expect rental growth to continue in 2012.
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Serbia: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH
TRENDS 2012
RETAIL MARKET OUTLOOK We would describe the retail market in Belgrade as somewhat uneventful in 2011. There were no modern shopping centre openings, which resulted in continued zero vacancy rates for the two existing international-style shopping centres. Additionally, constant interest in potentially available retail units in these centres resulted in no notable decrease in rental levels. Even though there is intense interest from numerous new retailers to enter and expand in the Serbian market, it largely depends on the availability of new supply, as current levels are not at a satisfactory level. During 2012, it is expected that the major influence on retailer demand will be the development of several announced retail projects, as well as the performance of new projects due for completion and opening in 2012. Over the year ahead commencement of the following retail projects is expected: IBC Retail Park; Rajiceva Shopping Centre; Delta Planet; Plaza Visnjica; and Ada project by GTC. Until these new schemes are operational the shortage of high quality retail space will mean that overall vacancy will be stable. Equally, rental levels in existing modern shopping centres will be landlord driven, keeping rents stable in the upper ranges of pricing. INVESTMENT MARKET OUTLOOK Although the economy slowly recovered in 2011, investment activity remained the same due to political and market risk in Serbia. An opaque market, long legal procedures and prolonging of the EU debt crisis will be the main reasons for investors to postpone their acquisition plans at least for the first half of 2012. As the Serbian economy is very much dependent on foreign capital, activity on the market will follow European trends investment, in fact, will be harder hit due to the peripheral, non-core nature of the market. Investors will face limited financing options as the banks have become more cautious in providing financing. We believe yields will remain stable as per 2011, in fact they may soften a little in the first half of the year. As rents are at the bottom no significant changes are expected, meaning that values should also remain stable or face a mild softening.
During 2011 the macro-economic situation in Serbia was considerably impacted by the global economic and monetary crisis in the EU. This has greatly affected the economic situation in the country in terms of decreasing export volumes and only a modest influx of foreign direct investments coming into the country.
PRIME OFFICE RENTS
PRIME YIELDS
Bearing in mind the impaired macroeconomic performance of Serbia's major trade partners (i.e. Italy and Germany) GDP growth will be lower in 2012. It should also be noted that in 2012 only a modest growth of private and public consumption is expected - the main driver of the Serbian economy. During 2011 the political situation featured high tension on the SerbiaKosovo border which further resulted in delayed negotiations of gaining EU candidacy status. 2012 will be an important year of negotiations regarding granting Serbia EU membership candidacy status. It is also the year of presidential elections. OFFICE MARKET OUTLOOK The Belgrade market did not witness any delivery of Class A and B office buildings in 2011. Presently, the office market is considered to be over-delivered, creating high vacancy rates. That said, over the past year Class A and B rental levels have been stable and vacancy rates have remained at high levels. If the ending of negotiations for EU candidacy status turn positive it is expected to increase demand for office space as new foreign investors and companies will enter the Serbian market. This, however, appears to be at least 1-2 years away, so we expect minimal change to vacancy rates, new supply or indeed rents over the coming year as increased office space requirements are highly unlikely. In fact, continued delays resolving candidacy status and an additional wave of economic downturn may cause an increase in vacancy rates over the year. We would expect landlords to agree on a slight reduction of rents for both Class A and B office space.
TRANSACTION VOLUMES
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
We would expect landlords to agree on a slight reduction of rents for both Class A and B office space. Even though there is intense interest from numerous new retailers to enter and expand in the Serbian market ...current supply levels are not at a satisfactory level. An opaque market, long legal procedures and prolonging of the EU debt crisis will be the main reasons for investors to postpone their acquisition plans at least for the first half of 2012.
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Slovakia: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
Despite the economic slowdown Slovakia still has good potential for economic growth compared to most of the rest of Europe. Slovak banks are in very good health, having passed the EBA's recapitalisation tests and are thus in a position to resume commercial and property lending. The automotive industry has recorded an expansion of their production facilities in the country, helping to sustain jobs and boost exports. That said, the wider European economic backdrop means that although inflation should trend down over 2012, unemployment will increase slightly in 2012 after gradually decreasing during 2011. Equally, as the latest government fell in October after losing market confidence, progress will be muted until the March election. OFFICE MARKET OUTLOOK Two new major office projects were completed in 2011: CBC III-V and Westend Square. These will be followed in 2012 by a few new projects which are currently under construction. Demand comprised a significant amount of renegotiations and we expect this trend to continue in 2012. We also expect greater divergence in performance between Class A and B projects as the vacancy rate rises slightly. As Orange moves to the new Centrál project they will create additional 17,000 m² of vacant space on the market. Although prime rents will remain stable, rents in older premises may decrease over the year. RETAIL MARKET OUTLOOK In 2011 two projects were opened, offering additional 23,000 m² to the market (Retro, Glavica). Take-up remained flat and was driven mostly by renegotiations and relocations.
Although consumption is weaker, the majority of developers are committed to continue their projects. Given the volumes of new development over the last 24 months, there will be increasing pressure on the quality of the shopping centres. For this reason, rents of retail premises in less attractive locations/ centres will decrease further this year. INDUSTRIAL MARKET OUTLOOK After weaker leasing activity in 2010, the situation in the industrial market improved in 2011. With the upcoming crisis, however, we expect a cut-back in production and retail sales, resulting in a fall in take-up. We expect a greater trend toward companies thinking about optimising rather than expansion. New supply will, however, increase in 2012 as four new developments are under construction. Overall vacancy will rise putting a softening impact on rents. For new developments, we expect that developers will require a longer rental period and higher rental prices, reducing their viability in the short-term. INVESTMENT MARKET OUTLOOK We registered a number of closed transactions in 2011, particularly prime properties with prime tenants. The notable transactions during 2011 were the acquisitions of the shopping centre Aupark by Unibail-Rodamco, the Auto Logistics Park in Lozorno by Czech Property Investments and the office building Aupark Tower by Heitman. Although bank finance continues to be available in Slovakia, general market uncertainty will mean that the first half of the year will be slow. By H2 2012, the market should be stabilised and on the way to recovery.
PRIME YIELDS
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
Office demand comprised a significant amount of renegotiations and we expect this trend to continue in 2012. Given the volumes of new retail development over the last 24 months, there will be increasing pressure on the quality of the shopping centres. Slovak banks are in very good health, having passed the EBA's recapitalisation tests and are thus in a position to resume commercial and property lending.
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Ukraine: Market Snapshot
JANUARY | 2012
MACRO-ECON & POLITICAL OUTLOOK
GDP GROWTH PRIME OFFICE RENTS
TRENDS 2012
RETAIL MARKET OUTLOOK New supply was limited to two shopping centres (55,000 m2) in 2011. Demand grew in H1 2011, but remained flat in H2 2011, but collectively resulted in the vacancy rate decreasing to 1.7%. New supply is expected to provide an additional 180,000 m2 of retail space in 2012. As a result, the vacancy rate might temporarily increase as demand growth remains stable. Rents should remain stable. INDUSTRIAL MARKET OUTLOOK New supply in 2011 comprised 140,000 m2, which is about the same as in 2010. Take-up equalled 220,000 m2 and was driven by renewals and expansion transactions. New supply in 2012 is expected to match 2011 levels at around 150,000 m2. As demand is also expected to be similar to levels achieved in 2011, rents should remain stable. INVESTMENT MARKET OUTLOOK Investment transactions were scarce in 2011 as total transactions volumes, including end-users acquisitions and investment deals, comprised about US$400 million. Given the relatively opportunistic nature of the market, no growth in investment transactions is expected in 2012. Yields, however, should remain at 2011 levels.
The government, as well as the majority of local and foreign experts, expect GDP to register 4.7% growth in 2011. For 2012, growth is expected to slow down to 4%.
PRIME YIELDS
Inflation demonstrated a downward trend over 2011, and is expected to end the year at 7%. As of 2012, inflation is expected to rise to 8.8%. Even though some economic reforms are necessary, the implementation of what are regarded as largely unpopular reforms is unlikely in 2012, when parliamentary elections are to take place in October. OFFICE MARKET OUTLOOK
TRANSACTION VOLUMES PRIME INDUSTRIAL RENTS
Increasing Stable Decreasing
PRIME SC RETAIL RENTS
New supply constituted 127,000 m of office space in 2011 this represents a 15% growth in supply compared to 2010.
2
Take-up grew by over 30% y-o-y and amounted to 160,000 m2. As a result, vacancy stabilised at around 14% and rents increased somewhat in H1 2011 before stabilising in H2 2011. Given the positive economic situation for Ukraine, take-up will at least match 2011 results, if not grow slightly. The existing stock of Class A office space which currently stands at 160,000 m2 is expected to see enough new deliveries over the year to double this amount of supply. As a result of significant Class A new supply, rents in Class A are expected to decrease. Consequently, Class B rents will also fall.
The existing stock of Class A office space is expected to double over the year. As industrial demand is also expected to be similar to levels achieved in 2011, rents should remain stable. Given the relatively opportunistic nature of the market, no growth in investment transactions is expected in 2012.
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Eastern Europe: Contact Details
JANUARY | 2012
EASTERN EUROPE REGION Damian Harrington damian.harrington@colliers.com Juliane Priesemeister juliane.priesemeister@colliers.com BULGARIA Sabina Kravchenko sabina.kravchenko@colliers.com CROATIA Bianca Bortolazzi bianca.bortolazzi@colliers.com CZECH REPUBLIC Juliane Priesemeister, MSc Regional Research Analyst CEE Investment Services | Eastern Europe +420 226 537 655 | MOB +420 739 009 945 EMAIL juliane.priesemeister@colliers.com
DIR
512 offices in 61 countries on 6 continents
United States: 125 Canada: 38 Latin America: 18 Asia Pacific: 214 EMEA: 117
· $1.5
POLAND Dominika Jedrak dominika.jedrak@colliers.com ROMANIA Iuliana Tataru iuliana.tataru@colliers.com RUSSIA, MOSCOW Ekaterina Kutumova ekaterina.kutumova@colliers.com RUSSIA, ST. PETERSBURG Vasiliy Dovbnya vasiliy.dovbnya@colliers.com SERBIA Mirjana Mandic mirjana.mandic@colliers.com SLOVAKIA Diana Liptajova diana.liptajova@colliers.com UKRAINE Irina Orlova irina.orlova@colliers.com
Damian Harrington, MRICS; MSc Regional Director - Research & Consulting CEE Investment Services | Eastern Europe +420 226 537 624 | MOB +420 603 142 964 EMAIL damian.harrington@colliers.com
DIR
billion in annual revenue
· 978.6
million square feet under management 12,500 professionals
· Over
Omar Sattar omar.sattar@colliers.com GREECE Katerina Dimou katerina.dimou@colliers.com HUNGARY
Disclaimer: This report gives information based primarily on published data which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to the forecasts, figures or conclusions contained in it and they must not be relied on for investment purposes. This report does not constitute and must not be treated as investment advice or an on offer to buy or sell property. January 2012.
Akos Balla akos.balla@colliers.com
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