COLLIERS INTERNATIONAL2011 NEW EUROPE REAL ESTATE REVIEWAlbania Bulgaria Croatia Czech Republic Greece Hungary Poland Romania Russia Serbia Slovakia UkraineAccelerating success.
New Europeregional real estate review What a difference a year makes. All national Retail Market – from an occupational and economies in the region continue to stabilize development perspective, retail continued to and improve, with positive GDP growth of be the poor man in new europe. Continued 3.6% on average forecast for the new europe job uncertainty and austerity packages region as we head into 2011. this expansion continue to drive low domestic consumption comprises a combination of high industrial/ levels bar the usual anomalies of Russia, manufacturing production growth and falling Poland and to a degree the Czech Republic. unemployment, but rather muted growth in Retail sales took such a significant hit during the demand for goods and services in most the crisis period, it will take at least another markets, bar Poland and Russia. year before retailers get close to par which will subdue any further expansion or growth on the downside, austerity packages, in rents. that said, the long-term prospects concerns over government bond defaults, the for growth are much more positive – double rising cost of international debt and increasing the growth forecasts of western europe to inflation, which reached ca 6.1% on average in 2020. Given the large number of international 2010 – a similar figure is forecast for 2011 retailers yet to penetrate new europe, - could curtail the forecast for the year, occupational growth prospects are positive although by varying degrees per country. in but will place greater demands on shopping Damian Harrington particular rising prices of energy, food and centre quality. Coupled with growth in regional director, research and basic commodities could constrain any consulting internet-based retail shopping, there are significant economic expansion. interesting times ahead in the retail market. colliers international new europeAddress Galerie Mysak Vodickova 710/31 office Market – vacancy appears to have investment transaction volumes over the year Prague 1, 11000 peaked on average and is set for a period of show a significant recovery compared to Czech Republic slight stagnation or moderate decline over 2009, coming in at €6.36 Bln - an increase of 2011. Average rents are likely to remain stable 47%. that said volumes are still somewayPhone +420 226 537 624 over the year, but we could start to see prime short of a longer-term turnover rate of €10Email Damian.Harrington@Colliers.com rental growth in some markets – Kiev has Bln, market cycles accepted. they only already jumped back from 50% falls at end represent ca. 7.3% of total european 2010, Warsaw is likely to see prime rents transaction volumes. While the transaction climb in the first half of 2011. it will take until cycle is on the way back up, the future for at least year-end 2011 for other markets to 2011 is a little opaque. investor interest see a comeback in prime rents as a result of continues to move further south and east in excess availability v. limited net take-up. search of acquisition opportunities which should increase turnover volumes for the industrial Market – industrial production grew region. With a €100 Mln prime office deal significantly in 2010 driving demand for happening in Bucharest at the very end of modern warehouse/logistics space. this 2010 – the first deal this market has activity was predominantly focused on witnessed since 2006 – money is finally Poland, the Czech Republic and the Moscow moving beyond the core markets of Poland region, driving a fall in vacancy in these and Prague. markets. outside of these regions, demand remained weak as a result of the lack of this is the third annual review i have written proximity to market – the export trade for Colliers in new europe and the best yet. it partners in Western europe, notably Germany. continues to be the most comprehensive report of its kind in terms of the geographic By end 2010 interest was picking up in and sectoral coverage. Slovakia from developers seeking land opportunities, but such interest is yet to i trust you find it an informative and migrate further south or east. it will interesting read. eventually, but many markets are likely to be driven by retail demand in the short-term. Kind regards, Damian HarringtonP. 4 | CollieRS inteRnAtionAl
2011 COlliERs REal EstatE REviEW » NEW EUROPE ECONOMIC OVERVIEW FIG. 1: GROWTH: 2010 V 201110.0 As we head into 2011, we can finally automotive industry. The Czech Republic, Source: Focus Economics see that the economic recovery has Poland and Hungary also witnessed a 5.0 filtered through into positive territory for significant growth in output, moreso than almost all markets across the region. the likes of Bulgaria and Romania further 0 While Bulgarian growth remained largely south and east. We put this down to their neutral for 2010, Romania was the only greater proximity and accessibility to-5.0 | | | | | | | | | market to suffer from another year of market, the market being western Bulgaria Czech Hungary Poland Romania Russia Slovakia Turkey Ukraine Republic recession. Europe and notably Germany, where the ▄ 2010 ▄ 2011 vast majority of demand for exports The better news is that all national produced in the CEE region emanates. economies are set to expand in 2011, in terms of ‘year-on- year’ GDP growth, as That said, production growth is FIG. 2: GENERAL CONSUMPTION: 2010 V 201110.0 all countries finally emerge from the forecast to rise stronger in the more Source: Focus Economics/Colliers International financial and economic crisis which peripheral markets in 2011, largely 5.0 started two years ago, in earnest. A matching the growth prospects of other good response time, all things countries across the region. 0 considered, but a growth response not without downside risks. GROWTH IS NOT WITHOUT RISKS-5.0 | | | | | | | | | Despite the positive news, growth Bulgaria Czech Hungary Poland Romania Russia Slovakia Turkey Ukraine Republic Poland of course continues to grow forecasts for the region are not without ▄ 2010 ▄ 2011 steadily having never succumbed to a downside risks. Inflation is expected to recession, with the likes of Russia and rise or remain stable in most countries, Ukraine showing a strong rebound from which could dampen a recovery if the dark days of 2009. If realized this interest rates follow. Perhaps more FIG. 3: INDUSTRIAL PRODUCTION: 2010 V 201120.0 will also translate into stable/falling worryingly, the potential rising cost of Source: Focus Economics unemployment levels in 2011, according debt & poor government bond ratings is15.0 to consenus forecasts from Focus also likely to dampen growth prospects,10.0 Economics. leading to more conservative growth estimates in 2011. The austerity packages 5.0 DEMAND FOR GOODS AND SERVICES many economies need to adhere to will 0 | | | | | | | | | POSITIVE ALBEIT VARIED… also dampen consumption prospects, Bulgaria Czech Hungary Poland Romania Russia Slovakia Turkey Ukraine Republic Whilst GDP growth in CEE markets although providing more stable economic ▄ 2010 ▄ 2011 generally portrays a solid growth fundamentals in the long-term. pattern, the actual demand for goods and services is less robust. Demand in Equally, positive growth does not Bulgaria, the Czech Republic, Slovakia, necessarily translate directly into Hungary and Romania is forecast to be increased demand for more space. The rather muted going into 2011, as is the abruptness and depth of the recent crisis case for the majority of south east created a significant pool of ‘unused Europe. This is likely to keep office and capacity‘ in all the markets which were retail occupational demand subdued. recessionary. This only started to get absorbed in 2010. Until economic output The demand for goods and services is back to par, which remains around 12 in Poland and Ukraine is far more robust, months away if not longer for some as it is for the regional behemoths of countries, this will continue to dampen Russia and Turkey – all of these the demand for office and retail space in benefitting from large domestic markets. 2011. Even more promising is the extent to Industrial demand, however, is which industrial production has grown already back especially in those markets over the last 12 months, with very strong closest to Germany. This should spread growth forecasts predicted for 2011 in all immediately south to Slovakia in 2011, markets. Slovakia saw a very positive but it may not necessarily spread any rebound in 2010, driven mostly by the further than Hungary.Research: Damian.Harrington@Colliers.com CollieRS inteRnAtionAl | P. 5
2011 COlliERs REal EstatE REviEW » NEW EUROPE OFFICE MARKET FIG. 4: AVERAGE VACANCY AND RENTS 30.00 20.0% OVERVIEW start by looking at the balance between 25.00 18.0% Over the course of 2010 we have office supply and demand (availability v. 16.0% 14.0% wtnessed the office market move toward take-up). 20.00 12.0% stablisation as a whole across the CEE 15.00 10.0% region. Vacancy rates, on average, Fig. 6 provides an outline of the 8.0% 10.00 6.0% appear to have flattened out at 18%, potential ‘absorption rate’ of office stock 5.00 4.0% having risen significantly over 2008 and per city, assuming an 8% vacancy rate to Source: Colliers International 2.0% 2009 from ‘unsustainable’ lows of ca. be ‘zero’. The vacancy rate of 8% is 0.00 0.0% 5% in 2007. chosen as this is typically the lower point | | | | | | | | | | | 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ▬ Prime Rent ▬ Average Rent ▬ Vacancy of the natural vacancy rate band, at We expect vacancy to stabilize further which point rents are likely to grow. in 2011, but to varying degrees by Once vacancy gets below 6%, rents market. Kiev and Warsaw had already typically grow at a much more FIG. 5: PEAK-TO-TROUGH CHANGE IN RENTS 60% witnessed an overall decline in vacancy aggressive rate. 50% Source: Colliers International rates by end 2010, whilst the likes of 40% Sofia may see vacancy rates climb The number of years, or theChange, % 30% further in 2011. ‘absorption rate spread’, is determined by 20% the best and worst years of take-up 10% Prime rents had stabilized by relative to the current level of availability 0% | | | | | | | year-end in all markets. Indeed, prime within each market (availability = the rents in Kiev had already started to sum of existing vacant stock + stock ev t st �a w a ue es av sa pe Ki So ag ar isl ar da Pr ch at W Bu Bu Br ▄ Average Rent ▄ Prime Rent increase by Q3 2010 (although it is actively under construction). worth bearing mind the market suffered from a 50% peak-to-trough fall in rents For example, if take-up in Prague following the onset of the crisis) and were to match the best years of take-up prime rental growth is imminent in witnessed (in 2006) it would take less FIG. 6: AVAILABILITY V TAKE-UP 9 Warsaw as we head into 2011. These than 1 year to get back to 8% vacancy 8 Source: Colliers International appear to be the only markets supporting from ca. 14% today. Equally however, if 7 prime rental growth in 2011, with all take-up were to remain at the lows of 6 Number of years 5 other markets remaining stable. 2009 it could take-up to four years for 4 the market to recover to a position which 3 Average rents mirrored prime rent would support rental growth across the 2 trends, falling and then stablising in most market. Alternatively, Warsaw represents 1 0 | | | | | | | markets over the year. The outlook for very limited absorption risk given that 2011 is somewhat different, however, vacancy is already sub 8%. Combined w ue ev t st a �a es av sa pe Ki ag So ar isl ar da with no growth anticipated amidst a with a very limited pipeline and Pr ch at W Bu Bu Br general flight to quality stock by economic growth driving take-up, occupiers. Only stock located within the availability remains tight and rents are core, central areas and key business expected to grow in 2011. districts appear to have a strong chance of sustaining average rental levels in The absorption point for all markets, 2011. of course, is most likely somewhere in the middle, although younger markets The significant volumes of availability such as Kiev and Bucharest - yet to see in the major capital cities, bar Warsaw their best years of take-up - should and Moscow, but especially in the likes of recover quicker than the more mature Sofia, Budapest and Bratislava, may lead markets. to a continued fall in average rents in 2011 before stabilizing. Put simply, the wider the spread the better the position is for occupiers SUPPLY V. DEMAND versus developers. Most markets In order to gain a more strategic continue to be oriented to occupiers in overview of the overall recovery and the short term. growth position of each market, we can P. 6 | CollieRS inteRnAtionAl Research: Damian.Harrington@Colliers.com
2011 COlliERs REal EstatE REviEW » NEW EUROPE OFFICE MARKET FIG. 7: STRATEGIC LONG-TERM SUPPLY (sqm/’000 capita) 3,000 STRATEGIC POSITION amount. The trend, however, shows that West European Average Fig. 7 gives an indication of the a further 100 or so are in the pipeline to 2,500 Source: Colliers International longer-term development potential of be certified illustrating that developers 2,000 office markets. This is based on the and owners are now taking this more 1,500 current supply of office space relative to seriously as a must have, rather than a 1,000 more mature western European capital nice to have. 500 cities of a similar size, in terms of Sqm per 1,000 population (where the western Given that the actual construction of 0 European average ranges between green office space is no longer | | | | | | | Bratislava Prague Warsaw So�a Budapest Bucharest Kiev ▄ Under 5 yrs old & Pipeline ▄ 5-10 yrs old ▄ Over 10 yrs old 2,500 – 3,000 Sqm). prohibitive in cost, and the fact that the right construction can save operational From this simple quantititave analysis, costs, the use of energy and boost the locations such as Kiev and Bucharest, CSR profile of occupiers, we see this asGREEN CERTIFIED BUILDINGS IN CEE/SEE the youngest markets, appear to have the a real differentiator for developers inMarket Stock* BREEM* Details LEED* Details greatest capacity to grow from a future. This is especially in a world ofSofia 260 0 1 American Embassy ‘strategic supply perspective’. At the rising energy costs. By future we do not Zlaty Andel, BB CSOB HeadquartersPrague 414 2 Centrum Beta 2 (Skanska), City Green other end of the scale are Prague and necessarily mean 5 – 10 years away, but (INGREIM) Court (Skanska) Quadrum Office Park Bratislava, which look very close to now. Especially when one considers theBudapest 286 1 0 (AIG Lincoln) capacity. In the ‘middle-section’ lie competition for occupiers betweenWarsaw 376 0 2 Warsaw, Sofia and Budapest which offer developers which is likely to play out in a Lakeview (AIGBucharest 134 2 Lincoln), Euro Tower 0 Atrium City (Skanska), Atrium Center (Skanska) some further development growth of number of markets over the next few (Cascade Group) office stock over the medium-longer years.Bratislava 251 0 0 term. On the surface, one can develop anKiev 160 0 0 inkling as to which markets are good The other important factor to* Buldings. Source: Colliers International/LEED/BREEAM targets for developers. consider is the way we work and how this is changing our use and needs for From a qualitative perspective, a office space. Continual improves in different picture emerges. So, whilst the ‘mobile’ technology and the use ofSHORT-MID TERM OUTLOOK overall volume of stock is close to handheld/tablet devices alongside ForecastDemand Availability/AbsorptionMarket Growth 2011 Rate (yrs) Vacancy at 8% capacity in Prague, the quality of stock alternative working strategies – i.e.Warsaw 3.5% 0.75 H2 2011 may not be as over 60% of stock is over remote/flexible working, hot desking andKiev 4% 1.5 H1 2012 10 year old, and 35% over 10 years old. more efficient use of space is alreadyPrague 1.5% 2 H2 2012 While this is not necessarily an accurate changing how office space needs to beBucharest 1.5% 2.5 H1 2013 indication of quality, it does provide some configured to meet modern demands.Bratislava 1.75% 3 H2 2013 indication that a high proportion of stockBudapest 1.5% 3 H2 2013 will soon become technically obsolete in This will ultimately change the useSofia 1.5% 3 H2 2013 Prague. This provides developers with a and format of office space, most likelySource: Colliers International different ‘refurbishment and leading to a reduction in the volume of redevelopment’ opportunity, but an office space which has traditionally been opportunity nonetheless. The question is, required and thus reducing theSUMMARY OUTLOOK what to build? quantitative argument for developers.Developers Market: Now for Warsaw, slightly later for Kiev –rents likely to grow in 2011. We believe there are two significant PROGNOSISMiddle Ground: Prague and Bucharest – rents likely to grow in2012, perhaps sooner for core/prime. factors to consider to ensure the The overall message is that the needTenants Market: Bratislava, Budapest and Sofia – rents unlikely long-term sustainability and success of for space improvements will provideto grow overall until 2012/13, although core/prime rents may an office asset in line with changing developers and property companies withrebound sooner. market trends and demands. a new opportunity and/or challenge. Especially in markets which are The first key factor is the extent to otherwise saturated – notably Prague which a building is certified as being and Bratislava. Bucharest and Kiev green/sustainable. To date only around should continue to provide traditional ten office buildings are registered to a development opportunities but not to the high enough standard by either BREEAM extent one may think as capacity or LEED across CEE/SEE. A very small requirements fall.Research: Damian.Harrington@Colliers.com CollieRS inteRnAtionAl | P. 7
2011 COlliERs REal EstatE REviEW » NEW EUROPE INDUSTRIAL MARKET FIG. 8: TAKE-UP & IND. PRODUCTION GROWTH400 Historically, take-up growth in the allowing for the fact that some of these region has been driven primarily by markets are less transparent and activity350 three types of occupier: is generated by owner occupation as300 much, or indeed moreso, than by leasing.250 Companies in the production/ It still begs the question(s), why such a200 manufacturing and assembly sector, difference in demand levels, and is this150 which account for ca. 35% of occupied likely to change in future? space directly.100 The reasons for the significant | | | | | | | | | | | | | | | 2000 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ▬ Industrial Production Index ▬ Take-up Growth Index Retailers and wholesalers comprise a differences are largely obvious and do much smaller proportion of the market give some indication of how demand directly at ca. 15%. levels may change. Moscow is a very large domestic (practically regional) Logistics operators/3PLS which market in its own right with a population FIG. 9: TAKE-UP TRENDS BY MARKET (,000)1,500 comprise the largest market share, at ca. of ca. 13 Mln supporting large volumes of 50%, their business however, driven by retailing and manufacturing production.1,200 the needs of the manufacturing and 900 retail sectors. In the Central European belt, Poland has witnessed sizeable take-up of ca. 1.4 600 Overall, however, we would suggest Mln Sqm as a result of being a large, 300 the production/manufacturing and expanding domestic market of ca. 35 Mln 0 | | | | | | | | | | | assembly sector is responsible for of which Warsaw is key. Next in line is around 70% of overall take-up. Figure 8 Prague and the Czech Republic, where nd p w s ev ia y ce ia ia ia e’ ar Re an ak ar rb co Ki ee la et ng lg Se ov m os Po take-up is around two thirds of that seen h highlights the strong correlation between Gr .P Bu Hu ec Ro Sl M St Cz ▄ Capital City ▄ R/O Country growth in take-up/demand and industrial in Warsaw/Poland. In these markets, the production pre and post crisis and even role of industrial production comes much during the booms years of 2006 – 2007. more into play. Take-up has been driven by western European manufacturers During these boom years the market who have expanded and or relocated FIG. 10: CEE EXPORT PARTNERS100% witnessed a ‘quantum leap’ in demand into the central European belt to exploit growth as take-up more than doubled strong labour skills at lower production80% across the CEE region overall. This costs whilst maintaining strong proximity60% major shift appears to have been driven to market. largely by 3PLs expanding, growth in40% occupiers associated with the automobile As Fig. 10 shows, all of the Visegrad20% industry & from existing tenants/ countries have similarly strong trade 0% | | | | | | | | | occupiers grading up from older B-class relationships with western European stock to higher-spec, A-class space. It countries, especially Germany which ia tia p y nd ia ia ia e ar in Re ar an ss ak oa la ra ng lg Ru ov m Po accounts for around one third of exports. h does not represent a 100% growth in Cr Uk Bu Hu ec Ro Sl Cz ▄ Other ▄ CIS ▄ M.East ▄ Turkey ▄ Balkans ▄ Asia ▄ Japan ▄ China ▄ US ▄ Russia ▄ EU27 ‘net take-up’, allowing for renewals and In fact virtually all CEE/SEE nations, bar renegotiations. Ukraine, have a similar export profile yet the further south and east one goes, the As industrial production recovered in weaker the market in terms of take-up. 2010, we have also seen take-up rebound, from the previous lows of The interesting difference is the 2009, albeit it to varying degrees by extent to which take-up in Slovakia and location. As Fig. 9 shows, activity is Hungary has been far more muted than highly concentrated in three markets: in the Czech Republic despite no Poland, inc. Warsaw, the Czech Republic, proportional difference in market (pop’n) inc. Prague and in Moscow. size. All markets are relatively close to market, although Hungary is arguably So why such a difference with all the further afield. The answer seems to lie other markets south and east where in operational costs and infrastructure. take-up is significantly weaker? EvenP. 8 | CollieRS inteRnAtionAl Research: Damian.Harrington@Colliers.com
2011 COlliERs REal EstatE REviEW » NEW EUROPE INDUSTRIAL MARKET When one considers that transport quality, which can reduce the cost of costs typically account for 60% of all getting both products to market and operational costs – labour costs typically obtaining raw materials, is essential. comprise 30% - this proximity to market — Shifts in distribution forms, notably factor, driven by high quality from road to rail, and lower infrastructure (roads) is keeping the bulk production costs allowing for quicker, of companies production and distribution more cost efficient delivery will be the facilities within the central belt territory catalyst for this alongside improved of Poland and the Czech Republic for road infrastructure. now. This is likely to continue for the foreseeable future, although signs of A shift away from road and air freight demand spreading south and east have (most fuel inefficient/carbon emitting) to FIG. 12: ANNUALISED LABOUR COSTS (€) started to happen - Slovakia has stared sea & rail freight is already happening, Bulgaria Romania to witness more signifciant developer for example H&M moving to Panatonni Latvia Lithuania Slovakia interest toward the end of 2010, driven Park in Poznan, Poland. The company Poland Estonia by demand. has made dramatic changes to the way Hungary Czech Rep products are shipped internationally and Portugal Slovenia Over the mid-long term what can we across Europe over the last few years. Spain Finland expect across the region, and which International air freight has been reduced Austria Germany France factors will be the primary drivers of this to 74% from 100% in the space of a year.Netherlands Belgium change? Across EMEA more goods are now Denmark UK shipped from Turkey via rail rather than SwedenLuxembourg DISTRIBUTION HUBS OF THE FUTURE by road, to distribution centres in Poland, | 0 | 10,000 | 20,000 | 30,000 | 40,000 | 50,000 | 60,000 – KEY DRIVERS Germany and Belgium – the shifts are From a demand-side, an increase in very significant: GDP per capita and disposable income will increase demand from retailers and Rail freight from Turkey to PolandT3: CURRENT MARKET POSITION associated logistics/3PLs across the was 10% in 2008 - by 2009 it grew toMarket Vacancy Rents Yields 87%; from Turkey to Germany it was entire region, in particular further south2011 Developers Markets 22% in 2008 - by 2009 it grew to 62%; and east where economies are furtherSofia (Bulgaria) 3.9% €4.50 12% and from Turkey to Belgium it was 0% in behind the growth curve.Moscow (Russia) 6.0% €6.55 12 – 13% 2008; by 2009 it grew to 52%.Slovakia 8.2% €3.20 – 4.00 8 – 12% From a supply-side perspective, theNext in Line for Developers following drivers are key: In future, this modal shift to rail willPrague (Czech Rep.) 14.4% €3.10 – 3.90 8.5 – 9% — The cost and efficiency of production, support locations which can offerBelgrade (Serbia) 15.0% €3.00 – 4.00 11% primarily driven by labour costs, will genuine ‘multi-modal’ capabilities,Poland 15.6% €2.40 – 4.50 9 – 11% continue to support a shift of including those which can offer seaCzech Republic 16.5% €3.60 – 4.00 9.5 – 11% production from northern and freight as an option. This should lead to aBucharest (Romania) 15% €3.80 – 4.00 10% western Europe to central and shift towards spoke & hub distribution eastern Europe – CEE/SEE country points, rather than activity beingTenants Markets for 2011 labour costs are at typically least one concentrated around one or two majorKiev (Ukraine) 22.0% €4.15 – 4.25 14 – 16% third the labour cost of western distribution hubs.Budapest (Hungary) 21.3% €3.00 – 4.50 9 – 10% Europe. The further south and eastWarsaw (Poland) 21.8% €2.20 – 5.20 8 – 9% you go, the lower the cost, which PROGNOSISSt. Petersburg (Russia) 24.0% €5.45 – 6.65 14% would appear to support production Over the short-term the central belt is moving further south and east. likely to be the main beneficiary ofSUMMARY OUTLOOK — Increasing fuel costs and the production/assembly activity. FurtherDevelopers Market: Sofia, Moscow & Slovakia, Brno in Czech requirement for a decrease in CO2 south and east, retail will continue toRepublic – where vacancy is below 8%, we may see some rentalgrowth in 2011. emissions will, however, curtail any drive demand as planned new roads andMiddle Ground: Poland and Czech Republic, especially regional immediate shift in production away infrastructure remain 5-20years fromlocations. Rental growth possible at year-end. from the ‘central belt’. In order for completion. Advances in rail freight couldTenants Market: The remaining markets, vacancy unliklely to fall production to move further south and alter the situation sooner.to levels supporting rental growth in 2011. east, a significant shift in transportation infrastructure andResearch: Damian.Harrington@Colliers.com CollieRS inteRnAtionAl | P. 9
2011 COlliERs REal EstatE REviEW » NEW EUROPE RETAIL MARKET FIG. 13: RETAIL SALES GROWTH, MID’08–MID’10 RETAIL SALES however, mask some considerable Latvia Lithuania Despite an improving economic differences in performance. Kiev, for Estonia Greece climate there was no obvious growth in example, experienced a strong recovery Romania Bulgaria Slovakia retail sales outside of Poland and Russia in prime rental levels with a recorded Croatia Denmark in 2010. From mid-2008 to 2010, almost rise of 30%. In contrast, Bratislava and Hungary Spain all CEE/SEE markets performed worse Budapest saw rental falls of 11% and 8% Czech RepEU Average than the EU average, a decline of -2.2% respectively whilst no change was Italy Germany (-1.1% per annum avg). Other poor recorded in Prague, Warsaw or Sweden UK performers include Spain, and perhaps Bucharest. FranceSwitzerland surprisingly Denmark. Poland on the PolandLuxembourg other hand has been the number two Rental growth in South Eastern -35 | | -30 | -25 -20 | -15 | | -10 | -5 | 0 | 5 | 10 performer across Europe since the onset Europe was slightly negative at ca. of the crisis, second in line only to -0.8%, driven by falls of 4% in Sofia Luxembourg. whilst all other markets remained neutral. In Russia, rental rates in Moscow The positive news is that with such have increased by 25% over the year, FIG. 14: RETAIL DEMAND FORECAST, 2020 significant falls comes the greater whilst rents in St Petersburg have fallen Germany Italy Source: Experian opportunity of a rebound. As early as by ca. 6% over the year. Greece Eurozone 2010 a number of markets in the CEE/Netherlands Spain SEE area had already started to recover Whilst growth on the high street was France – with growth showing through in marginally positive, rental growth in UK Denmark Croatia, Romania and the Baltics. The shopping centres was broadly negative Ireland Czech Rep Czech Republic and Hungary have at -2.7%. Only Russia posted positive Hungary Slovakia moved closer to neutral, whilst sales in growth across the whole territory Poland Bulgaria and Slovakia continued to – recording an increase of 12% in Bulgaria Russia decline by ca. 2%. This does at least Moscow over the year, with minor Romania Turkey represent an improvement. growth of 0.5% posted in St Petersburg. | | | | | | | | 0% 10% 20% 30% 40% 50% 60% 70% As we look forward to 2011 a Of the remaining cities, 50% saw no scenario of economic growth combined change in rents – Warsaw, Prague, with falling unemployment should start Budapest, Zagreb and Tirana. Whilst to drive the demand for goods. Although Sofia, Kiev, Belgrade, Athens, Bratislava FIG. 15: RENTAL CHANGE BY MARKET, 2010 those countries faced with strong and Bucharest all recorded rental falls Bucharest Source: Colliers International Bratislava austerity packages – Romania, Greece, ranging from 2.5 – 13.3%. Athens Ukraine and to a degree Hungary are Belgrade unlikely to see particularly strong retail So overall, there have been some Kyiv growth in 2011. quite disparate levels of performance as So�a Zagreb one would suspect but with some Warsaw With a view to the longer term i.e. up suprising results. Notably Bratislava Tirana to 2020, retail demand growth forecasts suffering more than any market in both Prague for all CEE markets are very positive at prime shopping centres and across the Budapest St Pete’s 40% on average over a 10 year period high street. Moscow –double the forecast growth of the | | -20% -15% -10% -5% | | | 0% | 5% 10% | | 15% | | 20% 25% 30% 35% | | Eurozone. Much better news for Perhaps more suprising is the fact ▄ High Street Rental Change ▄ SC Rental Change shopping centre owners and investors, that there have been very limited especially those capable of capturing declines in prime high street rents, and new retailers looking to expand and/or to a degree prime shopping centre rents, consolidate in the region. over 2010 despite such a strong fall in retail sales. RENTAL CHANGE, HIGH-STREET AND SHOPPING CENTRES This could partially be explained by As a whole the Central and Eastern the fact these changes only refer to the Europe region posted average rental prime high street and shopping centre growth of ca. 2% in 2010. This does, locations. Given the general flight toP. 10 | CollieRS inteRnAtionAl Research: Damian.Harrington@Colliers.com