Bratislava may become EU property hotspot - survey

The capitals of Slovakia, Hungary and the Czech Republic will come into the limelight as the dynamic core of the EU's economy shifts fundamentally, taking the hot money with it, property consultants DTZ say.

Their study seees the EU's economic axis stretching in a curve from southeast England through the Benelux countries, northern France, Rhineland Germany, northeast Italy, to Spain's Catalonia and Castille moving to a northwest to southeast "carrot" shape from Britain, tapering to a point in Hungary.

The shift in the regional economic centre of gravity will mean real estate markets in the major cities of Spain and Italy will become more marginalised from a pan-European investor perspective, DTZ said.

DTZ set-up a research syndicate to examine the impact of EU enlargement on business, location and investment strategies across the EU-15 and candidate countries with a range of sponsors from the giant German Deka property fund, to Henderson Global Investors and Standard Life Investments.

The top ten business locations for an enlarged EU to emerge from the survey were Berlin, Bratislava, Budapest, Copenhagen, Frankfurt, London, Munich, Paris, Prague and the Randstadt area of the Netherlands.

Although the 10 candidate countries joining the EU in May (CC-10) will initially only add 5.0 percent to the union's gross domestic product (GDP), their economies have been growing at a faster rate than their Western neighbours and CC-10 will add 20 percent to the bloc's population.

Under the EU's new economic geography, its population-weighted epicentre will move by 2007, when Bulgaria and Romania join (CC-12), from Langres in eastern France to Tuttlingen in southern Germany -- only 250 kilometres from Presov in the Slovak Republic, the centre of gravity for CC-12.

In terms of shopping centre property stock per capita, the candidate countries have much lower densities than the existing EU and investors should target east European population centres where GDP is now low, so offering higher potential growth rates.

Prime retail yields (rent as a proportion of capital value) are considerably higher in the CC markets than those in Western Europe, with an average 5.8 percent premium.

Unlike the significant convergence that has occurred in east European office property, retail yields have remained fairly flat due to the immaturity of the sector and the relatively few investment transactions recorded, DTZ said.

Prime office yields in the CC markets are on average still 5.1 percent above EU levels, although there has been significant convergence in Budapest, Prague and Warsaw towards the Western benchmark. This convergence is being driven by increased investor interest in these markets, which is a result of a perceived reduction in risks, DTZ said.

Prime industrial rents in CC locations are higher than those in a number of Western European locations including Vienna and Brussels. The diminishing relative share and importance of manufacturing across the EU has made Eastern Europe locations more attractive, creating increased demand for warehouses.

As a result, prime CC industrial yields are on average only 3.7 percent above EU levels, probably because of the more homogenous nature of industrial products across Europe with rents and capital values in general quite similar.


Source: Reuters