* Investors renew interest in Poland, Russian property
* Russia banks seen launching distressed sales in H2
* Funds avoid Hungary, Ukraine, Baltics
By Daryl Loo and Yuliya Komleva
LONDON/MOSCOW, June 11 (Reuters) - Global real estate
investors who fled emerging Europe at the start of the year are
inching back to the region, lured by prospects of higher returns
as fears of widespread economic collapse ebb.
Emerging real estate markets such as Poland, whose economy
has held up relative well in a global downturn, and Russia,
which is bolstered by rising crude oil prices, are becoming
attractive, but Hungary and the Baltics remain no-go zones.
"We're coming out of a period where no one wanted to do
anything as systemic risk in the whole region was extremely high
... that period is clearly over," said Karsten Junius,
DekaBank's head of capital and real estate research.
DekaBank, Germany's largest manager of property funds, was
one of a very few investors active in the region earlier this
year, acquiring two office buildings in Prague and Warsaw in
deals totalling 110 million euros ($155 million).
"We see comfort in our funds buying in Warsaw and Prague ...
after this recession, we expect a strong upturn of economic
activity and therefore a recovery of capital and real estate
markets," Junius said.
Sales in Central and Eastern Europe (CEE) fell to a record
low of 220 million euros in the first quarter of 2009, but there
were signs of revival in April with 100 million euros sold,
property broker CB Richard Ellis (CBRE) <CBG.N> said.
"There is still a belief that in the medium to long term,
there will be a lot of growth in this region," said CBRE head of
CEE research Jos Tromp, adding the region was now attracting
both core and opportunistic investors.
HIGHER RISKS, BETTER RETURNS
Emerging Europe, which stretches about 2,000 kilometres from
the Czech Republic in Central Europe, eastwards to Russia's Ural
mountains, covers a huge swathe of land that dwarves the rest of
Western Europe.
Its total market for investment properties -- typically
commercial buildings worth over 10 million euros -- is
relatively small at about $85 billion, less than a quarter the
size of Europe's top two markets in the UK and Germany, data
from CBRE and Investment Property Databank shows.
The region compensates for its market size and higher risk
with better returns, analysts said, with property yields ranging
from about 7 percent for a prime building in Warsaw's central
business district to about 10 percent in Moscow.
This compared well against London where prime offices
yielded 5 percent last year, but as the downturn drove yields in
mature markets higher this year, some emerging Europe investors
are seeking even higher returns through distressed buys.
"If you can buy in London for 6-7 percent, why buy in
Central Europe? Central Europe needs to trade at a yield premium
-- my guess about 150-200 basis points," Jones Lang LaSalle head
of CEE Capital Markets & Investment Tomasz Trzoslo said.
Foreign opportunistic funds expect more banks to start
taking over assets from insolvent developers, particularly in
Russia, and launch a wave of discounted property sales later
this year. [] []
"My guess is distressed purchases (in Russia) will start
accelerating at the end of this year, continuing to the next
year," Lee Timmins, senior vice-president of U.S. property funds
manager Hines, told Reuters in an interview.
Hines is currently raising 300 million euros for an emerging
Europe property fund, of which 70 percent will be invested in
Russia as "we can make a better return on our money by investing
a large portion into Russia," said Moscow-based Timmins.
Russian properties could rebound quickly after hitting a
bottom by the first quarter of 2010, boosted by a reforming
market and resurgence in oil prices, said Charles Voss, Aberdeen
Property Investors <ADN.L> managing director for Russia.
"I can't really see the whole world going for ten years in
which oil is at $10-20 per barrel ... the potential is for the
Russian market to come out more quickly than some of the western
markets," said Voss, who is based in St Petersburg.
BALTIC RISKS
Investors say they are more cautious elsewhere in the
region, planning to give a wide berth to markets such as
Hungary, Ukraine, Latvia and the remaining Baltic states where
they expect more instability.
[][][]
"I wouldn't invest in any of the Baltic states where they
still have foreign exchange problems. For core investors that is
clearly a region where one should not invest," DekaBank's Junius
said, adding he would also avoid Hungary.
"Its more of a structural issue ... (Hungary) simply has too
much debt, so the economic policy has to be restrictive rather
than expansionary," he said.
There are also more concerns about Romania, until recently a
favourite among property investors in Eastern Europe due to its
huge and relatively young population, and rising consumer
spending driven by debt, CBRE's Tromp said.
"It is unlikely economic growth over the next two to three
years can again be driven by a massive amount of debt, so one of
the major drivers of growth has been taken away," he said.
(Editing by Sitaraman Shankar)
(See www.reutersrealestate.com for the global service for
real estate professionals from Reuters)
($1=.7087 Euro)
