Even 30 years after the fall of the Iron Curtain, the markets of East-Central and South-Eastern Europe are still a closed book for many investors.

This applies all the more to the real estate market, where few foreign financiers are bustling about.

Recession worries and interest rate fears are now added.

But the niche market is worth taking a closer look at, as experts promise investors with staying power interesting returns with commercial real estate there.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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"This is a huge, underestimated promising market that many investors do not perceive to the extent that it deserves," says Manfred Wiltschnigg, Managing Partner of the Viennese real estate fund boutique Gal Cap Europe.

He also sees “great opportunities and good shopping opportunities” in the region in 2023.

Gal Cap sets up funds for institutional investors such as pension funds and insurance companies and manages real estate investments from large investors.

Deductions of 10 percent

In the past year, purchase price reductions of 10 percent and more were seen in some markets, reports Wiltschnigg's partner as managing partner, Marco Kohla.

"You have to take advantage of such opportunities." The overpriced market in Prague has become attractive again.

"Despite the economic uncertainty, the first three quarters of 2022 were positive overall for the commercial property markets in Central and Southeastern Europe (CEE)," says real estate specialist Cushman & Wakefield, assessing market developments.

However, high interest rates and declining demand are now dampening the mood for investment.

Nevertheless, Martin Tamborsky, who heads the real estate market valuation at the Viennese banking group Erste Group, still has confidence in the Central and Southeast European markets.

In the long run, their growth rates would exceed those of western European countries.

He is certain that "the markets in East-Central Europe continue to be attractive for local and international investors".

In fact, the real estate business in Eastern Europe has been going well so far, despite the war, inflation and interest rate increases.

After three quarters, the transactions totaled 8.4 billion euros.

That was 13 percent more than in the previous year.

And even if business has already clouded over somewhat in early autumn, the market observers of the world's leading specialist for commercial real estate CBRE expect sales in Central Eastern and Southeastern Europe for the year as a whole to be around the previous year's level of almost 12 billion euros.

That's a lot of money, but compared to the rest of Europe it's a no brainer.

12 billion euros corresponds to the British transaction volume by the end of September.

By then, almost 16 billion euros had been invested in real estate in Germany alone.

Across Europe it was 229 billion euros.

The figures make the west-east divide more than clear.

looming recession

According to the experts at Cushman & Wakefield, all investors are preparing for the rise in interest rates and the looming recession.

They therefore expect activities to be scaled back until the economy stabilizes and uncertainties have diminished.

Business deals are already taking longer than before.

This is precisely why other market participants see new opportunities.

"Many don't see the opportunities that are available there," says Wiltschnigg and adds: "We have achieved excellent results for our investors there." .

There are hardly any such opportunities in Austria or Germany.

It is helpful to be able to get by without banks when it comes to financing.

Credit institutions in Western Europe have become more cautious, says Gal Cap man Kohla.

"And financing with local banks is a very expensive affair, you quickly get into double-digit interest rates." In Poland, the Czech Republic and Hungary, the key interest rates are 6.75, 7.0 and 13 percent, well above the ECB -Rate of 2.50 percent.