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News Release

Budapest, Prague, Warsaw, Bucharest

CEE Capital Markets Outlook

Jones Lang LaSalle issues report on real estate investment market in the CEE region

Budapest, 25th May 2009 – The Central European countries are now heavily impacted by global recession. Jones Lang LaSalle in its recently published report CEE Capital Markets Outlook April 2009 points out that particular impact can be seen in the real estate markets, where activity of investors and developers has decreased very heavily. Only best assets in best locations can currently attract interest from investors, and the pricing of such assets is very different to what such assets were worth only 18 months ago. Values decrease rapidly and this will undoubtedly create issues for borrowers and banks - additional equity might be needed in many cases to maintain the Loan-To-Value ratios.
Commenting on yields, Ferenc Furulyás, Head of Capital Markets at Jones Lang LaSalle Hungary informs that yields in Central Europe have increased materially, and are now around 7-7.5% for prime office and retail product and above 8% for distribution / logistics. This is about 150 basis points more than average sustainable yield level in Western Europe, including the UK, where current pricing for core rack-record non-distressed product is around 6% now.
Furulyás adds that the activity of low return real estate investment funds in Central Europe is currently very limited. Much more active are the opportunistic funds, which have high IRR expectations and believe that there will be opportunities for them in Central Europe which will generate such returns for them. So far however, there was not much done by these funds in Central Europe.
“We are of the opinion that pricing of real estate will be under further pressure in the next couple of months and we may see some further yield decompression until late autumn 2009. From autumn 2009 we expect that activity levels will improve and there will be more core investors looking for product in Central Europe, trying to take advantage of well discounted prices and healthy macro-economic and demographic fundamentals of most counties in Central Europe, including Hungary. This will stabilise yield decompression and ultimately will bring the yields back to longer term stabilised levels, which we expect to be around 7% for offices and retail”. – Furulyás concludes.