The eastward expansion of the European Union in 2004 will contribute to a strong commercial real estate market in parts of Eastern Europe, with Hungary, the Czech Republic and Poland leading the way.
Based on the strength of its market, a recent report by Cushman & Wakefield found Hungary the number one country out of 13 emerging countries either set to join the European Union or candidates for membership.
“These Central European countries have performed well, given their early moves to carry out economic reform, their recent good growth and growing appeal to investors and international business,” said David Hutchings, Cushman & Wakefield’s Head of European Research.
Besides those three countries, Latvia, Lithuania, Slovakia and Slovenia are becoming part of the European Union in its biggest expansion next year. Hutchings sees the new members as well poised to join compared with countries that were a part of the southward expansion of the European Union in the 1980s, because of greater pressure for reform and a more global business environment today.
But that won’t necessarily lead to a sudden “economic big bang,” he said. “Part of the reason is most of these countries are already out-performing the existing EU countries,” he said.
Among the developments noted in the report are 36 million square feet of new shopping center space due to be finished in the emerging countries over the next two years. “Consumers in the region have lapped up new retailing concepts such as modern shopping centers and out-of-town retail parks,” Hutchings says. “The development of the next generation of retail space will remain a catalyst to attract foreign retailers and the new breed of domestic player.”
The industrial sector is also poised to grow, as a result of a more liquid market for trade. “The removal of trade barriers post accession will encourage more distribution and freight companies to relocate into the region and establish pan-European networks,” said Hutchings.
Office growth, however, could be more limited. “Future growth in the demand for office space is likely to be gradual as many companies have already set themselves up in their preferred markets. But we may see some boost to short-term demand, especially perhaps from public bodies, such as the EU itself, and lobbying and trade organizations,” the report said.
Interest from institutional investors is expected to grow further over the next two years as entering the union reduces the risks associated with emerging markets.