The Central and Eastern European (CEE) real estate market has never been so active as in the past several years, with the size of investment in it rising to unseen levels. Private investors from Europe and the rest of the world have finally realised the potential the region has for further development and worthy returns.

It was exactly the realised property investment opportunities that brought more than 3000 participants from 29 countries to the 2006 edition of CEPIF (Central Europe Property & Investment Fair), which took place in the Polish capital Warsaw on May 11-12.

Many analysts believe that the market there has already become overloaded and that a large investment today would hardly bring the promised high yields. They fear that the fast development of the region’s property sector will soon bring it to yield compression already observed in more mature markets like Western Europe.

However, according to others, the CEE market is no longer limited to champion economic developers like Hungary, Poland and the Czech Republic. The surge of investor interest means that other countries like Bulgaria, Romania, Croatia and even Turkey are now seen as attractive investment destinations.

The inclusion of giants like Russia and Ukraine on the map of real estate developers has enormously contributed to building interest in the CEE property industry.

Each year, CEPIF brings to Warsaw people from all over the CEE region to meet real estate professionals from the West, and vice versa. It is all about networking and spreading knowledge and information.

The 2006 CEPIF mainly focused on the new approaches towards public-private financing (PPF) in CEE. Led by Aleksander Granowski of WS Atkins – who also co-ordinates the issue for the American Chamber of Commerce (AmCham) and the British Polish Chamber of Commerce (BPCC) – and supported by C.R.E.A.M (Community Realisation European Aid Masterplan), the EU body dedicated to the promotion of public-private partnerships (PPP), the session heard from leaders in the field, like CMS Cameron McKenna, the legal firm that advises Polish policy makers, led by Poland’s leading legal expert on PPP, Andrzej Kozlowski; TriGranit, a leading regional developer, part of whose Millennium City Centre project on the banks of the Danube in Budapest – The Palace of Arts – was developed along public-private principles; KUD International, the major international programme management and development services provider; ARUP, one of the world’s leading engineering firms and experts in PPP initiatives, and many others.

Participants in the PPP discussions made comparisons of how this type of initiative is used in property development practices in different states.

It appears that Poland, for example, which has recently adopted (October 2005) an already effective PPP Act has found a number of difficulties on the way to its implementation. On the contrary, in Hungary, where no particular law regulates public-private financing, things look much better, Robert Richardson, managing director of the company Global Property Solutions, believes.

The conclusion made by participants was that not the legislation itself but the entrepreneurial spirit of both private businesses and the state and municipal authorities is the main driving force behind the success of PPPs.

In Poland, the PPP Act envisages that public procurement procedures should be applied when a state or a municipality chooses a partner among the private entrepreneurs. However, the obvious lack of flexibility in public procurement does not help PPP success, said Kozlowski, who is one of the top PPP experts in the country.

Richardson added that it is the serious competition coming out of public procurement procedures that has helped them in many projects.

Investing in a country’s physical infrastructure can contribute to economic growth, improve human welfare and has considerable potential for directly reducing poverty. Yet current investment in the poorer developing countries, whether internally or externally sourced, is insufficient to fund infrastructure needs, leaving many citizens without access to decent basic services.

Although the public sector will remain the major provider of infrastructure services in most developing countries for the foreseeable future, an increasing number of those countries are now considering ways of attracting increased private sector investment.

Nervousness about the implications of such a change is, however, inhibiting the development of the concept and, even where such private investment is forthcoming, it tends to be biased towards the better-off countries.

CEPIF 2006 had several key panel discussions, including one on the CEE commercial property market, where CEOs and regional managers of commercial property companies active in CEE argued about market development. This panel brought together some of the most recognised real estate figures in the CEE region to give their viewpoints on the market, present and future.

The CEE commercial property market main panel extended a look at the market through the eyes of the major international commercial players, and another panel came from the perspective of the home-grown developers and consultants operating within the different countries in CEE.

An important panel discussion at CEPIF 2006, and with Bulgarian participation, was dedicated to Private Equity Real Estate Investment. One of the speakers there was Vladimir Karolev, a top Bulgarian financial expert, who represented his Balkan Advisory Company.

Speaking to the forum, Karolev outlined some of the major differences between private and public equity funding of property development.

Karolev also spoke of the yields that investment in real estate in Bulgaria currently brings. The participants heard of eight to 10 per cent return on investment achievable in Bulgaria for office property and 10-12 per cent yield on residential real estate.

“Unfortunately, the competition among developers in Bulgaria is still much lower than what we see in already close-to-maturing markets like Poland, Hungary and the Czech Republic,” Karolev said.

As an area of future competition he pointed to the construction of shopping malls and other retail centres. In Bulgaria now, two have been completed – City Center Sofia and Mall of Sofia. The first was officially launched on May 12, while the second is scheduled to open in in July. Therefore, foreign investors will benefit much if they direct their money towards building more such establishments in Bulgaria, Karolev believes.

What was generally found out during this year’s edition of CEPIF was that despite the fact that Western Europe remains the strongest market generating the most interest, there has been a renewed interest for the markets in CEE. While most interesting in the region now are Poland, Hungary and the Czech Republic, the focus is slowly moving east and south to the more emergent markets of Bulgaria, Romania, Croatia and Turkey.

Though the deal level in those countries may not yet be high, the interest grows on a daily basis.

Retail, and, in particular, shopping centres, has enjoyed a boom in CEE over the past few years, a trend that looks set to continue until the market is replete. Offices have also continued to provide strong returns, but there is now a fear of oversupply in the main cities, while the secondary cities in CEE suffer from an inability to attract serious investment and tenants.

Residential property remains a strong area of development and investment and there are no signs of this stopping.

With the further development of dedicated infrastructure in CEE, the main growth areas look set to be industrial, where good double-digit yields are still available, and the hotel industry, which is already developing fast in countries like Bulgaria and Croatia.