* Rising UK prices beginning to repel bargain-hunters
* Cities such as Sofia, Bucharest, Bratislava to benefit
By Sinead Cruise
LONDON, Dec 1 (Reuters) - London's swift real-estate bounce
is coaxing yield-chasing investors back to cheaper emerging
Europe, where consumers are shaking off recession fears and many
markets remain in need of shops, homes and offices.
UK property prices experienced the highest monthly rise for
four years in October and its status as Europe's property
bargain basement is fading fast, said Holger Schmidtmayr, a
management board member at Sparkassen Immobilien AG <SIAG.VI>.
"When London property trades at yields of above 7 percent,
central and eastern Europe is dead. Simple as that. If London is
7 percent, then Bucharest has to be 11 percent to draw buyers
in, but no-one was willing to sell at that level," he said.
"But now London is back at 5.5 percent, that means those
people who want to earn 7 percent have to go to Prague, and
those who want 8 percent have to go to Budapest," he added.
Vienna-listed Sparkassen, which owns around 260 assets worth
1.8 billion euros ($2.7 billion) in Austria, Germany and eastern
Europe, is looking to kickstart three new developments in
Bratislava, Sofia and Bucharest, Schmidtmayr said.
The launches are in anticipation of an investor stampede
reminiscent of 2006, when prices rose to similar levels as in
the depressed German property market. They follow hot on the
heels of its Serdika office and retail complex in Sofia and Sun
Plaza shopping mall in Bucharest due early 2010.
BUCHAREST, SOFIA VACANCIES LOW
While retail space has proved relatively easy to let at
rates of 13-14 euros per square foot, Sparkassen is finding
office lettings more of a challenge.
It has been forced to reduce asking rents on its Sofia
project from 18-17 euros per square foot to 13-14 euros per
square foot in a bid to attract new domestic and multinational
tenants but Schmidtmayr remains sanguine about the task in hand.
"Bucharest and Sofia vacancy rates are low because supply
per inhabitant is about 10 percent of that in Vienna. The
difficult economic environment means demand has tailed off, but
in three years, when everything is back to normal, suddenly
everyone will scream for space when there is none," he said.
"We may not let all the space next year or even in two years
but these markets are like children, they take time to grow."
Sparkassen has already exploited the swing in sentiment
towards central and Eastern European real estate after selling a
40,000 square metre office in Prague to Deka Immobilien, one of
Germany's largest property fund managers, for 110 million euros.
The sale has boosted its available cash reserves to around
200 million euros and has paved the way for the company's first
dividend payment, but Schmidtmayr said the company still
intended to sell more than 100 million euros of new shares next
year to finance new projects. []
"The largest part of the cash we'll need to finish our
development pipeline. Our loan-to-value is 50 percent, which in
terms of our company history is rather high," he said.
"I'm not going to run a company with 80 percent leverage, so
we need new equity to get new projects off the ground."
Schmidtmayr said he was confident investors would support an
ambitious equity raising, as they realised the window of
opportunity to act in eastern and central European property
markets without serious competition was closing.
He said prime office yields in Budapest and Bucharest would
fall by 100 basis points each to 7 percent and 8.5 percent,
respectively, in 2010 on the back of marked yield reductions in
established markets and a change in the perception of risk.
Banks were slowly returning to business, he added, offering
margins that encouraged investors and developers to move early
while interest rates remained low.
In recent weeks, Sparkassen has been quoted margins of 90
basis points over interbank rates for residential funding, 180
basis points for commercial development in central Europe and
275-350 basis points for activity in Bucharest and Sofia.
He said the market was getting back to its feet, helped by
the activity in London.
"The European property story was very sour for such a long
time, and now it is turning sweet again," Schmidtmayr said.
(Editing by Daryl Loo/Will Waterman)
(See www.reutersrealestate.com for the global service for real
estate professionals from Reuters)
($1=.6638 Euro)
((sinead.cruise@thomsonreuters.com; +44 (0)207 542 5154;
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