October 12 (SeeNews) - Several countries in Central and Eastern Europe (CEE) are facing a painful recession and that has dimmed the mid-term outlook for real estate demand in their main population centres, property investment managers Lasalle Investment Management said in their latest pan-European economic growth survey.
CEE markets continue to suffer from slowing activity with commercial real estate investment volumes down 19% in the three months through June compared to the first quarter of the year, according to the 2009 edition of the European Regional Economic Growth Index (E-REGI) released recently by the company.
The 2009 model covers 288 regions across 31 countries in Europe with a total population in excess of 540 million.
The E-REGI identifies the cities and regions across Europe that have the greatest economic growth potential over the short-to-medium term, and hence where demand for real estate is likely to be strongest.
Several countries in the CEE region are facing a painful recession due to high current-account deficits, extensive foreign-currency borrowing and deficient fiscal policy, the survey said.
These factors are leading to a severe downturn in spite of cash and guarantees offered by the International Monetary Fund, e.g. to Hungary and Romania. Consequently, almost the entire bottom third of the ranking consists of CEE cities, e.g.: Budapest (at number 82, down 48 spots), Bucharest (84/-36), Sofia (72/-4).
Jones Land LaSalle reports that European commercial real estate investment volumes in the first half of 2009 stood at 24 billion euro ($35.4 billion), down 42% on the second half of 2008 and down 67% on the six months through June 2008.
Poland is the strongest of the CEE economies and has avoided a deep recession so far, but the recovery could be slow as a result of falling regional demand, rising
unemployment, and the credit crunch. The country's capital, Warsaw (17/-7), has lost the ground it had gained in 2008 when it entered into the top-10 for the first time.
The only other southeast European city that was assigned an E-REGI ranking this year is Slovenian capital Ljubljana which has improved significantly, gaining 19 places to the 46th spot. Slovenia's education, science and technology minister intends to increase funds for research and development from 24 million euro in 2008 to 40 million euro in 2009. In order to cope with the economic crisis, the government also plans to invest additional 58 million euro in new projects. It wants to cooperate more closely with universities and make the country's research facilities more autonomous, the survey said.
The outcome of this year’s E-REGI reflects the consequences of the global financial crisis, which have resulted in severe downward revisions of GDP and employment growth forecasts across all locations. As a result, E-REGI now favours wealthy locations, such as the Swiss and Nordic cities, whose strong fundamentals help protect the economy from the effects of slower growth. For the first time ever, Munich tops the E-REGI ranking while Paris maintains its second rank, only marginally behind Munich.
E-REGI is a multi-factor model that ranks each city based on the weighted average score of 15 variables. In summary, the model combines economic growth factors, the overall level of wealth, and measures of the relative attraction of the business environment.
($=0.6786 euro)