LONDON-Commercial real estate in central and eastern Europe is in the same market phase and offers the same opportunities as southern Europe some 10 years ago, according to Neil Turner, CEO Germany of global asset manager Schroder Property.

In a new report, he wrote that 2011 will show falling yields for commercial property as investment liquidity is going to improve and valuation discounts for large spaces, such as in malls, will decline. Retail buildings and malls are less economically dependent than office, thus currently recovering at a faster rate. Schroders expects a moderate export-driven upturn in the economy in the coming year. Sweden and France are the most promising retail locations in western Europe.

In the east, the Czech Republic, Poland and Hungary show increasing consumer spending and offer many opportunities – but not without risk. The markets are still in a gestation period, and offer far fewer malls per inhabitants than in the west. New development usually means new construction as opposed to renovation as is common in western Europe. A constant interest in investments in CEE by international companies has a positive influence on rents. Foreign exchange risk remains a factor for retailers as well as a rise in rents as demand for space picks up. Rents are determined in euro while landlords are paid in local currency.

Investment is dominated by foreign institutions, Turner wrote. After crisis-linked exits of German and Austrian investors from CEE markets, their transaction share in continental Europe decreased to 2.5% in the second quarter, compared to 10% between 2006 and June 2008. The share rose again to 6% in 2Q10. In the east, he said the most secure investment location is Poland due to its solid economic fundamentals, size and growth prospects. All forecasts for Polish gross domestic product and consumer growth are far above European average, and the nation has 40 cities with more than 100,000 inhabitants, offering opportunities for large-scale malls outside Warsaw. By contrast, Hungary provides chances for local mall development with a maximum of 220,000 square feet in small towns.

Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.