Recent evidence on the ground points to a rebound in activity in the main markets of Bulgaria, Hungary and Romania after falling off the radar for many investors, particularly those seeking core and core plus assets, according to Colliers International.

Eastern European Tier 1 locations, Russia, Poland and the Czech Republic have recently been characterised by a more active investment market and greater availability of debt finance, says Colliers International new research report called, Closing the Gap, which considers the investment risk appetite for the main Tier 2 locations in Eastern Europe.

The report also points out that Bulgaria’s GDP has adapted well since EU accession in 2007 and from a yield perspective Bulgarian asset classes are well above the CRE 3.0 per cent yield premium threshold over local 10 year sovereigns, which is a very positive investor message from a macro perspective.

Romanian prime yields are trading at a similar discount of those in Bulgaria at around 300 bps to bonds, also putting the market in a strong light from a macro investor perspective. However, Romania is similar to Bulgaria in that debt availability is low and expensive.

This yield message is reinforced when comparing these markets to the Tier 1 cities in the region and wider European area. There are discounts of at least 200 bps available relative to the likes of Warsaw and Prague, or even Madrid which is now re-emerging from its post-crisis nadir.

Just as importantly, property values remain below peak and par values in these Tier 2 cities, and office markets look like they are finally recovering from a long bottom with take-up and absorption improving, pushing down vacancy rates.

Yields may need to soften a little more to encourage investors back into the markets but overall sentiment suggests that the Tier 2 markets, Hungary, Romania and Bulgaria, are worth considering as a target for investment capital, the report concludes.

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