Modeling And Forecasting Office Investment Markets In Central And Eastern Europe

Property markets in Central and Eastern Europe experienced turbulent development processes since the collapse of the Soviet Union and the ensuing abolition of communism in the Central and Eastern European region. This paper examines the development processes of office investment markets in Prague, Budapest, Warsaw, and Bucharest by using both a qualitative and quantitative approach. In particular, the development of office investment yields in these markets has been examined by using existing modeling methods and regression based times series analyses. The findings of the paper indicate that property market fundamentals play an important role in emerging markets, as office investment yields in Prague, Budapest and Warsaw are shown to be related to inflation rates, interest rates and rental growth. This contrasts with common beliefs that property investment yields in mature property markets are driven by property market fundamentals such as rental growth and interest rates, whereas emerging markets are predominantly driven by incidents. Furthermore, we show that the Central and Eastern European office investment markets are affected by the so-called ëwall of moneyí which has been flooding property investment markets and led to a global yield compression. Especially when comparing developments between Prague, Budapest and Warsaw versus Bucharest, the staggering effects of the global appetite for property investments on property investment markets become apparent.