In late September, more than three dozen of Central Europe's leading lights from the property industry gathered over the course of two days of discussions in front of an audience of more than 300 to discuss some of the most important issues facing the sector. Four specialized workshops also took place at CEDEM 2004, making it what many are now calling the premier venue for high-level debate and serious, pre-Munich networking.

     

And no matter what people said back at the office, the event is not just a lot of work. The opening gala party, held at the Celnice Restaurant in the center of Prague, is a blockbuster mixer that left many gasping for breath the next day. With dubious whether outside, around 350 people packed into the fashionable two-level destination, handing out business cards almost as furiously as they put away beverages.

The real work began the next morning, Sept. 23, with a stirring opening keynote address delivered by Erick van Egeraat, the renowned Dutch architect. Van Egeraat set forth the principles that guide him in his work in cities around the Continent, challenging both designers and investors to take a second look at their work. His talk was refreshing, not only because it was accompanied by a careful chosen assortment of images, but because he dealt openly and frankly with a wide range of projects, including substantial doses of self-criticism. He called on developers to really think about how they could add value to the neighborhoods they were working on and not to forget that there along with profitable commercial projects to be done, but schemes with a more public bent.

     

This was followed by the retail panel, led by Jonathan Hallett, who began with a brief discussion of the latest trends in shopping centers. One of the most notable of these, he pointed out, is that the pace of retail development in Central and Eastern Europe is far outstripping that of Western Europe. The diminishing role of hypermarkets in the development of schemes, however, by no means spells the end of the format in shopping centers. While some in the panel felt its dominant position was on the wane, Martin Macháè of Rodamco made it clear that he felt hypermarkets were still an important driver of footfall numbers. "If you look at disposable income of Czech and Polish customers, the hypermarket is a substantial attraction for them, except for a few city center schemes when you can replace it with something else," he said.

     

Michael Bonhold of New Yorker was more cautious in his assessment. "We're targeting very young people, from 13-25," he said. "So I'm always thinking of going there or not, because if it's too far from town and the access isn't there and it's too far from town, we don't get the customers. Our customers don't want to go with their parents, they want to go where they meet other young people. So it can be something boring for them." For his part, Brian Jenkins was sitting the other way on the same fence. "If we can do without them, we'll do without them," he commented. "If you've got other ways to drive traffic then you do it. There are other ways to generate income. But if you don't have one, it's a tremendous source of traffic."

Frank Eckervogt of CGI said the determining factor for his company when deciding what sort of retail project to purchase was whether the project was a dominating one. If it wasn't, he said, it ran the risk of another center being built nearby. Size, in other words, is your best defense.


     

The Urban Planning discussion was a fascinating, if somewhat erudite look at the way master planning is happening today in Central Europe. Drawing on the vast experience of the panel, which was heavy on architects, but not missing a local city politician (former mayor Jan Kasl), the discussion ranged from the meaning of urban planning to the difficulties of involving the public in the process. Kasl said that the public is often out of its depth when it comes to deciding on master plans, recalling an important public meeting that was attended by just five residents of Prague. Chip Caine of the Acred Group surmised that the reason could be that the presentation was made in too intellectual a fashion, rather than speaking to the actual interest of the public.

     

Caine was also responsible for one interesting concept that emerged, which was that as much as anything, the actual city of Prague was in effect a three dimensional master plan of itself - one whose simple existence had the power to make it obvious that the city center is no place for a skyscraper. Moderator John Banka of Colliers International pointed out that the lack of this sort of physical model was in part responsible for the chaotic nature of planning in Warsaw until just a couple years ago. Today's Warsaw is governed by its powerful, almost-new mayor with a new, energetic Chief Architect. But they have to hold on tighter to the reins of planning power because of the lack of a rational, obvious 3D version. If anything, was the consensus, urban planning needs to be flexible. "If it doesn't go through a series of changes over time, it loses vitality," said Chip Cain. "It's either growing or its dying. If land values are rising so quickly that they're not allowing empty spaces to be dealt with, then something gives." Paul Philips of Aukett warned that development in Bratislava could go either way, depending on whether the huge number of schemes currently in planning all get built or not.


     

One of the obvious topics for the Investment Panel led by Martin Carr of Pinnacle was issue of falling yields. Last year's panel predicted quite correctly that yields on prime office properties in Prague, for example, would fall below nine percent. But there's no record of anyone indicating that the CEDEM rumor mill would include whispers of transactions taking place at 7.5. Karim Habra of GE Real Estate pointed out that while things had gone a bit further than anyone had expected, the majority of deals were going to be taking place at between 8.5 and 11 percent. Taking what he seemed to feel was a cautious stance, he admitted that a further fall of 50 basis points was possible, but claimed this would only be for exceptional buildings. We shall see, of course, what CEDEM 2005 brings. For now cap rates seem to be mirroring football, where one record breaking transfer fee keeps breaking the last.

     

Bernhard Mayer of Europolis said he didn't consider the 6-7 percent range to be very likely in the near future. "I'm not saying it can't happen," he hastened to add. "There is so much money out there and so many investors feel maybe they are too late. I could imagine we could see this over the next years, but it doesn't mean it's a good idea to buy on this market. You have to compare the market opportunities. You have to find good reasons why to go here rather than elsewhere." Per Hansson of CREDO said it was still a good time to buy. "I think you have a window of opportunity, if you look at the rest of the euro area, the GDP growth is very limited."

     

Udo Schlosser made the controversial comparison of a single tenant building and a corporate bond, concluding that current yields were being driven by volume pressure and weak capital markets. Mayer countered this (some said typically banker's viewpoint) by saying the risk involved in a corporate bond wasn't equivalent to the risk of a single tenant building. The argument being that if a tenant goes bust, you've still got the building. Hansson then pointed out that he'd seen buildings torn down because they failed to attract any tenants.

Angus Wade of JLL said that yields on offices in the capital cities would slow down, but that retail and industrial, along with the secondary cities, would become increasingly interesting. Asked if he thought domestic institutions were becoming important players anytime soon, Wade said he didn't. "What's interesting is that the domestic funds still don't believe yields are where they are," he said. "When we tell German and Austrian funds what we're seeing, they believe us. But the domestic funds see the market at 10-11 percent. So they're not going to be as effective, or competitive."