EUROPE – Property investments in countries that are about to join the European Union look very favourable, but tread carefully - so says Matthew Ryall of LaSalle Investments.

Countries such as Poland, Hungary and the Czech Republic had no commercial property market at the beginning of the 1990s, but have seen incredible growth in this area over the last few years.

Central and eastern Europe are “firmly on the radar screens of investors,” Ryall said at IPD conference in Wiesbaden. “Growth prospects going forward are astronomical.”

Economic fundamentals are the key reason for the growing interest in these markets. The countries will see significantly higher growth than western Europe as a result of their accession into the EU. Growth is forecast at around 4% to 5% a year, thanks to increased investments in these markets from outside. Direct investment has been extremely high over the last few years as foreign companies move in to take advantage of the highly skilled and cheap labour force.

Four percent of foreign purchases in real estate last year ended up in the CEE countries, and Ryall is expecting this flood of foreign funds into the market to continue.

But, added Ryall, there are some concerns. While economic growth, a key indicator of property growth, looks positive, the new property springing up is putting pressure on old stock, much of which lies vacant. As a result, rents have been falling and Ryall believes they will continue to come under pressure.

One other concern is where to invest? By 2008, for example, Prague will have seen its commercial property doubled, but it is still unclear as to where this new property will be built. Said Ryall: “Stock picking will be crucial.”

Bernhard Mayer of Europolis Invest - which has the largest portfolio of offices in the CEE countries – said: “Do compare opportunities – just because funds are in place, does not mean you have to invest. And do commit yourself to the market – do not hit and run.”