Investor and developer activity in Central and Eastern Europe (CEE) decreased markedly during Q1 2009, according to Jones Lang LaSalle’s (JLL) latest CEE Capital Markets Outlook report.

JLL said that only the best assets in the best locations attracted attention from investors in Q1. The pricing of these assets was much lower than 18 months before. Rapidly decreasing values will create issues for borrowers and banks as additional equity will be needed in many cases to maintain loan-to-value ratios, according to the report.

Tomasz Trzós?o, head of Capital Markets in the CEE at JLL, believes yields in Central Europe had increased significantly, and is now around 7-7.5% for prime office and retail assets and above 8% for distribution and logistics. This is about +1.5% more than the average sustainable yield level in Western Europe, including the UK, where current pricing for core non-distressed product is around 6%, according to Trzós?o.

“We are of the opinion that pricing of real estate will be under further pressure in the next couple of months and we may see some further yield decompression until late autumn 2009. From autumn 2009 we expect that activity levels will improve and there will be more core investors looking for product in Central Europe, Poland and the Czech Republic,” said Trzós?o.