Globalization of markets has created new opportunities for the development of real estate investment on a cross-border basis. Paralleling wider world processes, the collapse of communism in central and eastern Europe has led to a transformation from command to market-based economies. Poland, the Czech Republic and Hungary have been prominent in this process. This article using the results of a survey of institutions and property companies in the United Kingdom and other European Union countries assesses the extent to which these central European countries are offering investment opportunities in real estate, ten years after the transformation.
Real estate, as an investment or financial asset tradable on international markets, has become increasingly integrated into the global economy. However, globalization embraces both complementary and competitive activities. The building of networks requires cooperation and coordination of functions while the capturing of investment leads to competition between different locations whether this is between countries, regions or cities. Success is often dependent on the ability to offer institutionalizing processes to attract flows of investment and entrepreneurship and to offer a variety of external economies of sufficient scope and scale to business (Amin and Thrift, 1994). Budd (1998) considers the degree to which city regions can successfully compete and the organizational basis of that competition to be dependent on factors that include city size, localization economies based on territorial competition between cities and urbanization economies such as the provision of infrastructure, development and investment opportunity, flexible planning regimes and the quality and availability of specialist labor.
The locational characteristics offered by urban areas become increasingly important with regard to the competition for development, investment and employment opportunity. Berry and McGreal (1995) consider that the institutional, regulatory, physical and infra-structural framework offered determines the success or otherwise in attracting the free movement of capital. Further, in response to structural change cities are becoming more proactive in initiating policies that inter-relate with global knowledge networks (Lo and Yeung, 1996). Indeed, the attraction of investment flows is strongly influenced by the comparative advantage that city markets or local markets offer. In the case of real estate, local market conditions with local constraints determine supply, demand and value (Worzala and Bernasek, 1996).
Central European countries have not been immune from the processes of globalization. Indeed, the transition from command to free market economies in countries such as Poland, the Czech Republic and Hungary during the 1990s has paralleled the growth of global processes. The ensuing competition has sought to satisfy the locational requirements of international capital for investment and development (Musil, 1993; Sykora, 1995; Adair et al., 1999; and Parsa and Keivani, 1999). Although clearly attracting new development, the extent to which these central European countries and in particular the capital cities of Warsaw, Prague and Budapest have been able to transform themselves as centers of international real estate investment is less apparent. This article using primarily the results of a mailed questionnaire survey targeted at major institutional investors and property companies in both the United Kingdom and other European Union countries seeks to address this question. The work forms an integral part of a larger research project on real estate markets and urban development in central Europe funded by the Economic and Social Research Council in the U.K.
The arguments regarding diversification have been well rehearsed in the literature. Modern portfolio theory provides a theoretical framework for calculating return and risk when assets are combined in a portfolio. …