Real GDP growth slowed noticeably in all countries in the Central and East Europe (CEE) last year and it is now the most vulnerable emerging market region, according to DTZ.
DTZ said the region's vulnerability to the credit crunch was so high because of the countries’ heavy reliance on external finance.
It said much steeper falls in GDP are forecast for 2009, with industrial production, exports and retail sales falling in the region. Outright recessions are predicted for several markets in the region.
DTZ said developers and investors in the region have been 'suddenly confronted with severely restricted debt facilities'.
'Equity-rich buyers remained the most active players on the market. The rise in risk aversion led to an even sharper focus on property fundamentals, with investors seeking long-term rental income secured on a braod range of tenants in good quality properties in the best locations,' it said.
The mismatch between buyers’ and sellers’ price expectations led to a sharp fall in transactional activity in 2008.
DTZ said the prospects for the CEE investment markets hinge heavily on vendors’ willingness to accept higher yields and lower capital values.
It said CEE is less advanced in its market correction and needs to demonstrate pricing levels which are more attractive to institutional investors on a risk- adjusted basis.