Property valuation risk

Owing to changing framework conditions, property prices can fluctuate considerably. CA Immo subjects its properties to annual valuation by an outside party; value changes during the year are identified by internal specialists.

The rise in yields over recent years continues to be reflected in valuation reports owing to the discount and capitalisation rates assessed and directly influences consolidated net income through the changes in market value that must be recognised under IAS 40; shareholders’ equity is also reduced. Developments in the second half of 2011 especially have shown that Eastern Europe, having been unable to evade the turbulence given the region’s close economic ties with Western Europe (especially in the banking sector), is coming under renewed pressure. In core markets such as Poland and the Czech Republic, yields remained stable and sporadically even a decline in yields was observed. With banks significantly reducing their exposure in these markets, it is likely that the property investment market will bottom out partially in 2012, which could lead to a rise in yields. The demand for core properties in core markets, however, continues unabated. The diminishing prospect of rental growth also poses the danger that starting yields for commercial real estate will be adjusted upwards. Changes in value will continue to represent a significant risk in 2012 in view of the expected market trend. If yields fall by an average of 25 base points in the short term and rent levels remain the same, losses in the Eastern Europe portfolio alone could potentially amount to € 50-70 m (in the worst case scenario).

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