With the ballot boxes out across central and Eastern Europe for a series of referenda on joining the European Union (EU), the theory of EU enlargement is becoming a reality. However, in the commercial world and in the property markets, EU enlargement has been "real" for some time. Businesses have adjusted their strategies to start to reflect the new markets and resources of the wider European Union, and demand for commercial property has changed to reflect this. The reform process in those countries due to join the EU has brought down barriers to entry and improved business practices, hence altering expectations of growth and risk. The accession boom therefore may be only modest-with many of the benefits already having been reaped-but further steady economic outperformance is expected. Poland, the Czech Republic, Hungary, and Slovenia made the best early progress, but others have caught up in recent years. The first wave to join in 2004 may now include ten countries: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia, and Slovakia. Bulgaria, Romania, and possibly also Croatia will join in a second round, potentially in 2007. This will be the largest EU enlargement ever, creating a single market of 27 countries and nearly 483 million people. The EU's population will increase by 27 percent and its land area by 34 percent. Nonetheless, the new members will add only 5 to 6 percent to the EU's gross domestic product (GDP). The countries ready to join in 2004 are as well prepared as previous entrants were, such as Portugal, Spain, and Greece. Some have arguably made greater inroads in meeting EU requirements than certain existing EU members. However, past entrants have tended to experience initial problems on joining and it is only realistic to assume that similar issues will arise. The candidate countries are at various stages of development. In terms of transition post-accession, they can be separated into four groups. The transition will be easiest for the most advanced of the group: Slovenia, Czech Republic, and Hungary. They have made the most progress in adapting to EU requirements. The second group comprises Poland, Slovakia, and Estonia, which may experience some teething problems, given their high levels of unemployment and the further restructuring required within local industries. The third group, Lithuania and Latvia, are likely to experience further upheaval but will benefit gradually with the help of EU structural and cohesion funds, and increased investment. Finally, Bulgaria and Romania are the poorest of the group and will only be close to being ready to join in 2007. Nonetheless, the EU has promised all help possible, and while their progress may be slower, they may benefit more in developing from a lower base. Within five years, EU membership may include ten additional members. How will this affect real estate markets throughout Europe? Croatia, meanwhile, has applied to join only recently and hence has made limited progress in meeting EU requirements. Parts of the country's business infrastructure are well developed, however, which could help to accelerate progress.
Property Impacts
The sensitivity of property markets to economic trends is inevitable and the impact of accession will filter into all sectors as in the past. For the coming wave of entrants, property pricing has already reacted, with a shortage of supply driving up prices in the 1990s, which in turn attracted new development and hence brought about a downward correction in many areas. Property yields in Spain and Portugal fell sharply after accession, partly due to lease reform. Yields continued to fall steadily and then fell sharply before the two countries entered the European Monetary Union (EMU). Central European countries meanwhile saw yields fall sharply during the early 1990s and since then fall at a sustained pace, standing below the rates seen in Spain and Portugal when they joined the EU. Enlargement will have diverse implications for real estate markets across emerging Europe, but a "big bang" is unlikely, since most markets have been steadily developing for some time.
