According to new research from global real estate adviser DTZ, investor demand for commercial real estate in Central and Eastern Europe reached record levels in 2006 with the volume of purchases across the region amounting to €11.1bn - a 48% rise on the previous year.

The findings are revealed in DTZ's Spring 2007 Central and Eastern Europe Capital Markets Report, which tracks developments in the CEE institutional property investment market. It focuses on the key trends and themes across the region and provides forecasts for prime yields in the core and emerging CEE markets.

Since the inception of the investment market in 1999, €27.3bn has been transacted across three core markets (Poland, Hungary and the Czech Republic).

The weight of money overhanging the market remains at an all-time high, with significant fund-raising from Austrian firms.

Fierce yield compression, particularly in Bucharest and Moscow, is eroding investors' returns, with prime office and retail cap rates in Warsaw, Prague and Budapest in a band between 5.5% and 6.25%.

Russia is expected to become the region's most coveted destination for property development and investment in 2007-09.

In the core markets, 45% of transactions since 1999 are in offices, 37% in retail, 7% in warehouses and 9% in mixed-use and hotel developments.

An abundance of liquidity in the capital markets continues to lure investors into riskier assets in search of higher returns.

Early signs of rental growth in prime offices in Warsaw and Prague and significant undersupply are contributing to the appeal of CEE property.

Poland was the most actively traded investment market in 2006.