Real-estate investors are raising the stakes. As competition in popular European markets such as the U.K. intensifies, investors are turning to emerging markets such as the Baltics and Ukraine for potentially lucrative opportunities.

While investors have long targeted countries such as Poland and the Czech Republic, former Soviet states such as the Baltics -- Estonia, Lithuania and Latvia -- are garnering interest following their accession to the European Union in May 2004.

In particular, their capitals -- Estonia's Tallinn, Lithuania's Vilnius and Latvia's Riga -- are on investors' radar because they offer the best-quality buildings.

Scandinavian investors are the most active in the Baltic region because of their proximity and close trade links. The size of the Baltics makes the region a target for small to midsize funds, said Peter Morris, managing director of real-estate firm Ober-Haus in Warsaw.

Investment group Middle Europe Investments BV, which is based in the Netherlands, is developing 750,000 square meters of logistics, office, residential and retail space in Lithuania and Latvia, Chief Executive Jan Willem van Otterlo said.

The Baltics also are a "stepping stone to Ukraine," he said. "I think we'll see a lot of investors come to Ukraine - eventually more than the Baltics - because of its size."

Ukraine, which had GDP growth of 12% last year, has a population of about 47 million, compared with 3.5 million for Lithuania, two million for Latvia and 1.3 million for Estonia.

However, Ukraine is considered much riskier than the Baltic states because it is unlikely to join the euro zone and is politically unstable.

But the opportunists are unlikely to be put off by Ukraine's problems, spurred on by yields of around 13% for both office and retail space, Mr. Lange, managing director of Russia at real-estate advisory firm Jones Lang LaSalle in Moscow, said.

"If your strategy is to be opportunistic and look for a market offering tremendous upside and depth that isn't that developed yet, then Ukraine should be your first hit," Mr. Lange said.
By Sara Seddon Kilbinger
Special to The Wall Street Journal

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