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European Commercial Property Investment Activity Up On Q1 2010
28 Apr, 2011, London
European commercial property investment activity hit €28.5bn in the first quarter of 2011, 45% up on the opening period of last year. Activity was down 30.5% on a quarter-over-quarter basis but this was no great surprise given that the closing three months of 2010 was the strongest quarter since Q1 2008 as investors felt under real pressure to close deals before the year end.
Commenting on the figures, Michael Rhydderch, Head of the European Capital Markets Group at Cushman & Wakefield said “The year started well, with plenty of momentum from 2010 and unfinished deals to complete. For the market as a whole, it is still equity rather than debt which is the driving force. While there are areas of improved finance supply, these are still small compared to the volume of debt needed for new deals let alone re-financings.”
The banks are making a positive impact on the market nevertheless. According to Rhydderch “Bank controlled or bank-forced sales are definitely leading to more stock coming available and the market is only going to get busier in the months ahead, with a lot of investors, buyers and sellers, keen to test the market. As a result, we’re confident the year will see a strong out-turn. We have currently pencilled in a figure of €135bn but with every possibility of that being beaten if the occupier market continues to firm up at the pace we’ve seen over the past two quarters.”
Foreign buyers across EMEA took nearly 35% of the market in Q1, up from 31% in the final
quarter of last year and they were an important source of added demand in a number of countries
which bucked the downward trend in activity between Q4 and Q1, including Belgium, the Czech
Republic and the Ukraine amongst others. Domestic buyers are growing more competitive in a
number of other areas however, which bodes well for greater activity over the coming
David Hutchings, Head of European Research at Cushman & Wakefield said “Investors have remained focussed on core markets – with the UK, France and Germany seeing their share of activity increase from 61% in Q4 to 65% in the opening three months of this year. At the same time however, investors have not been too rocked by macro events in Japan, the Middle East or North Africa and have if anything looked further up the risk curve, albeit still in search of prime property.”
Buyers are still sensitive to the prices they are being asked to pay meanwhile and this is one reason they are looking at a wider range of markets. The Nordics are a strong target for many for example but pricing tightened quickly in late 2010 and the region had seen a weaker showing in recent months, notably in Denmark and Norway. In fact, the market share of second tier countries – the next five largest after the big three, such as Sweden and Italy, shrank from 23.6% in Q4 to 15.3% in the opening quarter as investors started to include other markets in their search area.
According to Hutchings “They haven’t only turned to other mature markets, a range of countries are being targeted. In the West this includes Belgium and Switzerland, in Central Europe, Hungary and the Czech Republic had a great quarter, while more emerging markets such as Romania, Bulgaria, Croatia and the Ukraine were also a lot busier. In Russia and Turkey meanwhile, activity could not keep pace with the busy last quarter of 2010 but it was still one of the busiest quarters for two-three in both countries and the outlook is for stronger turnover.”
“The Middle East had a relatively good quarter, with non-domestic buying triggering a modest 15% increase in activity over Q4 2010. This of course is highly noteworthy given the uncertainty created by recent events but while reform may lead to medium term gains for investment in the region, in the short term a slowing in activity must be expected and indeed some investment will be deflected to other regions.” commented Hutchings.
The big winner in the market at the moment has been the retail sector, which saw a 72% increase on the same quarter of 2010. The €12.1bn invested represented 42.5% of market activity versus just 33% in the final quarter of last year. At the same time offices saw a 50% fall in activity over the last two quarters, taking a relatively low 34% market share, while industrial picked up to nearly 12% from just 8% last year as higher yields and a recovering manufacturing market brought more investors forward.
Market by market meanwhile, investors are proving more flexible in responding to supply and pricing. The UK and Germany for example have been buoyed by higher retail investment while France and Poland have seen increased office market activity and a number of markets, particularly to the east, have seen increased industrial demand.
According to Hutchings, “This reflects the fact that investors must look at local conditions before deciding on the right style and sector for investment rather than pick the sector regardless of location. However, while for the risk averse, prime retail will remain a sector to turn too, on average across Europe, given the importance of manufacturing and corporate investment in this stage of the recovery, we anticipate better rental growth from offices and some categories of industrial property over the coming year.”