C&W European property investment market update

23 May, 2012, Prague

European commercial property investment markets remained in the deepfreeze in the opening quarter with volumes 31% down on Q4 2011 at €25 bn.
Year on year volumes fell marginally, by 1.5%, to €122bn in the year to March 2012.
Offices were the strongest sector over the year, with volumes rising 19% on Q1 2011 compared to a 55% fall for retail and a 35% drop for industrial.

Investment in the European commercial property market in Q1 2012 fell to its lowest level since Q1 2010 according to the latest research by Cushman & Wakefield, the world’s largest privately held commercial real estate services firm.

The banking sector is the centre of attention but is pulling in different directions, on the one hand promising to feed investors with stock but on the other enforcing a strict diet due to the near freeze on new lending.

Demand and activity patterns have been far from uniform around the region, with the Nordics, Benelux and parts of Eastern Europe holding up best. France, Italy, the UK, Portugal, Czech Republic, Hungary and Slovakia all saw marked falls. Parts of the CEE market in particular have been hard hit by a shortage of debt finance but a lack of prime stock has also held investors back. That should change as the year progresses however, and notably so in Poland, as a range of retail and office opportunities are coming forward.

“A fall in investment volumes in Q1 2012 does not come as a surprise with investors being traditionally less active during the start of the year. This is especially true for a period following the busy second half of last year. While general response to new opportunities this year is positive, investors and banks are very careful when examining the deals. The sale process which might have taken six months in 2007 will now require half as much. As a result, product that has not come to market by now is not likely to trade this year.” says Alexander Rafajlovic of the Capital Markets team at Cushman & Wakefield Czech Republic and Slovakia.

European retail has been the hardest hit sector by the slowdown in activity, with its market share dropping to just 22% versus an average of 32% during 2011. Offices, by contrast, have jumped up to 53% as against an average of 45% in 2011. Industrial has been relatively stable with an 8.3% share (8.9% in 2011).

“We expect offices to be the most active sector this year, reflecting investor interest in stable, predictable properties and the relative lack of product in the retail segment.“ says Alexander Rafajlovič.

Looking forward, David Hutchings, Head of European Research at Cushman & Wakefield, commented“At the beginning of the year we forecast investment would increase in the second half after a slower start and hit something like €124bn for the year. That forecast is now under threat with at least some of the Q1 underperformance not expected to be made up.

“For now however we remain confident of better activity levels in the months to come and have only edged down the European forecast to €120bn. Nonetheless there are clear and growing risks that this adjusted forecast will not be met – particularly if economic confidence wanes and improvements in the outlook for the sovereign debt crisis recede any further.”

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