The summer months saw a slight slowdown in commercial real estate investment activity in Europe, with the total value of transactions recorded in the third quarter (Q3) 2010 falling slightly to €23.1 billion, compared to the €24.6 billion recorded in Q2 2010, according to new figures released today by CB Richard Ellis. Looked at year on year, there was still a healthy rate of increase, with Q3 2010 activity at a level 24% higher than Q3 2009. More than just a traditional summer lull, the reduced investment volume in Europe in Q3 2010 reflects recent trends in property pricing as well as the impact of growing economic uncertainty and government austerity measures.

The change in economic policy by a large number of European governments between April and June this year, with fiscal stimulus being replaced by government spending cuts, has undoubtedly influenced the European real estate market. These policy changes will impact property occupier markets – although its extent is yet to be seen – and some investors are therefore deferring decisions until they can form a more considered view on the scale of this impact and where it will be most evident.

At the same time, the fact that prices for prime property have increased markedly over the last year is also weighing on investors’ decision-making. The rapid rate of pricing recovery over that time is seen as unsustainable, and in some major markets – London being the most obvious example – there is concern that prices may have recovered too quickly.
However, the recent movement in commercial property prices needs to be seen in the context of the even greater movement in the price of government bonds over the same time. In relative terms, prime real estate still looks like a good value. The yield gap between prime European commercial property and government bonds is almost at a record high, and for real estate with the most bond-like attributes – long leases and good covenants – there is still potential for further increases in value.

One of the regions which continued to see strong growth in real estate investment turnover in Q3 2010 was Central and Eastern Europe (CEE). At €1.5 billion, total investment activity in CEE during the quarter was nearly 60% higher than in Q2 2010 and 120% higher than in Q3 2009. Growing confidence in the Polish market is a significant driver of the increase in investment activity. Poland accounted for more than half of the regional total and the €826 million of transactions completed there represents the highest quarterly total for the country since Q3 2007.

Regional analyst, Gábor Borbély added: „It is very good news indeed that Central and Eastern Europe is back again in the focus of investors and can show such a dynamic growth. Nevertheless, we need to remember that some 75% of the 2010 turnover has been concentrated in two countries, namely Poland and Russia. Activity in Czech Republic and Hungary has somewhat slowed in Q3, and in South-Eastern Europe there wasn’t any transaction closed last quarter at all.”

 Press Release: European Investment Activity
Press Release: European Investment Activity