27
October
2011
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00:00
Europe/London

Property investment opportunities on the rise in Europe

London, 28 October 2011 – The number of commercial investment properties being brought to the market in Europe has increased since the end of the summer, according to the latest report from global property adviser CBRE.

There is more property being offered for sale across Europe, but the trend is most obvious in Paris and London. In Central London alone there are currently around £6.5 billion of office properties either currently available, or being prepared for market – roughly the same as the £6.8bn that has changed hands over the first three quarters of the year. This property is coming from a variety of sources: German Open-ended Funds, banks or investors looking to realise recent gains in capital values.

The property coming to market covers the full spectrum in terms of quality and asset type. However, demand is highly polarised between prime and non-prime assets, and this polarisation is expected to continue in the near term. As a result, the best of these assets will find a ready market, but secondary properties, where demand is much more limited, will need to compete for buyers.

Total commercial real estate investment activity of €26.3 billion in Europe in the third quarter (Q3) of 2011 highlighted the continued strong interest in the sector from institutional investors. This represented a small (3%) increase on the €25.8 billion recorded in Q2 2011 despite the changing economic and financial market circumstances. With the exception of increased activity around the end of last year, the level of transactions in Europe has been fairly stable since early in 2010 at around €25 to €27 billion per quarter.

One feature of the market that has changed over that time is the recovery of office sector activity. The first half of 2011 was notable for the marked decline in the total value of office investments being transacted in Europe, in sharp contrast to continued growth in the retail sector. The third quarter of 2011 saw the market return to historic balance, with offices accounting for just under 50% of total European investment activity.

The office sector has interesting dynamics at the moment - while economic weakness will limit occupier demand and thus rental growth prospects, the financial crisis and further tightening of lending conditions has also put back even further any recovery in development, meaning that availability of new office space could become very limited once the recovery gets started.

Jonathan Hull, Head of EMEA Capital Markets, CBRE, commented:

“Of the new property coming to market, competition will be strongest for the prime, or super-prime. There is also clear investor interest in the value-add sector, but we have seen prices weakening in the secondary market.”