Investors eyeing budget cutbacks and seemingly unsustainable price increases, led to slower third quarter sales for European commercial property. Poland outperformed the rest of the region as emerging Eastern European office markets proved remarkably resilient while London, Paris and Geneva were standouts in Western Europe. See the following article from Property Wire for more on this.
The summer months saw a slight slowdown in commercial real estate investment activity in Europe, with the total value of transactions falling, a new report shows.
Transactions recorded in the third quarter of the year were down slightly to €23.1 billion, compared to the €24.6 billion recorded in the second quarter of 2010, according to new figures released by CB Richard Ellis.
Looked at year on year, there was still a healthy rate of increase, with third quarter activity at a level 24% higher than the same period in 2009.
More than just a traditional summer lull, the reduced investment volume in Europe in the third quarter reflects recent trends in property pricing as well as the impact of economic uncertainty and government austerity measures, the report points out.
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, it adds.
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, it warns.
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.
It adds that 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, that is 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 during the period was Central and Eastern Europe (CEE). At €1.5 billion, total investment activity in CEE during the quarter was nearly 60% higher than in the second quarter of 2010 and 120% higher than the same time last year.
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 the third quarter of 2007.
‘We have been predicting the strong recovery of the Polish market throughout this year. Poland was the only European country to avoid recession and, at the beginning of the year, real estate pricing did not reflect the fact that Poland is now a core market for many investors,’ said Jonathan Hull, head of EMEA capital markets at CB Richard Ellis.
A separate report indicates that after two years of upheaval, there are signs of recovery in Europe’s office markets. But the outlook remains mixed with markets recovering at very different speeds, according to the King Sturge’s European Office Property Markets.
In Western Europe, the green signals are clearest in London, Geneva and Paris, where businesses have benefited from well established global connections, particularly in finance, it says. In Eastern Europe, it is in the emerging economies of Russia and Turkey where the office rebound has been strongest, fed by a recovery in exports and commodity prices.
The most notable office market laggards are Athens and Madrid, where the slump is expected to continue and the lights remain firmly on red. Outside of Moscow and Istanbul in the east, demand has also stabilized at a low level and rents remain under pressure.
Economic recovery is expected to continue, though at different rates. The euro zone will lag the UK and Nordics on GDP growth, with the emerging economies of Eastern Europe putting in the strongest performance. In line with this, office employment growth is expected to resume next year and will support office floor space demand over the medium to long term, it concludes.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.