Commercial Real Estate is Hot Property

Commercial property investment has been attracting a lot of attention recently, with the market generally performing better than its residential counterpart after the economic troubles in Europe...

Commercial property investment has been attracting a lot of attention recently, with the market generally performing better than its residential counterpart after the economic troubles in Europe.

Indeed, the latest data from CB Richard Ellis suggests that over the past three months the sector has been enjoying a rise in the level of interest from property speculators.

Total turnover in the commercial market reached €23.5 billion during the second quarter of 2010, up 15 per cent on the €20.3 billion traded in the first three months of the year, the report said.

In particular, prime office properties located in the UK, Germany and France proved to be the most popular - accounting for 62 per cent of all European transactions between them.

France saw the biggest rise out of the three countries, with a quarter-on-quarter increase of 46 per cent, while the UK saw growth in investment activity of 24 per cent.

Added to this, the fact that property prices have started to rise again is sure to be an attraction for buyers.

The Investment Property Databank index shows that between June 2007 and July 2009, property prices fell. But over the year to May, the index shows prices are now back on the rise.

Furthermore, of the 27 markets covered by the CB Richard Ellis report, it was some of the smaller European countries, such as Austria, Ireland and the Czech Republic, which were able to post the biggest increases - although this was, in part, due to the low base from which they started.

Poland and the Nordic region also began to emerge as favoured destinations among commercial property investors.

"The increased interest in the Polish and Nordic markets should not be seen as a coincidence but as evidence that investors are recognising the robust fundamentals," Michael Haddock, director of EMEA capital markets research at CB Richard Ellis, said.

"In light of downward pressures in most markets, low government deficits and a consequent lack of government spending cuts, these markets look very favourable."

UK market is looking particularly appealing.

Earlier this year, a Reita-commissioned survey found that an increasing number of financial advisors were recommending that their clients looked towards commercial property investment to maximise their returns.

And Andrew Smith, group head of property at Aberdeen Asset Management, said that the renewed interest in the sector was a result of investors looking to diversify their assets.

Added to the fact that the property market in the UK is showing signs of a strong recovery and a lack of new development ensuring that office rental values are remaining stable, it is not surprising that commercial property seems to be a good investment vehicle.

In addition, the CB Richard Ellis report highlights the growth in cross border investment, with a large number of international buyers looking to capitalise on the strengths of various commercial markets throughout Europe.

"With a growing number of larger transactions in Europe, we are also starting to see an increase in cross border activity," Jonathan Hull, executive director of EMEA capital markets at CB Richard Ellis, confirmed.

"This is already evident in Germany, where cross border investment grew to 44 per cent of the market in the first half of 2010 compared to only about ten per cent in the second half of 2009."

"The same is true of the UK, and central London, in particular, where most buyers of €100 million-plus properties have been international," he added. "Middle Eastern and overseas investors have been particularly prominent this year, concluding a number of large deals."

While the markets continue to recover, now could be seen as a good time to take the plunge into commercial property and with many European countries' office markets performing strongly, the region should be near the top of any potential investor's list.

Indeed, the continued recovery of economies and businesses around the world from the global economic crisis has meant that office and retail-based investments are looking like good contenders for property buyers.

Investments in many emerging European countries would seem to offer the potential for growth and, certainly, have been attracting a lot of interest from those looking to benefit from the potential of a return on two counts: both through capital growth and rental yields.ADNFCR-3415-ID-19896863-ADNFCR

- Tuesday 20 July 2010

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