The European commercial property investment scene has begun to take an increasing share of the limelight as it finds its recovery legs.
According to CB Richard Ellis, one of the largest real estate brokers in the world, commercial property investment in Europe totalled 27 billion in Q1 this year. This is not only a 26% increase on Q1 2010, but is more than any of the first three quarters of 2010. However, the figure is less than the 38.6 billion seen in Q4 2010, but this is expected because of the seasonal buying surge as the year draws to a close.
According to the same CBRE data Germany stole the show with commercial investment totalling 5.5 billion in the first quarter -- its retail sector dominated with 4 billion.
However, according to the IPD France Annual Property Index, French commercial property is also recovering well. The index recorded a 4% growth in capital values in 2010, which led to total yields climbing to 10% for the year. According to Cushman and Wakefield investment in commercial property in France grew 41% in the first nine months of 2010 compared to the previous year.
Italy had a good 2010 as well according to IPD. According to its Italy Annual Property Index, commercial property in Italy brought yields of 5.2% in 2010, a massive growth on the 0.8% returns seen in 2009.
However, it is not all champagne and sports cars in France and Italy. The IPD reports show that while capital values grew in France, they fell in Italy. Likewise, while income returns grew in Italy, the fell in France. Both countries saw rental rates continue to fall. But overall the picture is one of markets bottoming and climbing into recovery mode.
IPD's report into Central and Eastern Europe also shows positive signs for a strong recovery. According to the IPD CEE Annual Property Index, commercial property investments in the region delivered a euro-denominated 3.1% return in 2010. This was much better than the -6.5% return recorded in 2009.
According to DTZ’s in its annual survey 'Global Occupancy Costs: Offices' the European recovery will be slower than the rest of the world in the office sector. The survey does predict a rise in rents, which it says, along with rising costs such as property taxes and services charges, will fuel a 2% rise in office occupancy costs across Europe this year. However, it says that even by 2015 office rents will still be 11.7% below the 2007 peak in Europe.
This is backed up by the IPD report into Italy, which says that the industrial sector outperformed offices and retail. It said that in the last 3 years Italian retail property has lost 10.2% of its value on average, while offices and industrial properties have lost just over 6% during the same period. The same goes for the Central and Eastern Europe report, except that retails came out on top with the strongest return of 6.2%, while offices and industrials returned 1.8% and 2.3% respectively.
All in all European commercial property seems to be finding its feet, but it doesn't look likely that it will see the same surging growth as the US market did in the aftermath of destruction.
- Thursday 19 May 2011