Due to a lack of available debt finance, commercial development activity in Europe will remain subdued until 2017. This is the finding of research conducted by Jones Lang LaSalle, with the firm predicting this will result in further polarisation in many of the continent's core office markets. According to the organisation, the primary sources of finance for developments will continue to be institutions based in Asia and the US, with these financiers focusing on London and Paris, as well as certain cities in Germany and the Nordic nations, where liquidity is high.
The most recent construction output index published by Glenigan revealed non-residential building work in the UK was down by three per cent in July, compared to the same month a year earlier. Allan Wilen, economics director at the company, noted there has been some positive movement in the office and industrial sectors, with businesses operating in these areas "responding to a shortage in supply following three years of limited building". However, the organisation pointed out any upturn in construction activity in the UK could swiftly be curtailed should there be further economic problems or issues in the country's financial sector. One potential bonus for the UK's commercial real estate sector is the likelihood of continued investment in infrastructure projects, which may boost regions where new road and rail links are on the cards.
Director of Europe, the Middle East and Africa research at Jones Lang LaSalle Bill Page explained that, from a property investment point of view, it will be necessary to look beyond the most liquid, core markets to find the best returns. "Secondary space might also present more opportunities for cash-rich, entrepreneurial investors who have a long-term view and are willing to ride out the economic risks across Europe," he added. Mr Page also predicted that pre-let agreements will become more important for developers, who may need to prove they have tenants for their project in order to source debt finance and get the construction process started.
- Friday 31 August 2012