EUROPE - Atisreal, part of BNP Paribas Real Estate, has predicted the decline in European commercial real estate investment activity will slow sharply this year but will then recover slowly in 2010.
According to Atisreal's Houseview Outlook 2009, European investments' rate of decline is expected to slow to -21% this year, compared to -61% in 2008.
"There is no denying that 2009 will be a tough year across Europe," said Andrew Cruickshank, international investment director at Atisreal.
"However, for the investment market at least we have seen the worst. While there will be further falls in 2009, these falls are slowing and will not be anything like the value or activity falls we witnessed last year. Moreover, we will see a recovery across Europe in 2010."
The report warned Frankfurt and Berlin could see investment activity drop 40% further in the second half of the year but said Munich's situation would become more stable.
The investment markets in Madrid and Brussels are expected to fall more modestly in 2009 than London, however the UK's investment market is expected to be the first to see activity pick up and prime yields fall.
Atisreal has also predicted the occupier market will continue to experience a fall in take-up and rental values, as the recession across the eurozone takes hold. Take-up is expected to drop by 25% in 2009 and the prime rents index is expected to fall by 13%.
"The occupational markets will take a bit longer to come back and are likely to have a worse year in 2009 than in 2008 but this could signal hope for occupiers who, until recently, had been priced out of the new office market," continued Cruickshank.
Take-up in London, Paris, Munich and Frankfurt is expected to worsen this year, with Paris expected to drop 34% compared to a 12% rise in 2008. Take-up in Madrid could fall only moderately, as the worst of the market correction is thought to have taken place in 2008.
The swift and widespread rise in supply in London has pushed up vacancy rates and caused prime rents to fall for the first time. Atisreal predicted prime rents could fall more than 30% this year. Prime rents are likely to fall by 10% in Paris and by 5% in Munich and Frankfurt.
"There is no doubt that there are going to be fewer occupiers looking for commercial premises for the next couple of years," said Daniel Bayley, head of national lettings and sales for Atisreal, said.
"It is also clear that in most markets, landlords are already prepared to offer dramatically more competitive deals that just three months ago," he claimed.
That said, the initial yield index for offices is expected climb by 22 basis points, compared to 90 basis points in 2008.
Atsireal predicted capital values will fall by 12.3% this year but start climbing in 2010 by 3.3% and then by 11% in 2011 as the financial markets recover. Total returns are expected to recover by 11% in 2010 and 19% in 2011.
Atisreal, which is part of BNP Paribas Real Estate, uses a European investment Index that measures investment activity across 16 European cities.
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