Investment in commercial property, having survived the 2007 credit crunch, will tail off in 2008 despite a liquidity injection from liquid investors, investment house Aberdeen has predicted.

European commercial investment reached €236bn in 2007, up from €230bn in 2006. However, a Q4 drop to €47bn, as a result of tighter credit conditions, appears to be pointing the way for this year.

"Highly leveraged investors are not likely to be active. Moderately leveraged investors will still be in the market. So ‘100 per centers' won't be but those under 50 per cent leveraged will be," said Aberdeen head of investment strategy Alessandro Bronda. "That means there will be less activity."

Aberdeen is forecasting a 30% drop in European investment activity this year, with a decline in the number of large deals as a result of poorer access to debt capital. Despite the slide in activity, Bronda forecast the upward trend of investment in indirect vehicles would continue.

"There has been an explosion in indirect vehicles since 2001," he said. "Investors see the benefits of geographic diversification - and, unless you're big enough to invest directly, it's the only way."

In macro terms, the impact of a likely US recession will be limited, according to the fund manager.

"Of course, recession will impact the commercial market but we're forecasting that Europe will suffer a mild slowdown," said Bronda. "It's decoupled somewhat from the US, and the US is just less important than 10 or 20 years ago. Europe will take a hit, but it won't be as severe as in the past. People will still have jobs."

In fact, some markets - notably France, Germany and the Netherlands - recorded increased investment activity in 2007 compared to 2006. Germany
and France together represented 36% of the total European market. Although the UK remains the UK's largest investment market, its share fell around 20% to 30% in 2007.

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