REAL ESTATE - Domestic demand will drive out-performance from mainland European commercial property, according to a report published last week by fund manager Seven Dials.
Continued macroeconomic growth, low reliance on US trade and strong labour markets offer the potential for positive gains in mainland Europe above those for the UK. Keenly priced retail and industrial will outperform office because they are better placed to exploit domestic Euro-zone demand, claimed the firm.
In a separate quarterly report, Standard Life forecast continued rental growth in central London offices and those in the rest of Europe for the next two years, buoyed by global merger and acquisition activity, corporate profitability and growth in business services.
"Current supply is more than matched by strong tenant demand, while development and future supply still remains muted," it says.
At the same time, under-supply of premium stock will put pressure on rents and capital values for these properties, notably in Madrid and Barcelona.
Mainland Europe will provide investors with less volatile returns than other markets, says the report. Specifically, Paris offers diversification benefits because of its lower correlation with financial and business services activity than other markets. Yet a lack of development activity across the Euro-zone will increase confidence in office rental prospects to 2008.