Activity in crisis-hit countries set to bounce back

A change in sentiment amongst consumers, businesses and financial markets is paving the way for a return of stronger real estate investmernt activity in ‘crisis’ hit countries, according to research published by Cushman & Wakefield.

While overall volumes in Europe fell 1.7% between the first and second quarters, Southern Europe rose 94% and Benelux 61%. In the previous quarter meanwhile Central Europe posted the biggest gains and saw the fastest growth overall in H1.

'The market bounce has begun and we are starting to see the rediscovery of a whole range of markets which had been overlooked for some time,' said Jan Willem Bastijn, head of capital markets at C&W EMEA. 'What’s more with sentiment firmer in most areas, debt and equity increasingly available and buyers getting comfortable with more risk, the outlook is for a stronger rise in demand and activity in 2014.'

The premium in 10-year bond yields between the core and non-core has come down markedly in the past year due both to an increase in core market bond yields and a relative fall in non-core areas. The risk premium has more than halved to less than 400bp across the ‘crisis’ countries of Greece, Ireland, Italy, Portugal and Spain (GIIPS) to its lowest level for three years.

'Some of the changes we are seeing in risk premiums are justified in light of a truer reflection of macro risk and the fact that past averages reflected an overtly tolerant attitude to risk,' commented David Hutchings, head of European research at C&W. 'However, it is hard to deny that the real estate market is now sailing through calmer waters than for some years and the increased interest we are seeing is still more a vote of confidence in the property market generally rather than in non-core countries specifically. Investors in fact are looking at big cities and quality real estate in general, with first tier cities like Milan or Madrid winning out over smaller cities even in core markets.'