Investors are showing greater interest in European second-tier markets in their search for value creation opportunities, according to BNP Paribas Real Estate.
Investors are showing greater interest in European second-tier markets in their search for value creation opportunities, according to BNP Paribas Real Estate.
The adviser has singled out 10 secondary markets with strong potential: Warsaw, Dublin, Amsterdam, Milan, Barcelona, Rome, Madrid, Brussels, Luxembourg and Bucharest.
Last year, these markets recorded an estimated total investment volume of €10.4 bn, up 73% on the previous year.
With some exceptions like Poland and Romania, the second-tier markets are still weighed down by a challenging environment with flat or slightly positive GDP growth, says BNP Paribas Real Estate. Tier-two markets have probably reached a low point in terms of rents and a high point in terms of vacancy rate due to the past, present and future weak volume of new construction.
‘The growing interest shown by foreign investors is another sign of the recovery of the tier-two markets. In 2013, 70% of the investment volume was done by cross-border investors compared to 46% in 2009. Most cross-border investors come from the Eurozone and North America,’ said senior analyst Céline Cotasson-Fauvet.
The firm notes that the spread between office prime yields in the core markets of Paris, London and the big four German cities, and tier-two markets has never been so high, offsetting the risk for these less liquid markets.
The gap between average prime office yields in core markets and tier-two markets stood at an historic high of 160 bp at end-2013 compared with 45 basis points in 2007.
