CBRE sees investments hitting EUR 60b in 2009

CB Richard Ellis expects investment activity in the European commercial real estate market to total some EUR 60 bn in 2009, around half of 2008’s total. In the first three quarters of 2009, the adviser registered around EUR 41 bn of investment deals with a steady increase in activity each quarter since the low of EUR 12 bn in the first three months of the year. 'We expect that this will continue, with Q4 seeing the highest level of activity for the year,' the adviser said in a preview of its forthcoming report ' After the Storm: Where Next for European Property?'

The adviser expects that the steady improvement that has been seen throughout 2009 will continue in 2010 with higher levels of activity expected in the year as a whole. 'The recent upturn in investment activity suggests that many investors believe the European market is approaching the bottom of the cycle; and in some cases, it may well be past that point,' said Michael Haddock, Director, EMEA Capital Markets Research, CBRE. ' Whilst investment turnover has started to pick-up from lows of around EUR 12 bn in both Q1 and Q2 this year, concerns remain about slow economic recovery and its lagging impact on the occupier market.'

However, a feature of the investment recovery so far is that, other than in the UK, it has been heavily concentrated on defensive investments: well-let, well-located, modern buildings, secured to good covenants on long leases. In the UK, investors are showing more signs of being prepared to consider property that is further up the risk spectrum. This may be partly a reflection of the relatively wide yield spreads between prime and secondary, and the view of the UK market as something of a safe haven, even if some economic fundamentals appear to be lagging. 'The risk is that it stems partly from shortages of prime stock forcing investors to widen their search criteria reluctantly,' Haddock noted.

Outside the UK, more secondary property, with potential exposure to the occupier market through vacancy, lease expiries or weak tenants, has yet to see a substantial increase in demand from investors.So long as investor demand remains largely focussed on this prime segment of the market, the scale of growth in activity will be restricted. The adviser claims it is unlikely that we will see much forced selling of prime property and, with no obvious motive to sell into a rising market, the vendor base may be confined to those who are looking to recycle capital.

CMBS/bank sales are key determinants of the recovery in volumes, CBRE said, as is the strength of economic recovery in giving confidence that occupier demand will improve. This could, in turn, tempt investors into secondary or riskier deals. 'The majority of investment interest is still heavily concentrated in the prime segment of the market. Some recently offered UK properties have attracted over 20 bids from a wide range of buyers, highlighting substantial build-up in competition for very good quality assets and putting increasing downward pressure on yields,' Haddock said.