EMEA property volumes estimated at €206b for 2014 - C&W

Real estate investment volumes for the EMEA region are estimated by Cushman & Wakefield to hit €206 bn for 2014, and are forecast to increase 20% next year to €247 bn.

In its latest report, Cushman & Wakefield’s EMEA capital markets team said the market will be even more liquid in 2015 as fund allocations are still increasing, occupational markets in many cities are stirring and finance markets are growing more competitive.

The report also states that short-term concerns such as stock market volatility, fears of deflation and limited economic growth could all point to yet stronger demand for property due to its relative yield and risk profile. Retail and logistics will win further market share but quality property in all sectors will be in demand and a notable increase in the appetite for development is to be expected, focusing initially on core office markets.

'Our estimates for the market continue to be pushed higher as both the supply and the demand outlook improve,' said Jan Willem Bastijn, head of EMEA capital markets for Cushman & Wakefield. 'With volatile stock markets and rising liquidity boosted by quantitative easing, the push to demand is already evident and the boost to supply will come from deleveraging banks and businesses as well as profit-taking and, in our opinion, a more notable pick-up in development.

'Our central forecast is a 20% increase to nearly €250 bn - potentially making 2015 the second-best year ever for volumes and just 8% down on the pre-crisis peak. However with the scale of liquidity we’re now seeing, that could easily be beaten and the market will be setting a new all-time high by 2016 at the latest.'

DEMAND SPREADING
Southern markets, notably Spain, led the upturn this year with volumes up an estimated 55%. C&W said this will continue in 2015, with forecast growth of 45-50%. Other areas that were overlooked in 2014 should see better demand however, with the Nordics forecast to see a 25% rise after a 7% increase this year thanks to their strong appeal as markets of low structural risk but also good relative growth prospects.

CEE markets are also expected to bounce back, rising 30-35% after a 15-20% fall this year. Russia and some non-EU eastern markets may be held back by events in the Ukraine as well as commodity prices and general emerging market uncertainty. However, Central Europe is a different and more promising short-term prospect and other eastern markets within the EU may see stronger interest where the right stock is available. In Western markets meanwhile, the report forecasts growth of 15%, modestly down on the 20% increase seen this year, reflecting the fact that these markets have already seen a fuller recovery.

YIELD COMPRESSION AND SLOW GROWTH
With strong competition to buy, prices are set to carry on rising, with prime yields forecast to fall 25-50 bps over the year to an average across the sectors of 5.6% in larger cities.

Ongoing uncertainty, geopolitical risks and deflation will hold back economic growth, but a slow, if hesitant recovery is nonetheless continuing and 2015 should in general be a better year than 2014.

Inflation will fall further thanks to tumbling energy prices and this will keep the spotlight on deflation despite the short-term benefits it brings to households and producers. This should slow the pace at which monetary policy normalises and prompt further easing in the eurozone. As investment markets are already some way ahead of occupier cycles, this brings the risk of a bubble. But ‘with liquidity so supportive, this will only be clear after 2015,’ the report said.

Thanks to improving supply and demand, and increased liquidity due to quantitative easing, Europe will continue to attract more than its fair share of global investment, albeit this may grow at a somewhat slower pace than in 2014. Domestic and regional spending will increase as fund allocations are raised. Overall, cross-border investment is forecast to rise 30% versus 15% for domestic spending, with global investment up 30-35% and regional buying up by 20%.

Bastijn: 'The global focus on Europe of the last 1-2 years is expected to slowly reduce as other areas demonstrate stronger economic growth, a higher level of investor risk tolerance is sustained and an unwinding of quantitative easing reduces global liquidity. Parts of Asia and the US, in particular, are like to attract more EMEA investment. Short term however, increased quantitative easing in the eurozone as well as a greater supply of opportunities in Europe as banks and companies restructure and deleverage, will serve to keep the eye of the world on Europe for longer than expected.'

The risks in today’s market are hard to judge, added David Hutchings, head of EMEA investment strategy at Cushman & Wakefield. 'Some, in fact, are hardly visible at present and others will bubble up, particularly perhaps in the political sphere this year. As a result, it’s all about the lease for many investors and they need to make sure their strategy is as future-proofed as it can be – and that means focussing on property that meets occupiers’ needs and is flexible to change. Only the best property can be well placed to ride out a period of inflation or disinflation.'