Europe’s commercial real estate investment market has now reached an inflection point presenting an attractive buying opportunity, according to the newly-launched Time Score Index developed by Cushman & Wakefield’s EMEA Forecasting team.
The Time score aims to simplify the representation of change in key metrics relevant to investors' decision-making. The primary purpose of the Time Score – the Time stands for timing investment market entry/exit – is to identify key inflections in commercial real estate’s overall condition.
A comprehensive measure, it utilises historical real estate market data and economic indicators to assess current cyclical positioning and signal conditions and directionality. Back-testing of the score to Q3 2008 shows it can predict future movements, identify shifts in sentiment, and anticipate a pick-up in growth.
James Chapman, head of EMEA capital markets, Cushman & Wakefield, said: 'The cyclical nature of real estate means that timing is everything for investors, who use various strategies to help enter or exit the market at a time that allows them to optimise profits, or minimise losses.
'The beauty of the Time score is that it represents changes in key metrics relevant to investors' decision making in a simple way, even though it is built on multiple indicators.
'Many investors are on standby, looking for the confidence or opportune conditions to act – whether that be entering or exiting the real estate market. The TIME score shows a window of opportunity exists, providing investors with a strategic moment to capitalise on favourable conditions.'
The score ranges from 1 (contraction) to 5 (expansion), with a reading towards the higher end suggesting that current conditions are favourable, signalling an opportune time to invest as most variables align positively.
Equally, the Time score helps in recognising periods of uncertainty, prompting potential changes in investors’ strategies when all metrics begin to signal the beginning of a downturn.
Sector by sector
At a pan-European level, the Time Score shows that logistics & industrial, residential, retail and hospitality have all moved either to or beyond an overall score of 2.5, as has the all property figure.
This marks the crossover from a cautionary period into the inflection phase which represents the optimal point to capitalise on the early growth and expansion periods that follow.
Offices is the only sector covered by the Time Score below the inflection point, with its Time Score of 2.2 reflecting availability of debt and rising swap rates in Q1. Across all property types, there will be variation at the city and asset level.
Sukhdeep Dhillon, head of EMEA forecasting at Cushman & Wakefield, said: 'The Time score is a simple way to highlight changes in crucial indicators that investors find valuable for evaluating and predicting shifts in sentiment and growth.
'Historical analysis shows it has a strong correlation with total returns and investment volumes – we’ve found that the TIME score leads total returns by two quarters. The Time score has identified that we have already reached the turning point for European commercial real estate. As conditions improve, total returns are poised to increase.'
The overall score is split into four sub-indices – growth trajectory (such as levels of business investment, GDP growth, 5-year swap rates), cyclical (including extent of repricing and availability of credit), risks (risk premium and country risk) and momentum (liquidity, share of cross border capital, deal size, economic sentiment).
