European investment activity drops by 67% in Q2

European investment in commercial property dropped 67% year-on-year to EUR 8.6 bn in the second quarter of 2008, reaching its lowest level since the first quarter of 2004, property services firm Atisreal International said in its latest research report. Investment activity in the first six months of 2008 dropped by 53% year-on-year to EUR 22 bn, according to the real estate advisor. Atisreal said that 15 of the 18 European cities taken into consideration experienced a sharper fall in investment volumes in Q2 than in Q1 as the effects of the sub prime crisis and overall economic gloom continue to deepen.

In Central Paris, investment volumes in Q2 fell by over 50% year-on-year to just over EUR 1.5 bn and by 24% compared to the first quarter of 2008. This fall in activity is influenced by the scarcity of large (more than EUR 100 mln) deals. Prime office yields in Paris now stand at approximately 4.75%, a rise of almost 100 basis points since Q2 2007.

The six big German Cities (Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich) have experienced a drop of 74% compared to Q2 2007 and 23% over Q1 2008. However Frankfurt and Hamburg saw an increase of 14% and 66% respectively in transactions over the same period.

Central London investment volumes declined by 75% compared to Q2 2007, with investment in offices being hit particularly hard (from EUR 9 bn in Q2 2007 to EUR 1.9 bn in Q2 2008). The poor prospects for rental growth combined with currency and general economic uncertainty together with rising yields is a major cause of concern for investors. Prime office yields in London now stand at approximately 5.25%, a rise of approximately 150 basis points since Q2 2007.

Investment in Madrid fell 36% to EUR 602 mln year-on-year in Q2 2008 while in Brussels investment activity has remained stable over the past 12 months with a modest drop of 13% in Q2 2008. Ireland on the contrary witnessed a drop of approximately 66% in investment deals in the first six months of the year. Half of the total 2008 volume was produced by just two deals - Donabate (Tesco Sale & Leaseback) and Carrickmines Retail Park, Dublin 18.

'The classic dilemma facing the market at present is that the majority of buyers are still expecting prices to fall further while at the same time sellers are reluctant to accept current price corrections. Consequently there are few agreements and few deals. A route around this impasse is unlikely to be found until 2009, requiring a marked improvement in liquidity and sentiment. The Banks will have a major role to play in the recovery,' said Peter Flanagan, Director of Investment at Atisreal Dublin.