Commercial property investment in Europe will be strong in 2017 despite political and economic volatility, according to new research from Cushman & Wakefield.
The report from the firm's European Capital Markets team expects prime yields to fall 30-40 basis points across Western Europe, rents to edge up by 2-3% and European investment volumes overall to rise 6%.
'We predict the next 12 months will be a ‘Year of Tiers’ as some investors focus on tier one gateway cities while others look to tier two markets. This will typically involve an aversion to macro risk so they will maintain their focus on the better managed and more stable economies,' commented David Hutchings, head of investment strategy, EMEA Capital Markets, Cushman & Wakefield.
While the results of the Brexit vote and the US Presidential election will begin to translate into policy actions in 2017, banking instability is expected to linger and elections in France, Germany and the Netherlands may carry further implications for the future of the EU.
In addition, the report predicts that Asia will overtake North America as the chief source of capital flowing into Europe, although Europeans themselves will rival this, crossing more borders as they seek out the best mix of growth and stability.
'The risk of instability in the Eurozone will tend to push up bond yields further, which could accelerate demand for real estate as a steady, higher-income producing asset with growth potential,' added Hutchings. 'Occupiers will seek property that adds value to their business and hence market value is where the occupier sees it. Successful investors will take note, both following the occupier and adding value by creating affordable, effective space.'
The report identifies key areas offering well-balanced growth as Germany, led by Berlin, and the Nordics, followed by Spain, notably in Barcelona and Madrid. Paris and London will continue to be targets for investment, along with some UK regional cities.
Elsewhere, Central and Eastern Europe markets will merit more attention, offering a yield advantage and catch-up growth potential, the report says. Consumption growth has outperformed the rest of Europe, further solidifying demand and encouraging all-sector rental growth in CEE.
