European markets hotting up: DTZ Fair Value Index

European property markets now offer more attractive returns to investors, with the latest all-property DTZ Fair Value Index (FVI) Q3 2010 score for Europe standing at 55, an increase from 49 in Q2. Although Europe is still less attractive than other markets globally, as revealed by the global FVI Q3 score of 63, the European index is now above 50, meaning there are more 'hot' markets than 'cold', DTZ said on Wednesday.

The DTZ Fair Value Index measures the attractiveness of commercial real estate markets around the world and was launched in Q2 2010 .

Across Europe the number of 'hot' markets has increased from 20 to 23 whilst the number of 'cold' markets has fallen from 21 to 14. Six markets have been upgraded from 'warm' to 'hot': Warsaw retail, Manchester industrial, Warsaw offices, London West End offices, Madrid offices and Copenhagen industrial. Additionally, 10 markets have moved from 'cold' to 'warm' with the picture dominated by four regional UK office markets, as well as the Lyon, Oslo and Barcelona markets

The FVI increase is most significant in the office sector, rising from 35 in Q2 to 46 in Q3. The Warsaw, London West End and Madrid office markets are all now classified as 'hot' primarily due to increased rental growth forecasts. The industrial sector is also increasing in attractiveness with the FVI score now standing at 63, reflecting pockets of recovery across Europe. Prospects for investment in the retail sector look broadly similar to the last quarter, with an index score of 62.

Magali Marton, DTZ head of CEMEA Research, commented: 'At current pricing levels, our latest Fair Value Index shows that there are, on balance, better investment prospects in Europe than in the second quarter of 2010. The increase in opportunities is evident in several countries including the UK, Germany, France and across the Nordic region. Several markets have moved to 'hot' in Q3 as a result of an improved rental outlook and yields moving outwards making pricing more attractive to investors. Additionally, several major European markets remain attractive, with London city offices, Milan retail and Antwerp industrial still classified as 'hot'.'