Investment activity rallies in Q4: C&W

Trading activity in the European property sector rallied in late 2012 and is set to drive further momentum in 2013, says Cushman & Wakefield.

The market stabilised in Q4 after its mid-year malaise to post the highest level of quarterly trading since 2007 at €43.7 bn, figures from the broker show.

Although the year ended up 1.5% on 2011 with total volumes reaching €133.8 bn, this peak was more of a correction than a strong sustained recovery, says C&W. However, the firm predicts that the recovery in the sector will start to gain momentum in 2013.

Improvements in economic stability and investor confidence will drive further increases in trading activity against a backdrop of increasing divergence within the sector with some markets seeing strong demand and robust performance as others stagnate.

'Risks obviously remain high in much of the region but underlying economic stability has improved and even with a fragile recovery on the cards, this should set the scene for improved confidence in 2013,' said David Hutchings, head of European research at C&W.

C&W predicts increased bank sales and a somewhat more relaxed debt market will push volumes up 5-6% to €141 bn.

Hutchings: 'Economic stability will also help to generate and release some degree of pent-up demand among occupiers, with stronger industries and regions adding to a very mixed picture for property. A reappraisal of risk will force a further re-pricing in some areas - with prime yields compressing while secondary yields move out - and new hot spots will emerge even as distressed or uncompetitive markets fall back further in a splintering market.'

While debt remains a barrier to activity in many areas, this is to a somewhat lesser degree than had been the case, with the UK the most notable area of improvement. Nonetheless, with refinancing needs being a heavy challenge for the market over the next few years, C&W believes that the main contribution of the banking sector to a healthier market in 2013 may be more as an area of opportunity as they offload stock rather than a source of lending to the sector.

The market will continue to splinter, with risk and performance patterns highly variable across the region and across sectors. As a result investors will be cautious in adjusting risk targets and pricing.

'The supply of investment stock generally is likely to improve meanwhile as banks increasingly release legacy assets through loan and real asset sales,' added Michael Rhydderch, head of European capital markets. 'Although we do anticipate more buyers going up the risk curve in 2013, core markets and strategies are likely to dominate again. Germany in particular will remain a top pick for most investors, with a further gain in its market share forecast in 2013, as in the Nordics. London is also likely to benefit from the safety-first attitude, while Paris will stand out as a long term liquid target for many, even though regional cities could be less favoured.'