Investment volumes hit EUR 22 bn in Q1: C&W

European commercial property investment rose by nearly 80% year-on-year to EUR 22.4 bn in the first quarter of 2010, according to new research issued by Cushman & Wakefield. Trading was buoyed by further growth in demand, particularly from foreign players, improving debt market sentiment, increased interest in larger lot sizes and by a spreading of interest to new areas.

While demand is still heavily focussed on prime assets and core markets - with 75% of trading in the top 5 of the UK, Germany, Sweden, France and the Netherlands - a number of other markets are coming back to life, such as Poland, the Czech Republic, Norway and to some extent Turkey, the report said.

'What we are seeing is an increasingly polarised and challenging market,' said Michael Rhydderch, head of C&W's EMEA cross border capital markets team. 'Investment demand is rising and so is supply, but most of the new supply is not of the prime quality demanded by these buyers and pricing of non-prime assets is often still to high to compensate for the risk and the larger element of equity required'.

The modest increase in availability of affordable debt is helping to reinforce a move towards larger lots however, as some investors look to escape the highly competitive market for small to medium-sized lots and to get invested quickly ahead of the recovery. This has been one factor behind the increased activity seen in the retail sector, with more larger lots and shopping centre portfolios being traded. Retail accounted for 43% of all trading in Q1, up from 30% last year and is at its highest in at least 10 years.

On a geographic basis more marked differences are being seen and investors need to stay alert to a polarisation in performance within Europe. The UK, Turkey and Sweden saw modest rental growth while Bulgaria, Ireland, Slovakia, Romania and Greece saw notable further falls.

Commenting on the outlook, David Hutchings, head of European Research, said that 'we seem to be in a very supportive environment for property. A combination of gradually easing financing conditions and a better macro outlook will support a further hardening of yields as 2010 progresses, with our currnet estimate increased to a 50-60 basis point fall overall.'

C&W continues to expect a strong upturn in trading volumes this year, with activity increasing around 50% to EUR 110 bn.