Investment volumes jump 53% in third quarter

Investment volumes jumped 53% in the third quarter, yields stabilised and even the occupational market managed to show some more encouraging signs, at least of approaching stability, according to Cushman & Wakefield’s latest European commercial property investment update.

As in the second quarter, increased activity has been driven by cross-border investment, which more than doubled on the previous quarter and stood at its highest for over a year. International investors increased their share of activity to 44% versus 31% in the first half. Whilst more cautious, domestic investors were also increasingly active, with EUR 10.9 bn in investment, 29% up on the second quarter, and making a particularly significant contribution to the resurgence in activity seen in markets such as Germany and France.

'There are still plenty of problems for the market to deal with but with two quarters of growth in activity and much improved sentiment, it’s clear we’ve turned an important corner,' commented David Hutchings, head of the European Research Group at Cushman & Wakefield. 'With yields stabilising at levels which are clearly attractive for long-term equity buyers, a growing number believe that now is the time to act even if the occupier market has not yet hit bottom. Their problem is finding enough stock, with banks still generally supportive of their loans and some vendors holding back hoping that pricing will improve. Hence while we’re looking forward to a busy final quarter, with trading volumes for the year around €65bn, the jury’s out on what 2010 may hold.'

Average prime yields across Europe now stand at 7.51% and over the third quarter were stable in 21 of the 32 countries analysed. Overall they actually fell 1bp on the quarter, albeit solely due to the UK, where yields dropped 24bp to 6.73%. This is still marginally higher than the Western Europe (ex UK) average (6.68%), which rose 3bp, the smallest quarterly increase since late 2007. Elsewhere, Central and Eastern European averages were largely stable, but performance is increasingly diverse, with yields holding firm in Poland and the Czech Republic, and indeed in Russia, but moving out further in Bulgaria, Romania and Hungary amongst others.

'Investors are clearly still very focused on prime, secure income producing assets with limited interest for anything else,' said Michael Rhydderch, head of the European Cross Border Capital Market Group at Cushman & Wakefield. ' he bigger, more liquid Western markets are leading, with the UK very busy but France also enjoying better international demand and Germany seeing good interest from local buyers. Elsewhere investors are looking for distress and hence markets which have fallen a long way are being re-examined. Spain had a good quarter, as did core markets such as Belgium and the Netherlands. In other areas the picture is more mixed, with an increasingly polarised market in terms of activity and performance.'

With yields stabilising, the trend in capital growth improved again. For Europe as a whole, values are now 22% down on their peak, with the UK down 40%, the rest of Western Europe averaging a fall of 17%, Central Europe 26% and Eastern Europe 45%. The yield differential between east and west now stands at 618 bp, its highest since early 2006.

Offices have remained the most active market segment, with volumes rising 87% on the quarter to stand at EUR 10.6 bn. Industrial activity also rose strongly whilst retail was more stable, largely due to the lack of availability of quality product and the still difficult financing market for larger lots such as shopping centres.