Invista sees fall in property values slowing

Invista Real Estate Investment Management sees property values falling at a slower rate as the emphasis shifts from a capital to a leasing correction and parts of the European economy start to stabilise.

According to a report by the investment manager, the first six months of 2009 saw confirmation of the weakest economic conditions across the Eurozone since its inception. 'However, interestingly, some forward looking indicators have now begun to stabilise or improve, albeit from very low levels,' the report found.

According to the ECB, European banks became less negative in their future lending intentions while the cost of finance in the Eurozone has fallen sharply from the peak levels of Q4 2008. The divergence between falling bond yields and rising property yields could potentially increase the long-term attractiveness of property, Invista said.

The company cautioned, however, that activity in the property leasing market is likely to remain subdued until economic growth becomes more firmly established in 2010-2011. ' In the short term, given the depth of the current economic downturn, we can expect property leasing activity to fall further, potentially bottoming out in H1 2010.'

According to Invista’s analysis, the UK is currently the only European country where market prices are considered to represent fair value. It points out that this is mainly due to the earlier and more substantial outward movement of property yields in the UK, compared to Continental Europe where the least developed and riskiest markets remain substantially below fair value.

Tim Francis, Director, Continental European Strategy & Research at Invista, commented: ' With improved visibility on bottom-of-the-cycle valuations, we are in a better position to judge market pricing against fair value. This will assist in identifying attractive investment opportunities across these markets, some of which are experiencing distressed selling.'

He added that France, Germany and the Netherlands are still some six to nine months behind the UK. However, he expects deal flow to improve during H2 2009 as the other mature continental European markets catch up.