JLL predicts uneven recovery for European real estate

Jones Lang LaSalle has confirmed it expects direct investment in commercial real estate in Europe in 2010 to increase by 20 to 30% on 2009 levels, which stood at EUR 69.2 bn. According to Jones Lang LaSalle's latest European Capital Markets Bulletin, EUR 24.6 bn of commercial real estate was transacted in Q4 2009 in the region, more than double the EUR 11.6 bn in Q1 2009 and 50% more than the turnover in Q4 2008.

A strong final quarter of the year is not unusual as investors try to place capital before year-end, although this had not been seen for the last two years when volumes declined for seven consecutive quarters between Q2 2007 and Q1 2009.

Chris Staveley, director EMEA Capital Markets at Jones Lang LaSalle said: 'The growth we are expecting to see this year will be fuelled by an improvement in the availability of debt, the recognition that pricing has probably hit or even passed its floor, slightly more appetite for risk taking and more assets coming to the market.'

He continued: 'If in 2010, the market does reach these levels it would still be a low number in historical terms - roughly 2002 levels. The reason for volumes recording a gradual rather than abrupt recovery will, we think, be the continued focus by investors on a narrow band of core, income-producing prime assets in all but a minority of cases. A weak economic outlook sets the backdrop for difficult occupier markets almost everywhere, and despite some markets seeing some recovery in prime rents, caution and risk aversion will remain key themes in the market in 2010 for investors and occupiers alike.'

Compressing yields in some markets combined with rents which are approaching the bottom of the market in others, resulted in upward movements in Jones Lang LaSalle’s Capital Value Indices for all sectors in the final quarter of 2009. The European Office Index moved up 1.1% on the quarter, high street retail +4.8% and distribution warehousing +1.0%. JLL expects prime rents to remain under pressure in 2010 (although some markets will buck the trend), but broader yield compression means prime capital values will record small but positive year-on-year growth.