North America lags behind Europe on property investment volumes

Europe surpassed North America in the first quarter of 2008 as the most active market place for property deals. Just over $50bn (EUR 32bn) in significant commercial real estate deals were transacted in North and South America in the first three months of this year, a decline of 67% compared to a year ago. This is also the first time in the last five quarters that the total has not topped $130bn. According to DTZ, Europe saw EUR 38bn of investment in commercial real estate in the first quarter.

'The music stopped when the credit crunch took hold last August,' Robert White, president and founder of New-York based research and consulting firm Real Capital Analytics, told attendees at the BIIS conference in Frankfurt earlier this week.

The conference was entitled: The credit crisis and falling house prices in the US; how likely are they to spread to the US commercial property market? The answer, participants indicated, was that real estate markets in Europe and the US are at an impasse as the global credit crunch continues to tighten its hold and investor caution shows little signs of abating.

Europe's performance relative to that of North America was something of a hollow victory given that European sales plummeted 40% in the period. There were also sizeable differences across European markets in terms of how badly they have fared this year. Despite the slowdown, the UK still accounted for the largest volume of sales in Europe in the first four months of this year, at around $14.2bn. However, this still represented a drop of 61% on the same period last year.

Over in Germany, Sweden and Belgium, sales volumes decreased by between 40% and 78%, depending on the asset class. One asset class that felt the full force of the heat was German offices, with sales down 78%.

Some country markets bucked the trend, with surprising results. Despite the economic slowdown in Spain, the number of commercial property deals actually rose in the same period, albeit partly skewed due to PropInvest's acquisition of the Boadilla del Monte financial complex on the outskirts of Madrid for more than EUR 1.9bn in February. Turkey, Romania and Bulgaria also reported an increase in transactions, according to Real Capital Analytics.

There is no quick fix to tightening credit conditions in the US, this year and next year are likely to remain highly challenging, according to Dr Claus Becher, head of international real estate research at Deka Bank in Frankfurt. The office development pipeline in the US is expected to taper off this year and next, thereby cutting supply. As a result, the US office market should start to pick up again in 2010, said Becher. However, he warned against investors panicking and selling assets off cheaply: 'Although we're a little sceptical about the US market at present, it is not yet at the stage where investors must do this,' he said.

Much like the UK, the US has traditionally had an economy propped up by sizeable consumer spending, said Wayne Nygard, manager of the real estate division of consultancy firm NeuBridge in New York. 'Will the economy recover without major consumer spending? That’s the biggest question we need to answer right now. Everything else hinges on that,' Nygard added.