Slowdown in European investment activity in Q3 - CBRE

European commercial real estate investment activity slowed slightly in the third quarter of 2010 as the total value of transactions fell to EUR 23.1 bn, down from EUR 24.6 bn in the second quarter of the year, according to new figures released today by property broker CB Richard Ellis. The broker added that the figure for Europe was still 24% higher than in the same period of 2009.

Central and Eastern Europe (CEE) saw investment activity surge to EUR 1.5 bn in the third quarter, up more than 60% on Q2 2010 and 120% higher than in Q3 2009. The surge was largely driven by growing confidence in the Polish market, which accounted for more than half of the regional total. The EUR 826 mln in transactions completed in Poland is the highest quarterly total for the country since Q3 2007.

The slight downturn in European activity in Q3 was a reflection of recent property pricing trends, together with growing economic uncertainty and government austerity measures. The switch from fiscal stimulus to spending cuts by a large number of European governments has ‘undoubtedly’ affected spending on the region’s property markets, CBRE said. The broker added that the sharp rise in prime property prices has also had an impact as many investors believe the rapid pricing recovery is unsustainable, and that some markets - most notably London - have recovered too quickly.

However, CBRE added, the recent movement in commercial property prices needs to be seen in the context of the even greater movement in the price of government bonds over the same period. ‘In relative terms, prime real estate still looks like good value. The yield gap between prime European commercial property and government bonds is almost at a record high, and for real estate with the most bond-like attributes - long leases and good covenants - there is still potential for further increases in value,’ CBRE said.