Yields to rise as investment slows in 2008, C & W forecasts

A total of EUR 62.8 bn of commercial property was traded in Europe in the third quarter of 2007, 23% ahead of the same period in 2006, according to a new report to be released later this month by global real estate adviser Cushman & Wakefield.

The report warns, however, that despite strong activity and buoyant rental growth, a clear step change has now taken place with investment yields rising for the first time since 2003. The outlook is for a slowing in investment activity into 2008.

As a result of strong investment activity to date, Cushman & Wakefield is expecting 2007 to be another record year and are forecasting that investment volumes will total EUR 235-240 bn - compared to EUR 236 bn in 2006.

David Hutchings, head of European Research at Cushman & Wakefield commented; 'The hard work in reaching this total was done during the first seven months of the year. While there was plenty of momentum spilling over into the third quarter, we saw the flow of new deals grinding to a halt in late August and September.'

Cushman & Wakefield says it expects the final quarter of 2007 to be markedly slower, with a total deal volume of EUR 54-58 bn forecast, 8-10% down on the average of the previous three quarters and 30-35% below the record Q4 seen in 2006.

'The 'credit crunch' has clearly had an impact on trading volumes and pricing,' said Michael Rhydderch, head of the Cross Border Capital Markets team at Cushman & Wakefield, 'Some areas of the credit market have been closed for business and, with uncertainty on pricing, activity stalled in August, with deals being renegotiated and some larger deals postponed. However, it is important to note that the whole market was not affected to the same extent.

'Outside the UK, many parts of Europe have remained quite robust, with well-financed investors still active and enjoying a better choice of property than for some time. Nonetheless, it is undeniable that buyers have shifted their views on pricing and stock quality. With a more demanding investor, only the best product will sell at anything like the pricing levels seen earlier this year.'