EUROPE - Investment activity in European commercial real estate was down significantly in the first quarter of 2009, especially in central and eastern Europe (CEE), although the retail sector saw stronger transaction volumes, according to property agencies.

New research from Jones Lang LaSalle showed direct investment in European commercial property reached €12bn in Europe Q1 2009, down 30% on volumes in the previous quarter and 70% lower than Q1 2008.

According to JLL, investment volumes in the UK actually increased by 4% from the last quarter, although this was largely accounted for by transactions in the London office market.

In contrast, core western markets accounted for 95% of total investment volumes, while CEE markets saw very little activity, the report said.

Latest statistics from CB Richard Ellis also showed CEE markets had particularly suffered from a slump in activity, estimating a volume of €220m for the region in the first quarter of this year.

This figure represents approximately one-third of the volume transacted in the previous quarter and, according to CBRE, is "a slightly stronger slowdown" than experienced in the overall European investment market for the same period.

The majority of investment activity in the first quarter of 2009 occurred in Russia and the Czech Republic, but CBRE said evidence suggested a lack of market transparency is making it difficult to measure transaction volumes accurately.

"What some of the low CEE investment volumes do not show is the considerable pipeline activity in some of the core markets in central Europe," said Jos Tromp, head of CEE research and consulting at CBRE. "Several high quality assets are currently on the radar of institutional investors in the region."

The retail sector in Europe is meanwhile said to be holding up better relative to the overall market, possibly because of the "restrictive attitude of government planning authorities towards retail development," claimed a CBRE report.

"The restricted supply means that certain types of retail property are protected to some extent in an economic downturn," said John Wellman, executive director at CBRE.

Despite the overall drop in transaction levels, JLL claimed to be seeing signs of improving investor sentiment.

"In the first quarter of 2009 we have noted improving sentiment and increased bidding," said Tony Horrell, head of European capital markets at JLL.