Savills forecasts that 2011 will see some European markets beat 2010 levels in terms of annual turnover, including Germany, Ireland and Norway.
Savills forecasts that 2011 will see some European markets beat 2010 levels in terms of annual turnover, including Germany, Ireland and Norway.
In its latest European Investment bulletin, which surveys commercial real estate investment markets across 18 countries, the firm forecasts that total volumes will be up 2.1% overall but identifies areas where performance will be stronger. However, with first half year results at 7.9% higher than the same time period in 2010, Savills predicts a slowdown in H2 volumes.
Eri Mitsostergiou, European Research Director, says: "The market is drying out of prime investment opportunities and the uncertainty around the global economy is again rising. The investment activity expansion has slowed down and our forecast for the year reflects this with a marginal increase on last year. The majority of investors have targeted office markets to date but with uncertainty in some occupational markets we are seeing an increased focus on retail."
Due to strong investor interest in prime assets average prime yields in the surveyed countries remained stable in Q2 2011 compared with the previous quarter, according to Savills, and stand at 6.3% for prime shopping centres and 7.4% for prime industrial warehouses. Prime Central Business District (CBD) office yields moved in by 15 bps to 5.75% in this period while the prime-secondary CBD office yield gap has expanded by almost 60% since its lowest historic levels in 2007, at 97 bps.
Eri continues: "Prime yields are back to their long-term average levels, following a period of strong investor interest for prime assets. Overall investors remain wary of secondary markets amid downside risks to the European economic outlook. However, some specialist players have started exploring the best opportunities in this market segment."
Overall the UK, Germany, France, Sweden and The Netherlands have been the most active investment markets in the first half of 2011, accounting for more than 80% of the total transaction volume across the surveyed markets. Offices continue to be a main target for investors in many European markets according to Savills research. In France and the Netherlands offices represented 60% and 45%, respectively, of the total investment amount in the first quarter of 2011, while in Poland offices accounted for 45% of the number of deals in this period with Warsaw offices the most targeted investment product in Q1 2011. However Savills has also noted a growing interest from investors in retail stock , for example in Germany where the office sector accounted for just 20% of investment activity in the same period with retail transactions making up 55%. The firm expects to see further interest in retail assets in H2 2011.
Lydia Brissy, European Research Director at Savills, says: "The traditional key markets of the UK, Germany and France continue to dominate the investment market in terms of transaction volumes but several smaller markets are starting to pick up, such as Norway and Hungary. Domestic investors still dominate a number of European markets such as Sweden and particularly France where local players accounted for nearly 80% of total activity in the first quarter of this year."
UK markets continue to benefit from a global appetite for risk-averse investors where prime assets and locations remain popular but Savills notes an increasing expectation of selective upward rental growth emerging outside London in 2011.