Office sector dominates European commercial property market at start of 2012
05-06-2012
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The office sector was dominant in the first three months of the year, seeing €12 billion of investment and accounting for 50% of the total market. However, despite the level of transactions, the office sector saw a rise in the average prime yield of six bps to 5.69%.
An estimated €45 to €50 billion in assets is expected to change hands in the European office sector this year, with equity rich investors such as sovereign wealth funds and foreign pension funds remaining among the most active purchaser groups.
Major transactions that have already taken place this year include the sale of Maximilianhöfe in Munich, a prime mixed-use property that was bought by Pembroke Real Estate for approximately €540 million and the purchase of One Cabot Square in Canary Wharf, London, by Qatar Investment Authority for circa €400 million.
The office market’s performance reverses the trend of much of the last three years during which retail property grew consistently as a proportion of the European market. Following high levels of retail investment during 2010 and early 2011, retail activity fell back to 19% of the market in the first quarter of 2012, the lowest recorded share since the start of 2007.
CBRE analysts said that it is worth noting that the average prime retail yield continued to fall in the first three months of 2012 despite the fall in transactions, indicating that lack of product rather than lack of demand is driving activity.
‘We are finding that prime retail property remains in strong demand from investors. However, after the high levels of activity in recent years the supply of good new investment opportunities was very limited at the start of this year,’ said Jonathan Hull, head of EMEA Capital Markets at CBRE.
‘The office market tells a different story as 2012 has seen an increasing amount of good quality office property coming to the market. This has met with strong demand from investors who see the lack of development activity over recent years as a potential source of rental growth in future years, or at the very least a factor that will maintain occupancy rates and rental income for quality assets,’ he added.
The European commercial property investment market totalled €23.8 billion in the first quarter of 2012, an 18% drop on the same period last year. The slowdown was not entirely unexpected given the downgrades that have been made to economic growth forecasts since the middle of last year. However, the pipeline of large transactions that are in hand, but not yet completed, suggests that the figures will recover somewhat in the second quarter of 2012, according to CBRE.
Dominant geographic markets for the office sector, as for commercial real estate investment overall, are the United Kingdom, Germany and the Nordics, all of which have benefitted from investors’ risk aversion in the light of the eurozone crisis.
The Nordics experienced over €5 billion of activity during the first three months of 2012, which is the highest level of quarterly turnover since the fourth quarter of 2010. Local and foreign investor interest continues to grow in response to the region’s economic independence from the euro and relatively strong domestic economies.
‘Recent political developments, notably the French Presidential election and the parliamentary elections in Greece, will increase the uncertainty regarding European economic policy in the short term. This may impact investment activity. Demand for prime real estate in core locations remains undiminished,’ said Hull.
