Euro commercial property market improving

European commercial property investment activity has increased in the last few weeks in a sign that investor sentiment is improving, according to analysts.

Turnover increased to €13 billion in the second quarter of 2009, a 12% increase on the €11.6 billion recorded in the first three months of the year, according to the latest European Property Investment report from consultants CB Richard Ellis.

Most of the increase was in the last few weeks of the quarter, showing that the upturn in confidence is very recent. The report also shows that it has been matched by stabilising yields.

But it warns that the recovery in activity seen in the second quarter might not be sustained. 'Even if investor interest remains high, transactions are often taking considerable time to complete and the summer period in July and August is traditionally quieter from an investment perspective. This may mean that the improvement in activity levels will not become fully apparent in terms of completed deals until the last three or four months of the year,' the report says.

Overall there were mixed trends across different European real estate markets, with a more pronounced renewal of investor interest in markets that have already seen the greatest price correction, such as London, Madrid, Barcelona and Paris.

'The UK trend is particularly notable. After a relatively slow start through April and May, the property investment market picked up strongly in June, with the final month of the quarter accounting for more than 60% of the second quarter total,' it says.

The report shows that five of the six €100 million plus deals that took place in the UK were concluded in June, including the largest single asset deal, the €510 million purchase of 1-10 Bishops Square by Oman Investment Fund.

Analysts found that there are a broad range of investors currently active across Europe. Recent buyers have included institutions, Sovereign Wealth Funds and German Open-ended Funds, as well as private investors and Opportunity Funds. 'The entry of Opportunity Funds to the market, who have been sitting on the sidelines since the middle 2008, is a positive development,' the report adds.

'Markets that have seen greatest price corrections are seeing most transaction activity. This is particularly true of Spain and the UK, where investors have been attracted to the markets by a perception that they now offer good value,' said Michael Haddock, Director of EMEA Capital Markets Research for CB Richard Ellis.

His colleague, Jonathan Hull, Executive Director of EMEA Capital Markets, is optimistic. 'We have certainly seen increasing levels of capital focused on the prime European markets and not just London. Generally speaking, the capital targeting the market has increased and we expect this could translate into an increase in transactions in the second half of the year. Most capital is focused on secure income streams and core product,' he explained.

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