Investment in Europe commercial real estate down 40% in 2009, report shows

Direct commercial real estate investment in Europe will have been close to €70 billion in 2009, down 40% on 2008, according to new research.

But investor confidence has improved significantly from the historic lows at the beginning of 2009 and transactional activity is expected to grow 20% in 2010, says the latest report from Jones Lang LaSalle.

The fourth quarter 2009 was the third consecutive quarter of increasing volumes and also the strongest quarter of the year, with almost €25 billion transacted. But full year volumes are down 40% on 2008, the report confirms.

‘European real estate investment markets are now past the lowest point of one of the worst economic downturns the modern business world has experienced.

Investor confidence has improved significantly from the historic lows at the beginning of 2009 and market drivers are trending up,’ said Chris Staveley, Director, European Capital Markets at Jones Lang LaSalle.

‘In 2010 we expect further increases in transactional activity of up to 20% on 2009 levels, taking us to around €85 billion next year, assuming there are no further significant economic shocks,’ he added.

The UK remains the most active market in the region with €25 billion invested in direct real estate in 2009, representing 38% of overall activity in direct real estate investment in Europe during the year, the report also shows.

London continues to demonstrate high levels of liquidity, although investors are finding it an increasingly competitive market. Prime investment product is becoming scarce, with multiple bids for the best product, it adds.

The second largest market, dominated by domestic institutions, is Germany where over €10 billion was traded in 2009.

‘Throughout the year we have observed some easing in the debt market, particularly credit for new purchases of prime buildings. However, a lack of quality product on the market has meant a significant amount of capital remains frustrated.

In some markets, for example London and Paris, this has led to the hardening of yields,’ explained Nigel Roberts, Chairman European research at Jones Lang LaSalle.

Jones Lang LaSalle expects the list of investors to continue to grow, with funds having more success with capital rising, international wealth capital continuing to show interest in the sector and now some groups, such as UK REITs and retail funds, who were, up to now, net sellers becoming active buyers.