European commercial property sales set to continue with growth in 2015

European commercial property transaction volumes for 2014 are likely to exceed the €160 billion mark, up 10% on 2013, new research shows.

A significant amount of capital continues to target commercial real estate and forecasts from real estate firm Knight Frank suggest a similar rate of growth in 2015, with total volumes expected to be in the range of €175 to €180 billion.

All the main commercial sectors are attracting strong interest, while specialist sectors such as hotels, healthcare and student accommodation are becoming increasingly part of the mainstream property market, the firm’s report shows.

‘The really good news for both occupiers and investors is that rents in most markets remain lower than their pre-recession peaks, in some cases significantly below,’ said Darren Yates, head of Global Capital Markets Research.

‘This should provide a further boost to activity in 2015, with more occupiers looking to take advantage of good deals, while investors will seek to cash in on better rental growth prospects as the economic outlook continues to improve,’ he added.

According to Andrew Sim, head of European Capital Markets, the forecast 10% rise of commercial investment volumes is a positive start for the first quarter of 2015. ‘We have witnessed a strong recovery in cities such as Madrid and Dublin and we are expecting demand to generally broaden out to smaller cities,’ he said.

‘Investors are looking to move increasingly up the risk curve to target good quality secondary stock, in addition to development opportunities,’ he added.

While there are some lingering doubts about the strength and uneven nature of Europe’s economic recovery, both the European Union and the Euro area are poised for positive growth in 2014 and 2015, the report points out.

Occupier markets are likely to continue to move in line with wider economic trends, with the Nordic countries and the Baltics currently seeing a significant improvement in occupier sentiment, while the UK is finally seeing a pick up in its regional city markets.

However, the firm says that perhaps the most encouraging trend is the rebound in some of the peripheral markets, notably Ireland and parts of Southern Europe, with Dublin and Madrid in particular recording solid rental increases in 2014 and further growth expected in 2015.

Despite the recent dip in economic performance, major French and German cities are also expected to perform well on the back of limited availability, with development yet to accelerate significantly in either country.

The Russia-Ukraine crisis meanwhile continues to weigh heavily on those countries and, while property markets in the wider Central and Eastern European region have remained relatively untouched by the conflict, plentiful supply has constrained rental growth in key cities such as Prague and Warsaw.