Increase in European commercial property values slows
European commercial property values continued to increase in the first quarter of 2011 but at a slower rate, according to the latest European Valuation Monitor report from consultants CB Richard Ellis.
They increased by 0.4%, down from the 1.2% increase recorded in the final quarter of last year. The slower rate is consistent with recent changes in prime yields in the first three months of the year where falls of 10 bps or less were recorded across the office, retail and industrial sectors, the report points out.
The overriding picture is one of stability, it adds. Over recent quarters the difference in the rate of change between the pan European and excluding UK figures has drawn together and are now almost aligned as growth in the UK has abated somewhat, and picked up in Europe.
‘Value growth remains positive but gradual, reflecting an absence of strong movements in either rents or yields this quarter,’ said Richard Holberton, director of EMEA Research, at CBRE.
‘It is also notable that the composition of value growth is shifting. In the early stages of recovery the EVM was mainly driven by UK growth, and year on year change in the excluding UK component was negative as recently as the third quarter of last year. Evidence from quarter one of this year shows that the difference is now narrowing as excluding UK performance improves,’ he explained.
‘Economic momentum remains very uneven and, with fiscal strains within the euro zone continuing to loom large, investor concerns persist about the impact of government austerity measures on the shape of any rental recovery,’ he added.
Aggressive competition for prime assets is prompting some investors to widen their buying criteria to include ‘value add’ opportunities, which can be expected to support higher value growth in markets where economic and occupier conditions are stronger, the report also indicates.
Having fallen the furthest in the downturn, retail values led the way in the European commercial property recovery and have again recorded the strongest growth this quarter, up 0.8%. This corresponds with the investment volumes recorded in the first quarter of 2011 where retail claimed a 46% share of the €26.7 billion total commercial real estate transacted, which is well above trend. The strongest retail capital growth was recorded in France at 1.4%, but values improved in all markets.
The report says that it is notable that as investors have begun to shift along the risk spectrum, the reported upturn in demand in riskier markets such as Spain and core Central East European has already started to benefit retail capital values. Industrial values are lagging, and are still virtually unchanged from the middle of 2009.
The Nordic region continues to report the third highest level of investment activity behind the UK and Germany and has just overtaken the UK as the best annual and quarterly performer. France, Germany and CEE also recorded positive annual value change, and Southern Europe and Ireland was flat, supported mainly by Spain and Italy.
However, driven by a very weak office sector, the Netherlands is the largest market to still report negative annual change at -7.3%. By contrast the Netherlands retail sector has been one of the strongest performers over the entire life of the index.