According to a briefing paper from international consultants CB Richard Ellis the majority of interest is coming from equity investors who operate with a low level of leverage and whose investment is mainly in core property.
The exception to this rule is the UK, where investor interest has spread from the prime segment into nearly all parts of the market, largely due to the lack of prime property that is on the market.
This trend is expected to spread to other parts of Europe over the next few months, with Paris expected to be one of the first places where demand expands to include the semi-prime part of the market.
Although increased demand for prime property is yet to be reflected in data on the turnover of Europe’s real estate investment market, it is already evident in the trend in prime yields.
These have stabilised over the second and third quarters and in some instances are now showing a marked downward trend, it says.
In 2008, prime office yields increased by an average of 25 basis points each quarter.
The speed of the turn-around is shown in the fact that the average yield fell in both the second and third quarters this year.
‘The London market, both prime and secondary, is proving very attractive to foreign investors, who made up more than 70% of buyers in the first half of the year.
The weight of money entering the market has however had difficulty finding product, resulting in rising prices in virtually all sectors,’ explained Simon Barrowcliff, Executive Director London Investment, CB Richard Ellis UK.
The German market continues to be viewed as very stable for core products and is still attracting strong interest, particularly from domestic institutions, according to Peter Schreppel, Head of International Investment, CB Richard Ellis Germany.
He added that values have therefore been relatively stable.
Even Spain, where the market has been extremely challenging, the rapid re-pricing of property is making the country attractive.
‘Re-pricing and an active approach being taken by banks means that investors are finding that Spain offers both value and opportunities,’ said Adolfo Ramirez-Escudero, Head of Investment at CB Richard Ellis Spain.
Paris is also attracting considerable interest, said NicolasVerdillon, Director, CB Richard Ellis Capital Markets Paris.
‘This is due to the combination of a diverse tenant profile, the relative strength of the French economy and the lack of new space in the pipeline.
So far it is the prime end of the market that has been the centre of attention, but with such limited supply in this segment, prime yields have stabilised and are compressing slightly.
Some investors are expected to start looking at more secondary locations for potential opportunities,’ he explained.
