• Investors to seek safe, growth orientated opportunities as bond prices fall
• Rents to increase by 2-3%, investment volumes to rise 6%
• Asia to overtake North America as biggest source of capital flowing to Europe
London, January 12, 2017 – Commercial property investment in Europe will be strong in 2017 as bond prices weaken and investors seek safe but growth-orientated opportunities, according to an analysis released in a report by Cushman & Wakefield’s European Capital Markets team.
The real estate services firm expects prime yields to fall 30-40 basis points across Western Europe, rents to edge up by 2-3% and European investment volumes overall to rise 6%. In addition, the report predicts that Asia will overtake North America as the chief source of capital flowing into Europe in 2017, although Europeans themselves will rival this, crossing more borders as they seek out the best mix of growth and stability.
The report states that 2017 will see ongoing political and economic uncertainties as the results of the UK’s referendum on EU membership and US Presidential election begin to translate into policy actions and start to influence markets more heavily. Banking instability lingers in Europe and could yet emerge in China, while further elections in France, Germany and the Netherlands may carry further implications for the future of the EU.
David Hutchings, Head of Investment Strategy, EMEA Capital Markets, Cushman & Wakefield, said: “We predict the next 12 months will be a ‘Year of Tiers’ as some investors focus on tier one gateway cities while others look to tier two markets. This will typically involve an aversion to macro risk so they will maintain their focus on the better managed and more stable economies.”
The report identifies key areas offering well-balanced growth as Germany, led by Berlin, and the Nordics, followed by Spain, notably in Barcelona and Madrid. Paris and London will continue to be targets for investment, along with some UK regional cities.
Elsewhere, Central and Eastern Europe markets will merit more attention, offering a yield advantage and catch-up growth potential. In response to firming economic recovery, occupier markets are responding across this region of Europe with rents steepening, creating an attractive pricing point in leading cities. Consumption growth has outperformed the rest of Europe, further solidifying demand and encouraging all-sector rental growth to exceed the European average in Romania, Bulgaria and Hungary.
Soren Rodian Olsen, Partner at Cushman & Wakefield in Poland, said: “Our 2017 outlook for Poland envisages a continuing downwards pressure on prime yields in all asset classes, where core investors’ focus will be on Warsaw CBD offices with sustainable rent levels, dominant retail schemes as well as logistics centers with secure, long-term income. The most successful assets will be the ones contributing highest value to corporate occupiers. We expect a continuing strong demand for value-add offices, although the availability of well-located opportunities is scarce.”
David Hutchings added: “The risk of instability in the Eurozone will tend to push up bond yields further, which could accelerate demand for real estate as a steady, higher-income producing asset with growth potential.
“Occupiers will seek property that adds value to their business and hence market value is where the occupier sees it. Successful investors will take note, both following the occupier and adding value by creating affordable, effective space.”