European commercial property values continued to increase in the first quarter (Q1) of 2011 (+0.4%), but at a slower rate than seen in Q4 2010 (+1.2%), according to CB Richard Ellis' (CBRE) Q1 2011 European Valuation Monitor.
This slower rate is consistent with recent changes in prime yields in Q1, where falls of 10 bps or less were recorded across the office, retail and industrial sectors; with the overriding picture being one of stability. 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.
Richard Holberton, Director of EMEA Research, CBRE, said: "Value growth remains positive but gradual, reflecting an absence of strong movements in either rents or yields this quarter. 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 Q3 last year.
"Evidence from Q1 of this year shows that the difference is now narrowing as excluding-UK performance improves."
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."
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.
Retail values continue to lead the way
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 (+0.8%). This corresponds with the investment volumes recorded in Q1 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 (+1.4%), but values improved in all markets.
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 CEE has already started to benefit retail capital values. Industrial values are lagging, and are still virtually unchanged from mid-2009.
Core Western Europe and Nordics maintain their move ahead
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 & 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 (-7.3%). By contrast the Netherlands retail sector has been one of the strongest performers over the entire life of the index.
Source: CB Richard Ellis