The summer months saw a slight slowdown in commercial real estate investment activity in Europe, with the total value of transactions recorded in the third quarter (Q3) 2010 falling slightly to 23.1 billion, compared to the 24.6 billion recorded in Q2 2010, according to new figures released by CB Richard Ellis.
At the same time, the fact that prices for prime property have increased markedly over the last year is also weighing on investors' decision-making. The rapid rate of pricing recovery over that time is seen as unsustainable, and in some major markets London being the most obvious example there is concern that prices may have recovered too quickly.
However, the recent movement in commercial property prices needs to be seen in the context of the even greater movement in the price of government bonds over the same time. In relative terms, prime real estate still looks like a good value. The yield gap between prime European commercial property and government bonds is almost at a record high, and for real estate with the most bond-like attributes long leases and good covenants there is still potential for further increases in value.
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