CEE region sees strongest growth in Q3 real estate investment activity (CEE)

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.

Investment activity

European commercial real estate investment activity (€ billion)
Source: CB Richard Ellis

Looked at year on year, there was still a healthy rate of increase, with Q3 2010 activity at a level 24% higher than Q3 2009. More than just a traditional summer lull, the reduced investment volume in Europe in Q3 2010 reflects recent trends in property pricing as well as the impact of economic uncertainty and government austerity measures.

Prime office yield

Prime office yield v German government bonds
Source: CB Richard Ellis

The change in economic policy by a large number of European governments between April and June this year, with fiscal stimulus being replaced by government spending cuts, has undoubtedly influenced the European real estate market. These policy changes will impact property occupier markets – although its extent is yet to be seen – and some investors are therefore deferring decisions until they can form a more considered view on the scale of this impact and where it will be most evident.

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.

One of the reg

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