The strength of economic recovery has fed through into European real estate investment activity, with transaction volumes increasing in the second quarter 2010. Direct commercial real estate investment in Europe in Q2 2010 totalled 23 billion, which is a 15% increase on Q1 (20 billion) and 80% up on the corresponding period in 2009, according to Jones Lang LaSalle.
However on a half-year basis, 2010 European transaction volumes remained stable at 43 billion, compared to H2 2009. General recovery and improved liquidity for larger lot sizes continues apace and the market continues to see increasing numbers of transactions. Looking ahead to the second half of 2010, Jones Lang LaSalle anticipates that the volumes will increase by 35% and reach the 100 billion mark at the year end.
The UK has led the recovery of both transaction volumes and the pricing correction amongst prime assets, and represented 40 percent of overall European investment volumes. UK volumes increased by 30% over the quarter and totalled over 9 billion in Q2. Investor sentiment remains positive although it has tailed off slightly, partly due to the perception that prices have risen too sharply against the weak economic and occupational backdrop.
Julian Stocks, Head of Capital Markets England at Jones Lang LaSalle, said: "We have seen a strong bounce back in activity and pricing so far this year - especially for prime London. However in the last few weeks I have noticed a slight change in sentiment and the balance between buyers and sellers has altered. I expect yields movement to be minimal for the next few months and turnover in England to be similar to 2009."
We have seen an increased focus on the other large European markets France, Germany and the Nordics with a renewed interest in acquiring larger assets within the core and core + segment of the market. However, investors are facing challenges around securing well-let core assets, as debt is becoming more available and increasing numbers of investors are chasing the same narrow band of prime assets. According to Jones Lang LaSalle's preliminary figures for Q2 2010, there was 4 billion traded in Germany, 2 billion traded in France and 1.4 billion in Sweden, with the largest quarterly increase in France.
Given the strong price correction that has taken place across the region, the Q2 numbers suggest that yields have been stabilizing. The breadth of prime yield compression has slowed down significantly in many core European office markets and we saw inward yield movement in fewer locations over the quarter. Yields did however fall in Helsinki, Paris, Berlin, Frankfurt, Hamburg, Moscow, Madrid and Barcelona.