King Sturge's latest quarterly European Property Indicators, provides new research evidence on commercial property market conditions across Europe. Based on an analysis of economic trends and movements in prime rents and yields, it highlights that Europe's uneven economic recovery continues, but the risks of a euro crisis remain; occupier markets have stabilized, with London and Paris leading the way in rental growth; and investor demand has improved, but investors remain wary of risks and the limited potential for further prime yield compression.
Available supply will tighten in certain markets across all property sectors, due to the near moratorium on speculative construction over the past two years. For example, London, Paris and Moscow are all seeing an increasing shortage of available grade-A offices. In these markets there will be an opportunity for landlords to recycle and refurbish secondary stock and return it to the market in the next two years.
Investment activity rose significantly towards the end of the year with Q4 2010 recording the highest investment volume since Q3 2008. Nevertheless, investors remain wary of risk and remain focused on prime, long-lease assets with strong covenants. As a result of this, prime yields across all property sectors recorded considerable compression over the year. However, in most parts of Europe prime yields have now stabilized.
Looking back over 2010, Alexander Colpaert, European Research Associate at King Sturge, and the report's author, said: "On a year-on-year basis, Moscow recorded by far the strongest rental growth in Europe as at Q4 2010, followed by London, Paris and Stockholm. Prime office rents in Moscow increased by more then 40% on the year, while prime high street and warehouse rents moved up by 11% and 9% respectively."
"Dublin and Sofia recorded the worst rental performance in 2010. The occupier market in Dublin has been severely impacted by the economic crisis. In the year to Q4 2010, prime office rents declined by almost 19%, while prime high street and warehouse rents dropped by 28% and 19% respectively.
"Investment activity rose significantly towards the end of 2010. According the preliminary figures from RCA, 2010 investment volumes were up by 24% on the year before. Just four of Europe's top 15 investment market (by size) recorded a decline on 2009 figures. Sweden saw the most significant upturn in investment activity across Europe on the back of strong market fundamentals, with the total transacted volume up by around 240% on 2009. Nevertheless, investment activity across Europe remains well below the peak levels of 2007 with the majority of markets recording a dip between 60% and 80% compare