Lot size and deal velocity driving market recovery, 24 transactions over €200 million, H3 2009 (EU)

Growth in European commercial real estate investment turnover is being driven both by a notable increase in the size of transactions and a sharp rise in the number of transactions being completed, according to a forthcoming report by CB Richard Ellis Group, Inc. The number of transactions completed in Q4 2009 rose by 67% compared with the bottom of the market in Q1 2009, and there are already examples of properties bought then which are being retraded at a substantial profit.

The latest CBRE research shows that there has been a significant increase in the average lot size of transactions during the course of 2009. The low point in terms of lot size coincided with the nadir in the total value of transactions in Q1 2009, when the average transaction size was just €16 million. However, since then, the combination of the recovery in values and the ability of investors to complete larger transactions has driven this average up to €23 million in Q4 2009.

Particularly notable has been the growth in activity at the very top of the market. Only eight transactions larger than €200 million were concluded in the first half of 2009, with a total value of just €3.5 billion. In contrast, the second half of the year saw 24 transactions for over €200 million, with a total value of over €9 billion.

However, despite this recent recovery, large transactions remain much rarer than they were at the peak of the market in Q3 2007, when the average deal size was €49 million and that quarter alone saw 62 transactions for more than €200 million.

Even faster than the growth in the average size of transactions has been the increase in the number of transactions being concluded in the latter part of 2009. As with nearly all indicators of the commercial property investment market, the bottom of the cycle was clearly Q1 2009, with fewer than 700 transactions completed. The last quarter of 2009 saw a particularly sharp increase, with a 36% increase quarter-on-quarter and over 1100 transactions completed. As a result, the number of transactions is already at 75% of the level transacted at the peak of the market in 2007.

Jonathan Hull, Executive Director of EMEA Capital Markets, CB Richard Ellis, said: "We have seen a much greater depth of equity in many core markets across Europe, with increasing levels of liquidity in some markets. Whilst equity is the key driver, we are certainly seeing the adoption of existing credit facilities as key to the success of some transactions. However, we have also seen buyers such as sovereign wealth funds and German Open-ended Funds that are able to complete large acquisitions with minimal debt."

Michael Haddock, Director of EMEA Capital Markets Research, CB Richard Ellis, commented: "The growth in the number of transactions being completed in Europe is, at least in part, due to the fact that few investors are able to conclude very large transactions. Properties that in 2007 would have been sold as part of a larger portfolio are now being sold individually because that is where the demand is."

Source: CB Richard Ellis

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