Cushman & Wakefield’s quarterly European Fair Value Index – which analyses 123 European office, retail and logistics markets – continued its downward trend in Q4 2017 to reach a level last recorded in Q1 2006. This reflects both the advanced stage of the property cycle and the availability of fewer attractive prime opportunities.
Using a proprietary metric, each market is benchmarked against ‘fair value’ – an adequate compensation over a five-year hold period for an investor’s risk when purchasing prime assets. In Q4 2017, just 19% of the index was classified as ‘underpriced’. Logistics remains the most attractive sector, with 39% of the markets classified as ‘underpriced’, and only two as ‘fully priced’.
Moscow remains top of the underpriced European markets table, ranked first and third for its retail and office sectors respectively. Budapest (retail) was second with Budapest (logistics) and Dublin (logistics) completing the top five.
Core office markets such as London, Paris and Munich are all classified as fully priced having reached their lowest historical yield, with limited yield compression forecast and, in many cases, modest rental growth expectations. CEE and Eurozone periphery regions continue tto show a good balance of ‘fairly priced’ and ‘underpriced’ markets, while in contrast Germany, Benelux and the Nordics have only a few ‘underpriced’ markets.
Mark Unsworth, Head of EMEA Forecasting at Cushman & Wakefield, said: “The positive structural growth story surrounding e-commerce has increased the need for fast and efficient delivery direct to consumers, leading to a rapid rise in demand for urban logistics premises. This continues to underpin the attractiveness of the logistics sector. Overall, the CEE and Eurozone periphery have the most underpriced markets at a geographical level. Russia maintains its position at the top of the Index while Budapest’s retail and logistics markets are both now featured in the top five, helped by the continued growth of Hungary’s economy, soaring wages and consumption.”
