Direct commercial real estate transaction volumes are predicted to increase by 30% in 2010 in Europe, the Middle East and North Africa, according to a new report.
The positive outlook comes on the back of a better than expected first three months of the year which is traditionally a quieter time for the market. But volumes reached €20 billion, a 75% increase on the first quarter of 2009, the report from international real estate consultants Jones Lang LaSalle shows.
Although transactions are 15% below the final quarter of 2009, analysts say the market is well poised for the rest of the year.
Transaction volumes in the UK at €7.8 billion accounted for over one third of the total and remained at the same level as the previous quarter. The UK was followed by Germany, France and Sweden in terms of quarter one volumes and each recorded an increase in activity compared to the previous year’s volumes.
‘The first quarter of the year is typically one of the slowest quarters; investors do not have the urgency to press on and close deals as they do towards the end of the year. Typically the first quarter is some 20 to 30% below the fourth quarter, so we do not read a 15% decrease as a sign of a slowing market,’ explained Richard Bloxam, Director, EMEA Capital Markets, Jones Lang LaSalle.
‘We expect investment activity to increase throughout the year. Already a number of transactions over €100 million and portfolio deals are under offer in the market. We estimate that direct commercial European real estate transaction volumes will reach at least €90 billion for the full year. This will be around 30% higher than 2009,’ he added.
Nigel Roberts, Chairman of EMEA Research, Jones Lang LaSalle said there is strengthening investor interest for good quality real estate. ‘This has clearly been demonstrated by movement in prime office yields which compressed in the majority of the European markets in the first quarter of 2010. London prime yields moved in by 50 basis points and continental European markets between 10 to 50 basis points with only a handful of markets remaining stable,’ he said.
Whilst economic recovery still remains fragile, business confidence is generally rising and with improved credit conditions the demand for real estate from core investors is driving down yields. In the short term interest rates still offer positive cash flow opportunities for leveraged buyers but longer term investors will be looking for improving fundaments translating into stronger rental markets,’ he added.