Marktbericht Europa Juli 2011

Real estate transaction volume continues to be dominated by large office and retail deals, mainly at the prime end of the market.

Executive Summary

Economic growth is improving steadily and interest rates are rising, although concerns about the outlook persist. Forecasts could get revised down if the sovereign debt crisis escalates.
Real estate transaction volume continues to be dominated by large office and retail deals, mainly at the prime end of the market.
Reflecting mixed news on the economy, corporate occupiers remain very cost conscious and competition for space is minimal. Rental growth is limited to supply-constrained office CBDs and a handful of prime retail markets.
Bank lending continues to focus on core. Except for properties that are substantially pre-let, development finance is still largely off the table, which could leave Europe’s major markets short of stock in the coming years.

The interaction between weak economic forecasts and a lack of supply are key to the rental market recovery. Prime retail assets should record the strongest rental growth once the consumer recovery gains traction.
With about €520 billion of real estate debt maturing over the next three years, a significant funding gap is expected as banks reduce their real estate exposure.
Prime markets look expensive and yields are set to drift outwards. Secondary yields remain elevated and have room to fall, but this can only occur once occupier activity strengthens and banks rediscover their appetite to lend in this space.
Increasingly, low returns on prime assets will put pressure on investors to explore higher-yielding value-added strategies, including providing debt finance.