28.05.12
Office Investment Exceeds Retail Investment to Reverse Three Year Trend.Total Commercial Property Investment Reaches €23.8bn in Q1 2012.
An increasing supply of good quality office property coming to the market and strong demand from investors meant that the office sector accounted for half of the European commercial property investment in the first quarter of 2012 (Q1 2012), according to the latest research by global property advisor CBRE Group, Inc.
The office sector was dominant in Q1 2012, seeing €12 billion of investment and accounting for 50% of the total market. However, despite the level of transactions, the office sector saw a rise in the average prime yield of 6 bps to 5.69%. An estimated €45 to €50 billion in assets is expected to change hands in the European office sector this year, with equity rich investors such as sovereign wealth funds and foreign pension funds remaining among the most active purchaser groups.
Major transactions that have already taken place this year include the sale of Maximilianhöfe in Munich, a prime mixed-use property that was bought by Pembroke Real Estate for approximately €540 million and the purchase of 1 Cabot Square in Canary Wharf, London, by Qatar Investment Authority for circa €400 million.
The office market’s performance reverses the trend of much of the last three years during which retail property grew consistently as a proportion of the European market. Following high levels of retail investment during 2010 and early 2011, retail activity fell back to 19% of the market in Q1 2012, the lowest recorded share since the start of 2007. It is worth noting that the average prime retail yield continued to fall in Q1 2012 despite the fall in transactions, indicating that lack of product rather than lack of demand is driving activity.
Jonathan Hull, Head of EMEA Capital Markets, CBRE, commented:
“We are finding that prime retail property remains in strong demand from investors; however, after the high levels of activity in recent years the supply of good new investment opportunities was very limited at the start of this year.
“The office market tells a different story: 2012 has seen an increasing amount of good quality office property coming to the market. This has met with strong demand from investors who see the lack of development activity over recent years as a potential source of rental growth in future years – or at the very least a factor that will maintain occupancy rates and rental income for quality assets.”
The European commercial property investment market totalled €23.8 billion in Q1 2012, an 18% drop on the same period last year. The slowdown was not entirely unexpected given the downgrades that have been made to economic growth forecasts since the middle of last year. However, the pipeline of large transactions that are in hand, but not yet completed, suggests that the figures will recover somewhat in Q2 2012.
Dominant geographic markets for the office sector, as for commercial real estate investment overall, are the United Kingdom, Germany and the Nordics, all of which have benefitted from investors’ risk aversion in the light of the eurozone crisis. The Nordics experienced over €5 billion of activity during the first three months of 2012, which is the highest level of quarterly turnover since Q4 2010. Local and foreign investor interest continues to grow in response to the region’s economic independence from the euro and relatively strong domestic economies.
Jonathan Hull added:
“Recent political developments – notably the French Presidential election and the parliamentary elections in Greece – will increase the uncertainty regarding European economic policy in the short term. This may impact investment activity. Demand for prime real estate in core locations remains undiminished.”
Christopher Peters, Director of Research, CBRE in Russia, said:
“The total volume of real estate investment deals in Russia in Q1 was extremely low, as is usual for the first quarter of the year. With regard to the volumes invested in office versus those invested in retail – in 2011, the retail sector attracted slightly more investment than the office sector in 2011 –38% versus 37% (usually the office sector attracts the largest share). This may presage the start of the growth in attractiveness to international investors of the Russian retail real estate sector. The restriction on the construction of new office projects in Moscow means that there are very few investment-grade buildings that investors will be interested in purchasing, and other Russian cities do not have a significant need for office projects. Demand for modern retail real estate, however is high and is set to spread across Russia. December’s successful sale of the Galleria shopping centre in St. Petersburg to Morgan Stanley Real Estate Fund VII may draw domestic and international investor attention in 2012 to the growth potential in regional retail: beyond Moscow there are 12 cities with populations of over one million whose populations continue to enjoy significant purchasing power, but whose retail option in terms of shopping centres are currently limited. A well-designed well-located shopping centre in these cities stands to be very successful. And then there are a further 49 cities with populations of over 300,000, many of which are also under-supplied with modern quality shopping centres.”
About CBRE Group, Inc. CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2011 revenue). The Company has approximately 34,000 employees A(excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com and www.cbre.kz
