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First signs of recovery in the European investment market?

KUALA LUMPUR: The UK, Germany and France continue to drive commercial real estate activity in Europe, accounting for over 70% of activity in 3Q2009, said Magali Marton, head of DTZ Continental Europe and Middle East (CEME) Research.

DTZ’s latest investment volume figures for Europe show commercial real estate investment volumes across Europe continuing on an upward trend over 3Q2009, posting a 30% increase to €13.8bn from €10.7bn in 2Q. The figure, however, remains well below the €30bn quarterly average since the beginning of the century.

The main drivers of growth over 3Q were in the UK, up nearly 50% to €5.3 billion (RM26.77 billion) from €3.6 billion. Germany posted an increase of over 40% to €2.75 billion from €1.9 billion, while volumes remained relatively unchanged at €1.8 billion across France. In Sweden, the volume rose by over 200% to €850 million from €270 million and a near 50% increase in activity was seen in Spain, bringing the figures to circa €1.2 billion from €800 million.

“There are increasing signs of a loosening in the debt markets and an appetite to undertake larger deals with at least two deals of more than €1 billion recorded in Spain and the UK in the past quarter. However, such deals remain the exception, with the majority of activity focussed towards smaller lot sizes as debt markets continue to operate on a restive basis as lenders continue to work out existing loans and refinancing,” said Marton.

Prime assets continue to be the focus of activity across Europe as occupational markets and economies remain weak, with few investors willing to move up the risk curve. Domestic and private investors continue to dominate many markets, particularly for lower lot sizes.

“There is growing interest from overseas investors, including German Open Ended Funds, Middle Eastern and other sovereign funds targeting assets as values near their floor in the current cycle,” said Marton.

A general reluctance to sell is noted as markets reach their bottom, said DTZ. There is little evidence of any forced sales as banks undergo recapitalisation and funds are starting to show positive inflows. This will restrict the level of products coming to the market in 4Q and could place a ceiling on activity in the near term. As vendors seek to achieve best price in the current environment, DTZ anticipates deals will become increasingly protracted.

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