DTZ European Property Times reports

Total direct real estate investment across Europe totalled €21.4bn in Q2 2010, an 11% increase on the €19.3bn recorded in Q1 2010, continuing the growth in the market since its low point in early 2009, reports global real estate advisor, DTZ, in its Q2 2010 European Investment Market Update, issued today

Commenting on the figures, Magali Marton, Head of DTZ CEMEA Research said: “The recovery in volumes across Europe remains uneven. Over the quarter, of Europe’s major markets, the UK posted a 29% increase in volumes to €7.9bn, with France registering a 23% increase to €2.2bn. In contrast volumes in Germany slipped 19% to €3.8bn.” Vincent Leroux, Head of Research in Belgium adds: “Belgium’s market is following the same trend with a gradual recovery from the low-point in Q3 2009 with €662m recorded in the last six months. Investors are now considering prime products within a size-range of €10 to 50m”. Private property vehicles, including third party fund managers remained the dominant buyers over the quarter, with purchases totalling €10.1bn. Institutional investors were increasingly active with €2.9bn of purchases, while listed property companies accounted for a further
€2.5bn of acquisitions.

Activity from inter-regional investors increased this quarter, accounting for 19% of acquisitions. Only Asian and Middle Eastern investors were net buyers over the quarter at €1.5 and €1.1bn respectively, reflective of a number of high profiles deals over the period. In contrast European investors were the net sellers by €1.6bn, primarily driven by UK investors who sold a net €1.5bn predominantly in the UK. Vincent Leroux precises: “The trend we have highlighted since 2007 in Belgium with the return of Belgian investors is clearer than ever with 75% of all investments on the Belgium markets realised by local investors.”

Magali Marton concluded: “Uncertainty over the recovery in Europe’s economies poses a downside risk to the recovery. This combined with planned legislative changes to German Open Ended Funds, means that we have seen a reduction in net flows to open ended funds which could hold back significant new investment in the short term. On a more positive note however, overall demand remains strong and the weakness of the Pound and the Euro against the dollar make Europe’s real estate markets attractive to overseas investors, with investment flows from the Middle East and Asia likely to persist.”

European office rental growth picked up in Q2 2010 with prime rents increasing by an average of 1%, up from 0.4% in Q1. This represents a significant turnaround from the same period last year when rents fell 5.7%, reports global real estate advisor, DTZ, in its Q2 European Property Times report, issued today.

Commenting on the figures, Magali Marton, Head of DTZ CEMEA (Continental Europe and Middle East) Research says: “Rental growth has now returned to an increasing number of markets with the strongest growth over the quarter being recorded in Moscow and in London City. In Moscow, a recovery in demand together with a fall in new supply saw prime rents rebound by 12% in Q2, albeit from a low level following the significant fall witnessed in prime rents last year. In London City, the increasingly constrained levels of available grade A stock pushed prime rents up for a third consecutive quarter, by just over 5%.” Commenting on the Brussels office market, Vincent Leroux, Head of Research, adds : “Although the prime rent increased to €275/sq m/year during the quarter, this should not be perceived as a sign of improving rental conditions for all segments. The prime rent reflects only that fraction of
the market that allows for national and international comparison. Indeed, the average rent remains stable and gratuities are even on an upward trend with an estimated 2 to 2.5 months of gratuity per year of lease.”

In many markets, demand is being driven by an emerging shortage of supply, especially for quality office space. This is most noticeable in markets where developers reacted quickly to the downturn by delaying or postponing construction projects. Whilst this trend was already evident in London and Paris at the start of the year, it has now spread to other markets, including Stockholm, Dublin and Frankfurt. Space upgrades and further consolidation and downsizing of companies resulted in take-up increasing by 11% across the major European office markets in Q2, to reach 1.8 million sq m. The situation is however more nuanced in Brussels where Vincent Leroux notes that “the development of new office buildings in the CBD has been considerable over the past few months and a fair share of these are still
empty to this day”.

According to the latest forecast from DTZ, the rental growth outlook for European offices has improved with prime rents now expected to increase by an average of 2.6% in 2010 compared to 1.1% forecast at the end of March. Magali Marton concludes: “The improved rental growth outlook for 2010 is due to strong rental growth forecasts in London, Moscow and Paris and the faster than expected bottoming out of rents in a number of European markets.”

source : DTZ