News »
06. August 2012     Print Print 

European commercial property investment markets proved quite resilient

Following a record investment year in 2011, transactions in Slovakia were always going to be down in 2012 with a quiet first half 2012. Transaction activity is expected during 2H 2012. Investment activity in Czech Republic in the first six months of 2012 (256 million EUR) fell by 60% when compared to the same period of last year (626 million EUR), but is still 40% above the volume achieved in 2010. Foreign investors were the key driver of the market, taking the lion’s share of deal volume (87%) in the Czech Republic and 48% in Europe. European commercial property investment markets proved quite resilient in the second quarter, with volumes totalling 29.2 billion EUR, 8% up on Q1.

Market activity was more robust than expected in the second quarter but the shadow of the euro zone debt crisis is clearly falling across the market. Overall, core markets continue to attract most investment, with the UK, France and Germany seeing 60% of all activity in the first half of the year. Central Europe is expected to regain some of its market share with a stronger second half of 2012. Cushman & Wakefield expect the overall investment volume of 2012 to be over 1 billion EUR in the Czech Republic (2,1 billion EUR in 2011). This year will see a shift of investment activity into the second half of the year. “Core offices in Prague are currently attracting the most interest with prime yields at hovering at low sixes. Core-plus and value-add investment is growing from both domestic and international sources although it remains cautious whilst opportunistic investors seek yields above 9.0%. The completion of new developments is providing new investment product and successful re-leasing activity is generating interest for strong, established buildings” says James Chapman, Head of Capital Markets C&W Czech Republic and Slovakia. “High net worth individuals and family offices continue to become more active providing greater depth to the investor pool alongside the established institutional investors. However, closing a deal has become more challenging than ever before. Seeking security, investors pay attention to the slightest details, spending extra time on legal due diligence and modelling of income scenarios,” said Chapman. “The situation is very similar for Slovakia although yields in Slovakia tend to start with a 7 for offices and retail and approach 7.75-8% for the best regional retail investments” commented Andrew Thompson, Managing Partner C&W and responsible for Capital Markets in Slovakia.

In addition we are witnessing more activity in retail and industrial assets than offices at present in Slovakia. Many office developers who control the better prime assets are unwilling to sell for the yields levels at which investors are prepared to buy and have sought other approaches to managing their leased developments. These strategies include retaining the asset and/or using the assets as to seed their own newly-created funds. “Investors though could be expected to review the yields they are prepared to pay in Slovakia for some commercial real estate over the next 2 years”, suggests Thompson. “The limited supply of new projects in all sectors, driven by the debt crisis and lack of speculative development financing is helping re-inforce the value of existing product. As an example, second-hand office buildings are securing an increasing share of the leasing market in 2012. This is the first time in several years that the market has demonstrated this activity. It reflects a number of trends including the lack of supply. It also suggests that occupiers are becoming more educated and understand that even though an office building is for example, 5 or 10 years old, the building remains a “Grade A” building, capable of providing high quality accommodation for well beyond the length of the lease. This is just one sign that existing investments are capable of demonstrating improved returns”, suggests Thompson.

On a European level, offices have been the strongest performing sector of late, in fact seeing their best Q2 volumes since 2007, with activity rising to 57% of the total market. Industrial market activity also improved. Retail market activity meanwhile has been a victim of the increased caution being seen in the market as well as a shortage of finance for larger lots. Demand for shopping centres in the Czech Republic is weakened by the lack of product for sale. Hence while Q3 may be quiet in Europe due both to the holiday period and the run-off from the debt crisis, we still expect a solid pick up in Q4 and deal volumes for the year overall of around 112 billion EUR, 11% down on 2011.