Q1 2011 saw European commercial real estate transactions hit €26.7 billion as the investment market builds further momentum, according to the latest data by CB Richard Ellis.
The activity constitutes a 26% increase in investment turnover compared to the same period last year and is a higher quarterly total than any of the first three quarters of 2010. The Q1 2011 activity did decline from Q4 2010’s total of €38.6 billion; however, a fall from Q4 to Q1 is expected as Q4 has traditionally seen a strong surge of activity prior to year-end.
As was the trend last year, the vast majority of investor demand is targeting core assets and markets, which continues to drive yields further down, with the latest CB Richard Ellis EU-15 Prime All Property Yield Index falling by 6 basis points (bps) over Q1 2011 to 5.53%. This is a 26 bps fall year-on-year, and reflects aggressive competition for core product.
Investor sentiment is starting to shift further along the risk curve, albeit very selectively. There are two distinct dimensions of risk that investors are starting to consider – asset specific risk and market risk:
In terms of taking additional asset risk, those markets where economic and occupier fundamentals are strongest are expected to benefit most. For example, Germany has become an investment market hotspot with €5.5 billion invested in Q1 2011, particularly in the retail sector – which saw close to €4 billion invested in Q1 2011, already above the 2009 annual total. The UK (or more specifically London), and to a lesser extent France and the Nordic regions, also fit into this category.