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.
At the same time, there is also increasing investor interest in prime properties in what are seen as riskier markets. These would include Spain, core Central and Eastern Europe (CEE), and even first glimpses of interest in fringe CEE markets.
Jonathan Hull, Head of EMEA Capital Markets, CBRE, said: "The growing influence of institutional type capital in the direct European property investment market is one of the key themes this year. Increasingly diverse in origin, from Canadian pension funds to Middle and Far Eastern capital, it will continue to support the core end of the European market This is prompting specialist managers to look into more ‘value-add’ opportunities – a move we expect to see more of this year.”
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