The European commercial property market is at its most appealing level in 10 years, according to DTZ.
According to its Fair Value Index, which provides information about the relative attractiveness of current pricing of European property markets by giving them a score out of 100 every quarter, the most recent figures indicate that the numbers have risen to 78. In the third quarter of 2012 they were set at 62. The current figure represents the highest showing since September 2003.
The Index also ranks individual property markets as Hot, Warm, or Cold. Of the 105 markets covered by the index, 69 were ranked as Hot, and 25 were placed in the Warm category.
Magali Marton, of DTZ, stated that the growing attractiveness of European property is clear, as approximately one-third of European markets’ ratings were improved to either Warm or Hot over the last three months.
“The most significant factor behind this change has been the more positive outlook for the Eurozone, which has pushed down bond yields and required returns as the risk of break up has receded. The upshot is that property looks better value in comparison to bonds.”
Belgium, the Netherlands, Denmark, Norway, and Finland all scored the highest possible score of 100 on the Index. The UK, Ireland and Germany placed very well, coming in at 91. The CEE markets, which are made up of France and Italy, were priced at Fair Value. Spain is not considered an attractive commercial property market at present, scoring only 17 on the Index.
Matthew Hall, the Global Head of Forecasting at DTZ, stated recently that the UK and German markets are particularly attractive to investors. The majority of markets in both countries have been rated at Hot. Only modest returns are expected at present; however, the extremely low hurdle rate continues to paint these markets in a positive light “on a risk adjusted basis.”
The industrial sector is the most attractive type of property in Europe. It has been given an index score of 86. The office and retail sectors have been assigned scores of 70 and 82, respectively.
Matthew Hall went on to say that, “For investors in the retail sector, German markets offer attractive terms. Total returns of 7.8 per cent pa for Frankfurt and 7.5 per cent pa for Berlin are forecast for the next five years. Relatively strong rental growth is expected while German bond yields remain the lowest in Europe, creating an extremely low hurdle rate.”
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