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MIPIM, Cannes & London

Jones Lang LaSalle Forecasts Direct Investment in Commercial Real Estate in Europe to Increase by up to 30% in 2011

Scarcity of core product in traditional Western markets will widen investor horizons


Jones Lang LaSalle expects direct investment in commercial real estate in Europe in 2011 to rise by up to 30% on 2010 figures, when the market transacted €102 billion.  According to Jones Lang LaSalle’s European Capital Markets Bulletin, which is due to be published shortly, liquidity has returned to the market driven by cross-border investment from equity-rich private and institutional investors, which resulted in increases in investment volumes of 48% year-on-year.  A lack of prime product and improving rental prospects will encourage investors to broaden their horizons and consider higher risk and return profiles this year.
 
Richard Bloxam, Director EMEA Capital Markets at Jones Lang LaSalle, said: “The UK, France and Germany captured the greatest proportion of investment capital in 2010 and are still perceived as attractive havens for investors.” 
 
Richard continued: “A shortage of available core product in major Western markets means we anticipate the investment momentum of 2010 in Central Europe and Nordics to accelerate in 2011.  Europe's two largest emerging markets Russia and Turkey will also witness increased investment transaction activity this year.  Although investors will compete on price for assets in these countries, they won’t compromise on quality; core product in major cities is still the focus.  In Western markets we will witness increasing appetite from investors to secure core assets via forward commitments to purchase and in some instances funding positions.  Investors continue to take a highly selective approach towards secondary assets.”
 
Jones Lang LaSalle forecasts increasing capital values across the region. Unlike 2010, this will be primarily driven by rising rents, although there will be limited yield compression in CEE markets. Consequently, understanding tenants and the drivers within the occupational market, will be key in order to capture capital growth.
 
Grant Fitzner, Head of EMEA Research at Jones Lang LaSalle, added: “Although vacancy remains high across Europe, tenant activity is increasing and the limited new supply being added to the market means that the absorption of this stock will place an upward pressure on rents.  We will continue to see rental growth in core markets, such as London and Paris, there will also be opportunities to acquire core assets in a wider tier of cities, such as Lyon, Stockholm, Helsinki, Warsaw and Moscow, as the occupational market recovers.  It will be essential for investors to understand tenants and the drivers of the occupational market in order to capture capital growth.”