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Following a robust 2015, the European commercial property investment market is expected to witness increased investment opportunities this year, according to Knight Frank.
Provisional data showed that annual commercial property transaction volumes in 2015 climbed by over 20 percent from 2014.
“The main drivers of this increased activity – the stabilising Eurozone economy, low borrowing costs and wide yield spreads to other asset types – continue to attract large volumes of capital to the property sector at the outset of 2016,” it said.
But while the case for European commercial property investment remains strong, there are headwinds that may cause the investment market to lose some of its recent momentum in 2016.
“These include the prospect of global interest rate rises, concerns over pricing and a possible slowdown in capital flows from Asia and the Middle East into Europe.”
As such, Knight Frank expects overall European transaction volumes for 2016 to be similar to that seen in 2015, noting that investors should be buoyed by continued improvements in this year’s European occupier market.
Most of Europe’s key office markets posted increased take-up in 2015, and Knight Franks predicts total European office take-up to increase by a further 10 percent in 2016.
“For Year 2016, we expect to see continued interest in European commercial property investment from Singapore investors, mainly due to larger yield margins when compared to local commercial investments,” said Ian Loh, executive director and head of investment & capital markets at Knight Frank Singapore.
Meanwhile, improvements in office demand are expected to encourage increased development in 2016.
Development activity will likely be shaped by the current polarisation of office demand, with occupier interest mainly focused on prime city centre space, while older and less well-located offices struggle to attract tenants.
“Current occupier market dynamics will create contrasting development opportunities in 2016. Shortages of prime CBD office space and good rental growth prospects should encourage investors to explore city centre development opportunities across key European markets. Meanwhile, there are opportunities to gain value by redeveloping less desirable Grade B assets and offices in secondary locations, and through their change of use,” said Matthew Colbourne, associate at Knight Frank research.
Image: Aerial shot of the city of London.
Nikki De Guzman, Editor at CommercialGuru wrote this story. To contact her about this or other stories emailnikki@propertyguru.com.sg
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