COMMERCIAL PROPERTY investment in Europe was up 40 per cent and up 54 per cent in Ireland in the third quarter of 2009 according to a new report from agent Jones Lang LaSalle.
Investment in the Irish market was up from €65 million in Q2 to €100 million in Q3, and is expected to reach €325 million by year end, says John Moran, managing director of Jones Lang LaSalle (Ireland).
While the expected 2009 figure is up on 2008’s total of over €300 million, it is a long way off the €2 billion recorded in 2007 and the €2.5 billion reported in 2006.
“While we are seeing an influx of German-backed investors looking for opportunities in the Irish market, transactional activity is not what it could be. That’s because there aren’t enough properties for sale,” says Moran.
Transactions in Europe increased from €12.9 billion in Q2 2009 to €18 billion in Q3, according to Jones Lang, and this is the second time this year that volumes had grown dramatically quarter-on-quarter.
Moran says: “While property demand fundamentals remain weak and the commercial property sector’s problems are far from over, we believe that we have probably reached the bottom of the market, and the awful volume figures recorded across Europe in Q1 won’t be repeated during the current economic cycle. In fact, we expect Q4 2009 transactional volumes to be the strongest of the year, with direct investment in commercial property in Europe reaching more than €60 billion in the next three months.”
Tony Horrell, head of European capital markets at Jones Lang LaSalle, says that despite the increase in transactions, he expects year-end volumes to be down 45 per cent on 2008, which in turn was down 55 per cent on 2007. “As we moved through the summer, sentiment surrounding the market improved markedly and today there are clear signs of new-found confidence in some European markets. Sentiment clearly has the ability to move markets and often to trump fundamentals, and at the moment sentiment is one of the key drivers of the increase in interest and activity, which is evident in all sectors and most markets.”
Investors, say the agency, are focused mainly on prime, secure income-producing product and the market is segmented into these prime assets and everything else. Investors also have a preference for the transparent markets of western Europe and those markets where prices have fallen the furthest.
Some markets, like London, are flooded with equity, often from high net worth individuals, and yields have already started to harden there.
However, equity raising for direct investment funds remains slow and there is little appetite for value-added direct investment. In addition, a lack of quality product on the market means a significant amount of capital will remain frustrated.
Rents, according to Jones Lang, will continue to fall into 2010 in most markets and take-up volumes are close to record lows with net absorption negative for at least a full year in many markets. Although few markets will see falling rents in 2011, a rental recovery, when it comes, will generally be weak, although in a few markets very limited new supply could cause rents to move upwards more rapidly.
