Relative value for much of Europe will continue to recede in H2

By James Wallace - Tuesday, May 15, 2018 10:25

Moscow remains top of the under-priced European markets table, ranked first and second for its retail and office sectors respectively, according to Cushman & Wakefield’s quarterly European Fair Value Index.

Yields are expected to trend downward for selected markets in 2018, as weight of capital helps sustain competition for quality assets. From late 2018 onwards, higher government bond yields will mean that on a relative basis property will look less appealing, says Cushman.

Using a proprietary metric, each market is benchmarked against ‘fair value’ – an adequate compensation over a five-year hold period for an investor’s risk when purchasing prime assets.

Dublin’s logistics sector was third with Budapest’s retail market and Lisbon’s logistics sector completing the top five.

In Q1 2018, just 19% of the index was classified as ‘under-priced’. Logistics remains the most attractive sector, with 46% of the markets classified as ‘under-priced’, and only one as ‘fully priced’.

Core office markets including London, Vienna and Istanbul are all classified as fully priced having reached their lowest historical yield, with limited yield compression forecast and, in many cases, modest rental growth expectations. 

The research shows that Central and Eastern Europe continues to show a good balance of ‘fairly’ and ‘under-priced’ markets while Germany, alongside the Benelux and the Nordics, have only a few markets ‘under-priced’.

Riccardo Pizzuti, senior analyst, EMEA Forecasting, Cushman & Wakefield, said: “Our findings reflect the fact that we are in the later stages of the property cycle with many markets being labelled as fully priced. That is not to say value or opportunities are not available, it depends on investors’ strategies, but in general there are fewer opportunities to identify mispriced assets.

“After record quarterly investment volumes of €112bn in the fourth quarter of last year, prime product across Europe is becoming increasingly scarce as the economic cycle matures. This resulted in the first three months of this year being the slowest quarter since 2014 with €49bn invested.

“Dublin and Lisbon’s logistics markets are both in the top five under-priced markets in the Index. The Portuguese economy, in particular, is enjoying solid momentum, with a balanced mix of consumption, investment and exports.”

James Wallace is a freelance consultant and can be reached via Linkedin or email: jawallace32@gmail.com

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