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Our research teams provide market analysis, forecasting, and strategy advice to a wide range of clients. Our forecasts cover performance measures for the main segments of the property market in the UK, together with detailed rental growth forecasts for prime offices in a range of markets across the UK. We produce local market forecasts on a customised basis to meet specific requirements. Read more here..
Economic woes in the eurozone and the uncertain outlook continue to affect occupier demand and constrain leasing activity levels. In the first quarter of the year, take-up in the key Western European markets dropped to approximately 2 million sq m, its lowest quarterly total since 2009.
During the first quarter, the EU-27 vacancy rate dropped to 10.25%, from 10.35% at the end of the previous, but overall it has fallen by only 20 bps compared with its peak a year ago. The sluggishness of reductions in vacancy is primarily due to the weakness of demand and continued release of surplus space by occupiers.
Rental growth continues to stagnate across Europe. As a result, the CBRE Prime Office Rent Index grew by only 0.1% on the previous quarter. In the first quarter, rises were modest and geographically confined to a small group of markets. Until current economic conditions persist, rental growth is likely to remain subdued.
The volume of new completions is bottoming out in many cities and new starts remain generally weak. In a small number of markets there are first signs of an acceleration in speculative development but even there the pipeline is still subject to postponements or potential delays.
Mezzanine finance is expected to become an increasingly important source of capital for the commercial real estate market as it delivers additional debt to fill the gap between real estate investors' borrowing requirements and the levels of capital available from primary lenders.
The size of the so-called Funding Gap has been exacerbated by the effects of the economic downturn and the increased regulatory burden on traditional lenders, making debt facilities hard to come by for all but the most prime, well let and well located assets.
To date, mezzanine lenders have been widely discussed as the 'solution' to the enormous Funding Gap the industry is experiencing, as €530 billion of real estate debt is due to mature before the end of 2013 in Europe alone.
This report from CB Richard Ellis' Debt Advisory team identifies the reasons why mezzanine lenders are not likely to provide an immediate solution. It discusses where these lenders are most likely to be active in the short term and what will have to change to enable them to participate more broadly in the market.
The report concludes that these 'new, alternative' lenders will initially be most active in the refinancing market due to the strong returns and the sheer volume of opportunities. As mezzanine funds change their approach to risk and pricing and as competition increases, they will expand their activity into acquisition finance. Development financing is likely to be the last sector to benefit from these market entrants
European banks seeking to strengthen their balance sheets will not be shedding significant quantities of real estate assets at depressed prices, as they pursue measured deleveraging strategies.
The enclosed report analyses the perception amongst many global investors that banks in Europe will (and can) be forced to achieve deleveraging through the bulk sale of property loans and assets at any price.
In coming to this conclusion, CBRE's report considers: the drivers of banks’ desire to reduce their real estate exposure, the implications of various courses of action, and the actions undertaken by banks since the bottom of the market in 2009.
Low interest rate environments are intended by governments as a way of stimulating economic growth by encouraging business investment. However, those same low interest rates have created a significant barrier to banks working out their legacy of non-performing real estate loans.
Created as a hedging instrument, swaps were intended to protect real estate loans with high LTVs, which typically have low interest rate cover, against interest rate rises.
However, as the financial crisis drove interest rates down to unprecedentedly low levels, these instruments have become increasing burdens on investors and, in the case of distressed sales, the recovery of value to lenders.
Russia and Poland enjoyed a mini boom over the Christmas period, and the UK did better than expected.
Christmas sales disappointed in France and Germany, with Italy and Spain recording more dramatic declines. In general, consumers in the eurozone area spent less over Christmas than those in other countries.
Luxury retailers posted strong sales figures despite a squeeze on spending, as have many value retailers.
Retailer administrations were a feature of the UK market over the Christmas period, but were rare elsewhere.
Take-up in the last quarter was slightly higher than Q3 and stable compared with the same period last year.
Helped by the low volume of new completions, overall supply levels have fallen through the year.
Generally, this prolonged period of low completions will probably accentuate the existing shortage of good quality buildings in sought-after, central areas of some European cities.
Prime rent growth has halted in most cities, with few continuing to see rental growth.
The twin aims of flexibility and future-proofing are paramount
There is growing awareness of the need for agility in executing portfolio strategies, including tailoring occupational terms to specific situations
Occupiers’ aspirations towards customer service and landlord relations are also rising, with many looking for increased innovation from landlords
With the scope to source good buildings from built stock expected to remain limited, new approaches to development are gaining prominence particularly in emerging markets
Sustainability remains high on the agenda, and is seen as a form of operational risk management, a means of value enhancement and a buffer against future legislation
After having peaked towards 2010 year-end, supply levels have gradually begun to decline across Europe, reflecting the current, slow pace of new deliveries
There are indications that the quality profile and distribution of vacant space is also changing, with shortages of prime buildings starting to emerge in some cities and vacancy levels for inferior quality space generally moving in the opposite direction.
This polarisation has been accentuated by an occupier flight to quality, reflecting companies’ appetite for more efficient and functional space, which in many instances still trades below pre-crisis levels rents.
At city level, these supply-side shifts are amplifying the disparities in rental performance between prime and second-hand stock and among different office submarkets. As a result, investors need to be even more precise and rigorous in their selection of areas for investment.
Most of the key indicators in the industrial and logistics sector have remained broadly stable despite a deteriorating economic environment
Prime rents in the sector are flat, leaving the CBRE EU-15 industrial rent index around 7.5% lower than at its mid-2008 peak. Similarly, prime yields have barely changed overall since the beginning of this year
Occupiers in a number of markets are taking advantage of a period of rental weakness to upgrade from outdated space to more modern warehouse buildings
Investment activity rose in the first half of this year, with Germany and CEE posting increased shares of investment turnover
Northern Ireland
EMEA Office MarketView Q1 2012
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