European commercial real estate forecasts

Europe more resilient than UK to global property trends, but will not avoid a slowdown

Contact: Simon Marx, Head of Real Estate Forecasting & Analysis
simon.marx@uk.experian.com 

With the negative trend in UK property set to continue, focus shifts towards the continental European markets and their response to the global financial slowdown, according to Experian's latest analysis. The UK will be the only market to see negative returns this year.

'That’s not to say there won’t be a sharp correction in these countries,' comments Simon Marx, head of real estate forecasting at Experian. 'Prices for German and Italian offices will readjust this year to match fading hopes of economic recovery, although any other negative price growth in Europe will be negligible. This is significantly more positive than Experian’s predictions for UK property prices, which include a number of major retail and industrial markets falling by as much as 10 per cent in 2008.'

According to Experian, the European office market will see total returns of approximately 6 per cent over the next five years, down by a third on returns since 2004. Among those markets with the strongest potential going forward are Oslo and Madrid, both of which have been growth areas in recent years. 'But even the top markets are forecast to slow,” adds Marx, “with total returns in these two markets ranging between 9 per cent and 10 per cent this year compared with 14 per cent to 16 per cent last year and 18 per cent to 19 per cent the year before.'

Among those markets to see an improvement in their European ranking is the Netherlands. Experian’s forecasts for office properties in Amsterdam and Utrecht, and retail assets in Rotterdam and The Hague, have been upgraded since mid-2007. The driver of office returns will be the high levels of income, despite only modest expectations for rental growth. Retail will be boosted by expected increases in capital values. 'It is important to remember,' adds Marx 'that it was not long ago that the Netherlands was one of the weaker markets in Europe for investment performance. Economic recovery in some European countries is now looking fragile and investors will exercise more caution. Investment activity is slowing and economic forecasts are pointing to a slowdown similar to those in Germany and Italy.'



Experian March 2008

Back