Knight Frank: European commercial property investments, 50% lower on 2007

Newsroom 03/11/2008 | 16:36

Due to the lack of liquidity in the market and more strained financial conditions, sellers have been obliged to lower their asking prices to attract buyers. London for example has seen a 150 base point rise in yields, and Paris yields have risen to 100 base points. While prices are falling, the cost of buying has risen even further, meaning that many investments with an initial yield below 6 percent are not attracting buyers, except in the case of future rental reversion.
The market is also seeing a large difference between the prices sought by sellers and the amount that buyers are willing to spend. At the same time, the type of investor has changed from closed funds with limited time frames within which to invest, to private bodies or families without the need to buy, and with the ability to focus on good market opportunities. Many of these can allow themselves the time to wait for a potential further fall in prices.
The change in the market place may be inconvenient for some traditional investors, but there are companies who are finding the situation beneficial. For example, firms with their own resources, high net worth families and sovereign wealth funds are not dependent on debt financing and so can maximise on lowered purchase prices of assets, without seeing their benefits being undermined by financing costs.
Central and Eastern European countries have maintained a healthy level of investment in comparison with more consolidated markets, receiving a total of EUR 5 billion H1 2008. Even so this figure only accounted for 8 percent of total European investment, with the majority of buyers preferring traditional locations for investment, considering them to be more secure.

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