UK regions drive commercial property price growth across Europe

Prices for all European commercial real estate grew by a record 7.8% quarter-on-quarter in Q4 2014, pushing annual growth in prices to a record 20%, according to a report from DTZ.

The strongest growth in prices over the year – according to the DTZ European Transaction Based Price index –  was in the UK regions, which increased by 35% compared to a year ago. This was supported by a record £36bn of investment in 2014 outside of London, as the regional markets play catch up to the capital.

The European price growth was also supported by the highest quarterly volume of investment, with EUR65bn invested across Europe in Q4 2014. Despite this growth, the overall DTZ European Transaction Based Price Index is still 9% below its previous peak in mid-2007.

Following relatively weak growth in Continental Europe over recent quarters, price growth accelerated in the fourth quarter. The annual rate of growth rose from 3% in Q3 2014 to over 14% in Q4 2014.

Nigel Almond, Head of Capital Markets Research added: “Prices outside of London in the UK only began to show clear signs of recovery at the beginning of 2014, having fallen by close to 50% from their peak in 2007. As a result prices are still 25% below their peak and back at 2004 levels.

“Growth in Central London remained robust at 23% year-on-year. However, the rate of increase is beginning to cool. On a quarterly basis prices in London rose by just 5% in Q4 compared to an 8% increase in Q3. The cooling comes as no surprise as prices in London are now 20% above their previous peak in 2007.”

Greg Davison, Director, Investment at DTZ in Leeds commented on the findings: “We are not too surprised at the result of this latest research, throughout 2014 the level of investor interest in the Yorkshire region grew exponentially, culminating in  a significant amount of stock coming to the market in the final quarter of the year driven by strengthening values in the face of a resurgent demand.

“Looking ahead for the remainder of 2015 we expect this momentum to continue given that market fundamentals remain unchanged, however, the main limiting factor will undoubtedly be a lack of available stock in which to invest as those already owning assets in the region hold them in order to take advantage of stronger occupational markets and improving rental returns.”