UK regions lead accelerating European price growth

Jonathan Crawford, Director in DTZ’s Valuation team in Birmingham

Prices for all European commercial real estate grew by 4.1% quarter-on-quarter in Q1 2015, according to a report out from DTZ.

Growth in the 12 months to end of Q1 2015 totaled 16% with the UK seeing the largest increase with 26%. While lagging behind the UK, growth on the Continent is now accelerating with prices 10% higher than a year ago which represents the strongest recovery since 2010.

Price increases have been driven by increasing demand for assets as investors find it increasingly difficult to secure prime property. Another factor has been investment activity moving beyond core markets.

Nigel Almond, Head of Capital Markets research at DTZ, said: “Our latest investment figures show that investment is broadening with more repeat sales in Italy, the Netherlands and Spain. There has also been more activity away from the major cities in both France and Germany.

“Across Europe, nearly two-thirds of assets sold in Q1 had previously been sold since 2008 and, of these, close to 70% showed an increase in prices. We might also be seeing an element of profit taking, especially from investors who acquired at the low point in the cycle.”

Alongside the UK’s strong annual price growth, prices in Q1 were 5% higher quarter-on-quarter. The strength in prices follows record investment in the UK over the past twelve months and the strongest Q1 on record.

Markets outside London show the largest price movements and the strongest increase in investment activity. Prices for all property outside London rose 27% year-on-year. London’s annual price growth slowed to 21% in Q1 2015, compared with 23% in the previous quarter. Quarter-on-quarter growth slowed to just 0.2% in Q1 2015.

Jonathan Crawford, Director in DTZ’s Valuation team in Birmingham comments: “The confluence of confidence, occupier demand, dwindling stock, weight of funds and realistic return aspirations means that property is an asset class that is of interest to a myriad of purchasers. In the West Midlands, secondary property pricing is being fuelled from a number of sources, evidenced by our research that looks set to be robust for at least the medium term.”

Nigel Almond added: “Despite the rapid increases we are seeing regionally, the index for the UK excluding London is still more than 20% below the peak of the market in 2007. That indicates that there remains potential for further value recovery.

“In London, investment activity remains strong at over £20bn on an annual basis, and while there is price appreciation it is moderating. With prices in London now 25% higher than they were in the previous cycle, compared to the European average of 14% lower, investors are showing greater caution. Despite this, relative to other assets Central London offices still look attractive, especially to overseas investors where pricing remains competitive in what is the most liquid market globally.”