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Office property replaces retail as Europe's main commercial investment

Friday, June 08, 2012

After years of domination by retail property, the office sector has grown to account for half of commercial property investment in Europe, according to CBRE.

The global property investor's latest report shows that an increasing supply of good quality office property and a strong demand has seen the sector generate €12 billion investment in the first quarter of 2012, accounting for 50 per cent of the total market activity.

However, despite the level of transactions, the office sector saw a rise in the average prime yield of 6 bps to 5.69%. An estimated €45 to €50 billion in assets is expected to change hands in the European office sector this year, with equity rich investors such as sovereign wealth funds and foreign pension funds remaining among the most active purchaser groups.

With office property on the rise, retail activity fell back to 19% of the market in Q1 2012, the lowest recorded share since the start of 2007.

Major office transactions that have already taken place this year include the sale of Maximilianhöfe in Munich, a prime mixed-use property that was bought by Pembroke Real Estate for approximately €540 million and the purchase of 1 Cabot Square in Canary Wharf, London, by Qatar Investment Authority for circa €400 million.

Jonathan Hull, Head of EMEA Capital Markets, CBRE, commented: "We are finding that prime retail property remains in strong demand from investors; however, after the high levels of activity in recent years the supply of good new investment opportunities was very limited at the start of this year.

"The office market tells a different story: 2012 has seen an increasing amount of good quality office property coming to the market. This has met with strong demand from investors who see the lack of development activity over recent years as a potential source of rental growth in future years - or at the very least a factor that will maintain occupancy rates and rental income for quality assets."

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