Nai Pickard

Europe shows economic promise and bright future

Across the globe, commercial real estate markets are showing signs of recovery and even growth. In Europe, the dichotomy between Central/Eastern Europe and Western Europe shows a divergent property market. Central and Eastern Europe started to boom right before the 2007 collapse, as investors drove pricing close to Western Europe levels. In the more than 24 months since the collapse, some markets are beginning to show a resurgence of popularity.

Poland and Check Republic, for instance, stand out with significant prime office and retail properties for investors and corporate users. Other real estate markets in the CEE region, like the Baltic States and Ukraine, remain mired in the recession and will take longer to recover. Across Western Europe, some markets that experienced a severe crash, like the United Kingdom, have shown tremendous progress. London’s commercial property market was nearly decimated in the downturn, but investors are once again eyeing the city for high-end assets and advantageous pricing on prime office and retail space in the West End. Germany saw a similar rebound in late 2009 and continues to improve. Ireland is seeing foreign investor interest for the first time in years, creating a new market where properties compete between local buyers and foreign investors. A shortage of prime space in Paris has kept rental values from slipping too much in that market, and yields are on the decline.

Yet the property market’s recovery remains fragile. A steady increase in lending from major financial institutions across Europe will be necessary to sustain the recovery over the coming year and to further entice foreign investors. Corporate users and investors will find that banks are willing to lend, and, in fact, some are very active in new business.

However, loan-to-value ratios are way down, and lending opportunities vary widely from bank to bank and country to country.  As industry improves and manufacturing increases, an improvement in the job market will see a renewed demand for commercial space, most likely driven by foreign trade and demand.
Prime office space is growing in demand, as rent prices stabilized toward the end of 2009 and limited supply has helped keep vacancy rates low. Companies looking to expand operations or open satellite offices are best positioned to take advantage of the current market.

Paul Danks is the London-based senior vice president of corporate services at NAI Global. He may be contacted at pdanks@naiglobal.com