European real estate could see price recovery despite periphery divide

European real estate markets will be in 2013 ‘evolutionary’ rather than ‘revolutionary’, according to global real estate advisor, CBRE, which said that a gradual recovery in economic performance and business confidence this year will set the European real estate market up for a stronger recovery in 2014,

European property markets faced a difficult economic environment in 2012, with heightened fears of a euro break up in the first half and output flat or falling across almost all the continent by the year end. 2013 has started more positively, with the threat of euro disintegration receding, together with encouraging news from China and the US, underpinning some signs of improvement in market sentiment and business confidence.

But CBRE’s Peter Damesick, added: “Both occupational and investment markets in European real estate will continue to show marked north-south disparities in 2013, with core markets in the north expected to record stability, or even some improvement, in pricing for prime property. For the much of the secondary market, it looks to be far too early to call an end to the widening yield gap against prime property but the trend of good secondary assets in stronger markets attracting greater investor interest looks set to gather pace in 2013.”

CBRE remains cautious over the impact this will have on occupier and investment markets in the short term, with better quality secondary assets in stronger locations the most likely beneficiary of improved sentiment.

Occupier markets are likely to show a relatively static performance over the year, with rental growth most likely confined to a limited number of prime retail and office locations, where demand exceeds supply. While demand and rents for industrial space are expected to be broadly flat through 2013, new requirements to support multichannel retail strategies is a potential bright spot.

The heightened polarisation between prime and secondary property was a major theme of 2012 and a key question for 2013 is whether this will ease. A greater appetite for property risk would improve this situation, but the availability of new debt for secondary is unlikely to improve much, if at all, in the coming year, meaning the outlook for these assets hinges on the economic fortunes of the region. Nevertheless, improved prospects for better quality secondary assets in stronger markets, which began to attract more interest in late 2012, look set to continue in 2013.

“Economic forecasts still point to a difficult year ahead, but much of the downside, principally fears around a eurozone break-up, has diminished,” CBRE head of UK and EMEA Research Neil Blake commented. “Market confidence is all important.”