DTZ: 52% drop in real estate investments

• 59% fall in European-related cross-border investment flows, with a 76% decline in the volume of funds flowing to Europe from other regions

Carola Ionescu

Even though there seems to be no short term market recovery in sight, positive values will gradually return to the European markets in the next 12 months, with Paris and Madrid to reach fair trading values by the end of 2009, according to a study by DTZ called "Money into Property Europe".

Magali Marton, Head of Continental Europe and Middle East Research, said: "2009 still looks like a tough year for investors and for tenants. Even though we will see a return to positive territory on the markets of Continental Europe, funding remains an issue and it could serve as a barrier to the revitalization of activity in the retail properties, on the European markets as well as in the world."

DTZ"s study, "Money into Property Europe", shows that overall transaction volumes across Europe shrank by more than 50%, from 229bn in 2007 to 110bn in 2008. The difficult lending conditions combined with a wait-and-see posture of buyers and vendors brought investment volume down to 10bn in Q1 2009 - the lowest level since DTZ started tracking this statistical series.

At a country level, the highest decline of the share of foreigners in the investment market was at its highest in Germany and France, where in 2008 foreign investors represented less than 50% of total volumes. Foreign investors increased their share in Spain and Italy and continued to account for approximately 90% of investment activity in Central and Eastern Europe.

The results of the recent survey made by DTZ called "Lenders and investors" offer no optimistic outlook for the short term. 60% of lenders do not expect a significant upturn of the lending market until after 2010.

DTZ"s European Prime Office Rent Index anticipates continued decrease in rent through 2009 and 2010, before beginning to rise again in 2011 and 2012.

"We do not expect rents to return to the levels we saw in 2007-2008 throughout our forecast period", says Magali Marton, Head of Continental Europe and Middle East Research.

The downward trend in rent levels will be complemented by continued decline in capital values in 2009 and 2010. The combined effect of these two values will result in a -21% yield for 2009 and a low (single digit) positive yield for 2010, before returning to double digit growth in 2011. Most European key markets will follow a similar trend.