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European Commercial Property Most Attractive in 10 Years

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European Commercial Property Most Attractive in 10 Years

By - Wednesday 13 March 2013

According to new research European commercial property prices are the most attractive for 10 years. The quarterly Fair Value Index by DTZ monitors the relative attractiveness of pricing in commercial property in European markets by giving each a score out of 100 based on its attractiveness. In the latest report the overall score was 78, up from 62 in the previous quarter and the highest since September 2003.

The index also classifies markets as HOT, WARM or COLD, in the latest report 69 of 105 markets were rated HOT and 25 WARM.

Magali Marton, Head of CEMEA Research at DTZ, said: "The rapid increase in the attractiveness of property can be seen by the fact that almost a third of European markets were upgraded to either WARM or HOT in the last quarter. The most significant factor behind this change has been the more positive outlook for the Eurozone, which has pushed down bond yields and required returns as the risk of break up has receded. The upshot is that property looks better value in comparison to bonds." 

Perhaps unsurprisingly Netherlands topped the chart, where it was joined by Belgium, Finland, Norway and Denmark and the Baltics, with each of the top 6 markets scoring the full 100, indicating attractiveness across the sectors (office, retail and industrial).

The UK, Ireland and Germany made up the second most attractive grouping, each with a score of 91, followed by the CEE markets plus France and Italy coming in at "fair value". In contrast, Spain's relatively high hurdle rate and subdued expected returns are reflected in an index score of just 17, making it an unattractive investment option well adrift of other European markets.

With nine HOT markets, two WARM markets and no COLD markets, Germany rose to 91 from 73 in the previous quarter. The UK's index increase of three points was less dramatic, although the upgrading of regional office markets from WARM to HOT means that 17 of the UK's 20 markets are now classified as HOT.

Matthew Hall, Global Head of Forecasting at DTZ, said: "The UK and German markets in particular offer attractive pricing, with the overwhelming majority of markets in both countries being rated as HOT. Although only modest returns are expected, the extremely low hurdle rate continues to paint these markets in a positive light on a risk adjusted basis."

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