09/05/2011
By Ilonka Oudenampsen
Central and Eastern European real estate markets are forecast to deliver the strongest medium-term returns on the back of 3% GDP growth, but a combination of bond rate movements, globalisation of capital flows and an increased development pipeline are expected to push some prime Western European yields outwards over the next five years, according to Invesco Real Estate's spring 2011 House View Report.
Greater differentiation between European countries is expected in the short to medium term, as Germany, Switzerland and the Nordics are forecast to continue to outperform with GDP growth in the 2.5-3% range. Within the core European countries such as France and the Benelux, growth is expected to be slower, within the range of 1.5-2%.
The UK and Italy sit between the struggling economies and those at the core, with expected GDP growth of between 1-1.5%. Meanwhile, the Mediterranean economies and Ireland are forecasted to struggle with GDP growth of less than 1% as the process of deleveraging continues.
Invesco Real Estate believes the office sector will deliver the best short-term returns in supply constrained city centres, whilst in the medium-term retail is expected to be the strongest performing asset class, supported in Central and Eastern Europe by a burgeoning and wealthier middle class. However, short-term performance in the retail sector is likely to be weak as austerity measures weigh on consumer confidence.
Simon Mallinson, European research director, said: “Our investment team believes that 2011 will offer numerous opportunities to deploy capital into European real estate with the potential to deliver attractive returns over the next five years. Although Southern European markets are expected to struggle in the short to medium term, we expect Central and Eastern European markets will provide an attractive real estate investment opportunity and record the strongest medium-term GDP growth.
“Key to securing value growth is the under-writing of investments, based on lease structures and rental growth prospects, with yields expected to move outwards in the medium term.”
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