European markets to remain risk-averse in 2013

Estate agents Savills predict that risk-averse, equity-rich buyers will continue to support major European property markets throughout 2013.

The latest report from the global real estate advisor – entitled European Market in Minutes – suggests that investment activity in property markets such as the UK, France, Germany and the Nordics, will remain centred on high-end commercial property developments.

The research states that prime yields are likely to remain stable as a result of this demand, with specific sectors including prime offices, shopping centres and high street retail, predicted to experience a pricing rise from their current rental yields of 5.7%, 5.8% and 4.5% respectively.

Countries such as Spain and Ireland, which remain classified as peripheral markets, are likely to witness a growth in activity as a result of keen investors looking for high quality assets at a price far below that of the primary markets.

Debt markets and the current economic crisis are both potential obstacles to such investments, with low turnover and yields likely to result in continued pressure on peripheral markets and secondary assets.

Lydia Brissy, European research director at Savills, said: “With on-going economic uncertainties throughout Europe we expect the UK, France and Germany to capture most of the global capital flows in 2013 as investors favour risk-averse assets.

“Nevertheless, an increasing presence of opportunistic equity funds from North America in Europe could lead to a rising number of cross border investments in peripheral European markets this year.”

Despite the disappointing recent performance from the retail sector, most notably amongst high-street retailers, Savills believe that 2013 could become a crucial year for retail in Europe for a number of factors.

The prime high-street market has suffered in the UK as a result in the boom in online shopping, but remains buoyant across many European markets, leading investors to look for opportunities in prime high-street and shopping centre assets.

It is thought that retail acquisitions will remain a safe investment, performing above inflation with a heightened potential for long-term capital growth. In spite of this, yields on prime high-street investments remains at 4.5% - the lowest since 2006.

Brissy expects retailers to diversify as a result of these pressures, adding: “With consumers restricting their spending and rising competition from online sales, retailers must adapt to the current market and consumer needs such as by increased multi-channelling, developing online sales platforms, offering value for money and convenience.”