European property markets to become more landlord-friendly – C&W
Cushman & Wakefield has published some interesting commentary on the current economic situation in Europe with reference to real estate markets. It says that while inflation is a concern in the UK, it expects steady growth despite the public-sector cuts, and points out that greater fiscal discipline appears to have saved the UK from a downgrade by the rating agencies. C&W is becoming more optimistic that a sustained recovery is under way across Europe, and thinks that we will see a “slow but steady broadening in growth”, from exports to investment and then on to consumer spending – perhaps first seen in Germany, which is currently the main driver of optimism.
The firm says in its EMEA Economic Pulse report that it expects the property market to become more active this year, albeit nervous and polarised. It says occupiers and investors alike will have to adjust their strategies in order to reflect the increasing divergence seen across the region.
While tenants will remain in the driving seat in the short term, C&W thinks the market will become increasingly landlord-friendly, particularly for Grade A space. As corporate investment and M&A pick up, there may be a more notable increase in occupier activity, it says. While the flow through to occupier activity will not be immediate, C&W points out that businesses will remain keen to maximise efficiency of property use and cut debt levels through asset sales where appropriate.
While the offices cycle is likely to move ahead of the industrial and retail sectors, C&W thinks the recovery will not necessarily be sector-specific. Instead, the firm believes it will be driven by property quality and by stock that offers a business advantage – “be that out of town retail, destination and luxury retail, CBD offices or urban and regional logistics and R&D facilities,” it says.
C&W says the market for investors is set to become busier. The economic climate will continue to shape demand for income and low-risk products, and more pressure can be expected on prime yields, it notes. Supply may be increased as banks restructure their loan books and offload assets. The firm believes that the short-term inflation picture is rosier than some have suggested, and says this means that return requirements will remain low by historic standards, keeping property in demand as an asset class and maintaining pressure on prices – at least for secure assets. For property to earn any rental increase, it will have to work hard, C&W says, for example either by benefiting a business through improving productivity or cutting costs, or in cases of supply shortage.
