by Brianna Crandall — March 18, 2016—According to global property advisor CBRE Group’s 2016 European outlook study, commercial real estate across Europe, the Middle East and Africa (EMEA) is forecast to outperform many other assets in 2016.
According to the report, most Western European economies will benefit from the ongoing mix of low commodity prices and emerging markets’ weakness, as well as “buoyant consumer[s].” Leasing is still considered in an early recovery in many European countries, and occupier demand is expected to continue to improve as the economic recovery continues.
Dr. Neil Blake, head of Research and Forecasting EMEA at CBRE, commented:
“The big downside risk is that emerging-market debt problems turn into another financial crisis that affects occupiers and investors alike. However, our view is that current signs point to a 1998-style, isolated emerging-market debt crisis rather than a re-run of the global financial crisis.”
Offices
Across Europe in 2015, office leasing increased by over 15 percent, its best year since 2010. Vacancy rates, taking the big cities as a whole, fell at the fastest rate since 2007 and are expected to fall further in 2016. Also, new development starts are only beginning to pick up in a limited number of cities. This mix of growing occupier demand and limited new supply has produced increasing prime office rents in many markets, particularly in Western Europe, and this looks set to continue in 2016.
Retail
There is clear polarization in the retail sector, driven by changing technology and consumers’ spending habits. Prime high streets in major cities and prime, destination shopping centers have seen low vacancy and rising rents, while secondary centers have continued to struggle. This dichotomy will remain in 2016, but at least rising retail spending on the back of higher real disposable incomes will be of some benefit to the sector.
Industrial
The rapid growth of e-commerce has led to surprising rates of rental growth in many markets. However, this growth is very uneven and limited to areas with a scarcity in development land, e.g. U.K., Ireland and around the big German cities. In most other areas rents are being kept in check by new supply.
City logistics property, however, i.e. last-mile delivery assets, are increasing in popularity with investors as well as occupiers as they acknowledge their necessity in the e-commerce supply chain.
Development activity will increase in 2016, although it is expected to remain below the levels seen at the last peak in 2007. CBRE does not expect to see a significant uplift in speculative development, however, with most new build over the next 12 months being predominantly “built-to-suit.”
Hotels
2015 was the year that the hotels sector lost its “alternative asset” moniker and entered the mainstream. This growth in both hotel revenues and profitability should continue in 2016 due to consumer confidence. Corporate confidence will also be positive, and the hotels business should also see growth in average hotel rates.
The ongoing competitive value of the euro against other global currencies is also a plus for many countries, however the sector does remain vulnerable to terrorist incidents, and low oil prices may limit the number of visitors from the Middle East and other commodity-producing countries.
Specialist markets
Specialist markets (including leisure, health care, and student and multifamily housing) have found increasing favor with investors in recent years as they search for yield and long-term income. While housing-related investment will continue to attract investors looking for long-term secure income, yield compression in this segment could see some specialist investors move towards higher-yielding operational assets such as leisure and health care.
The 14-page 2016 EMEA Real Estate Market Outlook report is available for free download from the CBRE Web site.
