Last year saw a full recovery of property investment volumes in many European markets. Capital going into property was around 30 per cent above the long-term average and close to 80 per cent of the 2007 level.

This time round, investment is being mostly driven not by debt, but by investors not being able to find a better destination for equity. Property prices in some markets in Europe have hit the bottom, while prime product values are picking up again.

The volume of property investment is expected to remain high, and even rise next year.

Offices

The improvement in financing conditions could support activity in office development activity next year, particularly in markets with solid demand such as Dublin and London, and refurbishments in markets such as Madrid and Milan.

Limited new supply over the past few years has created undersupplied pockets of good quality office space. This is leading to rental increases and we could see that continuing in 2015 in markets such as London, Dublin and Brussels.

Retail and alternative assets

Due to relatively weak consumer confidence, it is likely that investors will be selective with regards to retail assets, and continue to chase the best performing retail schemes and high streets. These can include the strong affluent European markets (UK, France, Belgium, Germany) as well as the developing or recovering ones (Poland and Spain).

Logistics markets connected to retailer expansion, particularly with regards to their on-line strategies, will also be considered (Netherlands, Germany, Poland, UK, Spain).

In terms of alternative assets, further potential is likely, as demonstrated in the student housing segment and residential segment (Netherlands, Germany) and the hotels segment (London,Paris, Amsterdam).

Yield Convergence again?

The changes of A quality assets in B quality cities, and B quality assets in A quality cities (AB/BA) have been rising over the past year. Keen pricing competition in the prime segment and the lack of supply has shifted investor interest in value add and higher yielding market segments.

This trend looks set to continue in 2015 and should translate into higher investment in AB/BA assets in core markets (UK, France, Germany, Netherlands) and in increasing share of higher yielding and alternative asset classes. It would also continue to benefit markets that have bottomed out, such as Spain, Ireland and Italy, which is likely to lead to further narrowing of the yield gap between prime and seondary yields.

Further information

Contact Savills Commercial or view investment sales & acquisitions.