The DTZ Fair Value IndexTM (FVI) score for Europe was more or less unchanged in Q1 2013, at 77. With relative value at its best in ten years, the majority of markets in Europe are expected to deliver solid returns over the five year investment horizon.
There are currently 66 Hot, 30 Warm and only 9 Cold markets in Europe.
From Q1 2012 to Q1 2013, required returns for property fell significantly across Europe. The result this is that compared to a year ago, there has been a widespread fall in the hurdle rate for property, making it a much more attractive investment compared to bonds.
Dublin continues to be the most underpriced market in Europe, with high yields, a positive economic outlook and strong rental growth prospects. All markets in Germany are rated as either Hot or Warm with Frankfurt retail being the most attractively priced market in the country.
A number of markets in Spain have been upgraded from Cold to Warm. This is the result of the continuing fall in bond yields which has reduced the hurdle rate for property. We expect that the Spanish property market will bottom out this year and that capital values will begin to see growth again in 2014.
GDP is expected to fall in 2013 in France, Spain and Italy. On the other hand, Ireland and the UK are expected to see more normal levels of growth after 2013. Ireland’s GDP is expected to grow by an average of 2.4% p.a. from 2013-17, while growth in the UK is expected to average 2.1% p.a..