DTZ Foresight

Europe Fair Value : Improving economy makes peripherals attractive - Q1 2014

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The European property market continues to present attractive opportunities to investors for the time being. The DTZ Fair Value IndexTM for Europe rose slightly this quarter, up to 74 from 72 in Q4 (a score of 100 indicates that all markets are underpriced for investors and zero that all markets are overpriced).

Over the next twelve months we expect investor demand to continue to remain high. However rises in bond yields will see opportunities to make excess returns from property diminish. We expect both the European and UK Fair Value index scores to fall this year.

We expect investment opportunities will disappear more rapidly in the UK and predict that the UK Fair Value index score will fall below 50 in the second half of the year. At this point there will be more overpriced than underpriced markets. In the European market overall on the other hand, attractive investment opportunities are expected to be prevalent for slightly longer, with the Fair Value index not expected to drop below 50 until the beginning of 2016.

Although Ireland still offers some of the best risk-adjusted returns in Europe, strong demand and stiff competition is seeing investors seek opportunities elsewhere as well. Moreover, improving economic outlooks for Spain and Italy have boosted prospects for income growth there and bond yields have fallen to record lows. Property assets in these markets are now looking attractively priced in comparison.

We think that investment opportunities in Spain, Italy and Ireland are now at their peak and that the combined Fair Value Index for the three countries will begin to fall next quarter. Nonetheless we still expect the index to remain above 50 until at least the end of 2015.

Source : DTZ (Groupe UGL)

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