The DTZ Fair Value Index™ score for Europe rose to 78 in Q4 2012 from 62 in Q3, making European commercial property look its most attractive since 2003.
The rise in the index was driven by more positive sentiment on the eurozone pushing bond yields and required returns down. This has resulted in property looking better value in comparison to bonds.
Of the 105 property markets covered, 69 were rated as HOT and 25 WARM, making them attractive from an investment perspective.
Between Q3 and Q4 33 markets were upgraded, with 24 going from WARM to HOT, and 9 going from COLD to WARM.
At the sector level industrial property looks to offer the best value, with an index score of 86, followed by retail at 82, and offices at 70.
The UK and German markets in particular offer good investment prospects, with by far the majority of markets in both countries being rated as HOT. Although only modest rises in rents and capital values are expected, returns of 6% p.a. plus look appealing when compared to 5 year bond yields of below 1%.
Fears over Italy and Spain have receded somewhat, and this has been reflected in their Fair Value Index scores. However, at best property markets in these countries look to be fairly priced, with all markets in Italy rated WARM, but the majority in Spain remaining COLD.
Source : DTZ (Groupe UGL)