The latest Fair Value Index (FVI) from Cushman & Wakefield has identified the UK and Germany as the best countries in Europe for capital markets opportunities for investors.
According to the firm, its FVI indicates that 84% of European markets are underpriced, meaning that investors are likely to make a higher return than the risk-adjusted rate of return. This would come, it said, from investing in commercial property, assuming a five-year holding period.
It added that all 17 ‘prime’ markets in Germany are now classified are underpriced due to repricing in recent months. In the UK, this applies to 24 of 27 markets.
Sukhdeep Dhillon, head of EMEA forecasting at Cushman & Wakefield, said: “Underpriced markets are attractive targets for real estate investments, with opportunities for capital appreciation as the market adjusts towards fair value. There have been notable improvements across most markets, facilitated by stable total returns forecasts, a reduction in bond yields, and an improvement in the risk premium.”
According to the research, while 100% and 89% of German and UK markets were underpriced, respectively, those proportions largely remained steady across most of western Europe, including France (88%), the Nordics (87%), and the BENELUX region (80%). There was a notable drop-off, however, in CEE countries (53%). The European average was 84%.
There was also a dearth across the continent of what Cushman & Wakefield deemed ‘fairly priced’, with no fairly priced segments within Germany, only 11% in the UK, 12% in France, and 13% in the Nordics. The BENELUX region saw 20% fairly priced, while the same could be said of 47% of CEE countries.
Dhillon added: “Germany has experienced significant repricing, but yields have largely stabilised across the board. Despite current economic challenges, there is a cautious optimism for the German real estate market, and momentum is expected to improve.”
At a sector level, Cushman & Wakefield said logistics has the highest percentage of underpriced markets – 95% – offering appealing investment opportunities. Retail, meanwhile, has seen the greatest change over the past two quarters, with the number of underpriced markets improving by 24 percentage points. This combination of relative value and improving consumer conditions is positioning the retail sector for potential growth.
