- Firm’s proprietary Fair Value Index shows 84% of European prime office, retail, and logistics markets are underpriced, 16% fairly priced, with none fully priced
- Underpriced markets are attractive for real estate investments, with opportunities for capital appreciation as the market adjusts towards fair value
- UK and Germany in the market sweetspot
The UK and Germany top a list of European commercial property markets presenting the greatest opportunities for investors, according to Cushman & Wakefield.
The firm’s proprietary Fair Value Index examines the relative attractiveness of current pricing in the prime office, retail and logistics property markets the firm forecasts across Europe. It determines whether investors are likely to make a return higher, similar, or lower than the risk adjusted rate of return from investing in commercial property, assuming a 5-year holding period.
Over four-fifths (84%) of European markets are now deemed underpriced by the Fair Value Index, with 16% fairly priced, and none fully priced. All 17 prime markets tracked in Germany are now classified as underpriced due to significant repricing over recent months. In the UK, 24 of 27 markets are underpriced – the other three being prime retail streets, including New Bond Street, which are fairly priced.
At a sector level, 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.
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.
“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.”
Earlier this month, Cushman & Wakefield announced that the Fair Value Index’s companion product, the TIME Score Index, which identifies the ‘when’ to the former’s ‘where’, showed all European property sectors at the inflection point and presenting attractive buying opportunities. Bringing these two products together, its Investment Atlas report also examines European markets through an investment strategy lens, as the real estate sector continues its adaption to ongoing behavioural, cultural, and technological changes.
David Hutchings, Head of EMEA Investment Strategy at Cushman & Wakefield, said: “The market is turning and investors must reset their strategies. Multiple opportunities in commercial real estate across various risk profiles are emerging, balancing income security with operational gains. Geopolitical risks mean that the recovery will be uneven, but some of the best purchases may be in the year ahead. While prime values bottomed out in Q2, secondary stock remains threatened and legacy assets remain at risk of stranding. Repositioning and repurposing such assets is a major area of opportunity, but for all assets, defining their ‘reason to be’ is key.”
Cushman & Wakefield used a framework including markets’ recovery potential, scale and liquidity, and the drivers encouraging transactions, such as the need to refinance, the pace of interest rate cuts and the level of political risk, to identify markets presenting the greatest investment opportunities.
Notes to Editors
Semi-core includes Italy, Spain, Ireland and Portugal.
