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2012GLOBAL REALESTATE MARKETSAnnual review and outlookFigure 7Top ten European commercialinvestment markets, 2011€ billionLondonParisMoscowFrankfurtStockholmHamburgManchesterMunichBerlinWarsaw0 2 4 6 8 10 12 14 16 18 20PragueOffice Retail Industrial HotelSource: Knight Frank Research/Real Capital Analyticshowever, the trends that characterisedEuropean markets in 2011 look set to continueover the next twelve months. Corporateoccupiers will remain cautious and focused onsaving costs and improving the efficiency oftheir leased space. Development completionswill continue to be well below historical levels,albeit there are signs of construction activityincreasing moderately in certain markets,including London and Warsaw.Figure 6European commercial investment volumes€ billion4035302520151050The prospects for office rental growth haveweakened, although the continued scarcity ofprime space in many city centres may lead tosome modest rental increases in 2012,especially if sentiment improves in thesecond half of the year. However, rents maycontinue to come under downward pressurein peripheral markets, particularly on theIberian peninsula.Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42008 2009 2010 2011UK Germany France Nordics Benelux Central/ Rest ofEastern Europe EuropeSource: Knight Frank Research/Real Capital AnalyticsInvestment volumes in 2012 are expected tobe at fairly similar levels to 2011, albeit thereis potential for activity to improve in thesecond half of the year if economic conditionsstabilise. There remains an appetite for primeproperty, particularly with prime yieldscurrently offering a significant premium overhistorically low “risk free” rates. However, theavailability of debt seems unlikely to improvesignificantly in the short-to-medium term,which will continue to restrict transactionalactivity. Cash-rich investors will remain in anadvantageous position within the market, andthe recent movement of capital into Europefrom overseas sovereign wealth funds andpension funds, which has so far been largelyconcentrated in London, may spread furtherto other markets, particularly in France andGermany.With the majority of investors remainingcautious, demand will continue to beconcentrated on perceived “safe havens” suchas London, Paris and Germany. This shouldhelp to support prime yields in these marketsat their current levels, although yields forsecondary assets and properties in peripheralmarkets are likely to come under outwardpressure in 2012. The divergence in theperformance of prime and secondary property,which has characterised European marketsover the last three years, is therefore expectedto continue for the foreseeable future.10