A Robust Response
For several years now, turnover in the European real estate investment market has been growing rapidly. The total value of deals completed grew from €64 billion in 2000 to €230 billion in 2006. This growth in turnover has corresponded with an unprecedented fall in yields. The average prime office yield in Europe fell from 6.1 percent in the first quarter of 2003 to 4.8 percent in mid-2007, which is the equivalent of a 30 percent rise in capital values without even considering the rise in rental values over the same period.
To a great extent, the growth in both turnover and prices was fuelled by cheap debt and easy credit terms. However, the credit squeeze that took hold in mid-2007 has changed all that, and the news since then has been dominated by stories of the collapse of the commercial property sector. Yet the turnover of the market in 2007 was still higher than in 2006, at €238 billion. So how do we reconcile the contradiction between the coverage of the market and