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European Fair Value Index Report Q2 2019

Riccardo Pizzuti • 15/08/2019
 

The all-sector European Fair Value Index score was 31 in Q2, up from the Q1 figure of 24, reflecting an improved relative valuation of prime commercial property opportunities across Europe.

In many of the Eurozone office and logistics markets we continued to see an improvement in capital growth expectations, reflecting the more dovish monetary policy environment.

In addition, the combination of bond yield compression and lower illiquidity and risk premium component has increased the spread between the fair and forecast return, improving property attractiveness, and causing the index to increase.

Nevertheless, the majority of our 123 markets covered in the analysis are classified as fully-priced.

The most opportunities can still be found in the logistics sector rather than retail and offices which have more fully priced markets than fairly or under-priced.

Geographically, the CEE, Germany, semi-core and UK have the highest percentage of under-priced markets while France, Other and Nordics have the highest percentage of fully priced markets.

 

What is the European Fair Value Index?

The index was launched in August 2010 and covers 123 markets across Europe. 

Fair value is the value at which an investor is indifferent between a risk free return and the forecast return from holding property, taking into account the extra risk of investing in the property asset class.

When a property price is at fair value, an investor is being adequately compensated for the risk taken in choosing to purchase real estate; similarly, when the property price is below the fair value price, an investor is being more than compensated for the risk taken in choosing to purchase real estate. When buying at or below fair value, an investor does not necessarily buy at the bottom of the market.

Our fair value analysis focuses on prime assets and a five-year investment horizon, and hold for the market overall; individual transactions may provide opportunities and risks beyond the average market view. In the report, we compare results for the current quarter with the previous quarter, which may differ from those published in the previous quarter’s report; this is due to the forward-looking methodology. As such, when our forecasts change so too does the Fair Value Index.

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