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Europe Commercial Real Estate Rebounds

Investment volumes in European commercial real estate hit nearly 44 billion euros ($ 59 billion) in the fourth quarter of 2012, the highest quarterly level of since 2007, according to data from property consultants, Cushman and Wakefield.


Cross-border investment rose by 19 percent last year and the property consultancy forecast that volumes could rise by 5 to 6 percent to 141 billion euros ($ 190 billion) in 2013, despite the risks presented by a still-fragile economic recovery in Europe.

David Hutchings, head of European research at Cushman & Wakefield told CNBC Europe's "Squawk Box" that the increase signals a renewed faith in Europe's commercial property.

"Cross border investment was the biggest area of growth last year, it outpaced the domestic buyers. In any country in the world you will find people shopping for property in Europe," Hutchings said, adding that core markets still offered the security of quality assets and solid returns.

Property investors are focusing on larger core markets and the Nordic countries, according to the data from Cushman and Wakefield. Indeed, while France, the U.K. and Germany saw their market share slip slightly, to 61 percent from 62 percent in 2011, the Nordics have gained ground. Their market share has risen to 17.9 percent from 15.3 percent in 2011.

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Despite the euro zone crisis, a broad range of players from China and other parts of Asia, the Middle East, Europe, and North America have been active investors in Europe's core markets.

Yields of four percent were common for "the very best, core high-street property in areas like London, parts of Germany and France, " Hutchings said. "That goes up to 7 or 8 percent in the prime market. When you move into the secondary market you start to talk about 12 to 14 percent," he added.

For those looking for higher returns, Russia and Turkey proved popular in 2012, a move that Hutchings said didn't mean embracing too much risk.

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"When you look at a market like Moscow, which is really where all the Russian money is, that is really the most active office market in Europe at the moment, there's very strong tenant demand, strong development, so there are great returns to be had."

"There is a big risk attached to it, but the return at the moment is compensating you for that," he said.

Despite the continued attraction of Europe's commercial property for emerging market investors, total volumes in 2012 hit 133.8 billion euros ($180 billion), up only 1.5 percent on 2011.

Hutchings blamed the poor increase on a mis-match between the quality of the properties on the market and investor demands.

"There's been an increasing demand for some time but we haven't had the right pricing, the right levels of finance availability and we haven't had the right supply to keep investors happy," he told CNBC on Wednesday. "Things were a lot quieter in the second and third quarters of last year but the fourth quarter bounced back" he added.

"What investors are looking for is secure, high quality core assets and a lot of what's being sold by banks as they start to deleverage is weaker stock, property that's got a problem [or] not in the right location."

Cushman and Wakefield sees risk premiums falling if the recent stability in the euro zone can be sustained and if the supply of investment stock improves in 2013 as banks increasingly release legacy assets through loan and real asset sales.

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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