Commenting on the latest data (from Propertydata.com) on commercial property transactions for the first two months of 2008, RICS senior economist Oliver Gilmartin said:  

Deal volumes continued to wane in the commercial property sector in the first two months of the year with transactions for Q1 2008 on target for a 50% dip compared to an already weak Q4 2008.  

Whilst most investors continued to divest (most notably institutions) so far in 2008, a notable exception has been overseas investors who have pumped a net £1.3 Bn into the market since the turn of the year. European investors buoyed by a strong Euro may have sensed a strategic opportunity to diversify into the UK arena.

German buyers in particular have accounted for 33% of all overseas purchasing in early 2008 snapping up £567 million worth of property. Significantly, German money has targeted the office sector perhaps seeking out longer term opportunities from the sharp snap back in pricing and subsequent rise in yields most prominent in the Central London Office market.

On a relative yield valuation basis, the UK market may be starting to look attractive when compared to several European markets with a typical UK property already 25% cheaper over the last 6 months when Euro/sterling fluctuations are taken into account.

Any recovery in the sterling/euro exchange rate through mid 2008 could cushion the blow to German investors from any further yield shift as risk premiums continue to edge outwards. RICS continue to expect an upward drift in risk premiums into mid 2008 as the credit environment remains challenging.