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Fair Value Index

Riccardo Pizzuti

Senior Research Analyst

Phone +44 203 296 2409

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The all-sector European Fair Value Index score was 45 in Q3, up from the Q2 figure of 31, reflecting an improved relative valuation of prime commercial property opportunities across Europe. 

The sector upgraded the most was the office sector, as the number of fairly priced markets rose to 32, from 12 (out of 49).

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 fairly priced. 

Most opportunities can still be found in the logistics sector rather than offices and retail, with the latter showing more fully priced markets than fairly or underpriced. 

Geographically, Benelux and the Nordics have the highest percentage of underpriced markets while Germany, Other and Semi Core have the highest percentage of fully priced markets.

The most underpriced European markets in Q3 are the logistics markets of Madrid, Copenhagen, Dublin, Bratislava and Amsterdam experiencing the highest medium term rental growth forecast and yield compression.

Meanwhile, the top five most fully priced markets in Europe are Sweden, UK and Turkey. 

What is the Fair Value Index?

The Cushman & Wakefield Fair Value 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.