Just 19% of the market is currently 'underpriced', according to Cushman & Wakefield’s quarterly European Fair Value Index, which analyses 123 European office, retail and logistics markets.
The index, which benchmarks each market against 'fair value', also identifies logistics as the most attractive sector, with 46% of the markets classified as 'underpriced', and only one as 'fully priced'.
Moscow remains top of the underpriced European markets table, ranked first and second for its retail and office sectors respectively. Dublin (logistics) was third with Budapest (retail) and Lisbon (logistics) completing the top five.
Core office markets including London, Vienna and Istanbul are all classified as fully priced having reached their lowest historical yield, with limited yield compression forecast and, in many cases, modest rental growth expectations.
The research reveals that Central and Eastern Europe continues to show a good balance of 'fairly' and 'underpriced' markets while in contrast Germany, alongside the Benelux and Nordics countries have only a few markets 'underpriced'.
Riccardo Pizzuti, senior analyst, EMEA Forecasting, Cushman & Wakefield, said: 'Our findings reflect the fact that we are in the later stages of the property cycle with many markets being labelled as fully priced. That is not to say value or opportunities are not available, it depends on investors’ strategies, but in general there are fewer opportunities to identify mispriced assets.'
After record quarterly investment volumes of €112 bn in the fourth quarter of last year, prime product across Europe is becoming increasingly scarce as the economic cycle matures. This resulted in the first three months of this year being the slowest quarter since 2014 with €49 bn invested.
Pizzuti: 'We expect further yield compression over the forecast period, supported by healthy investment volumes, and stronger occupier demand. Overall, we expect yields to trend downward for selected markets in 2018, as weight of capital helps sustain competition for quality assets. However, from late 2018 onwards, higher government bond yields will mean that on a relative basis property will look less appealing.'