Direct investment in commercial property in Europe increased in Q3 2009 to €18bn, a +40% increase on the second quarter, according to Jones Lang LaSalle’s (JLL) update on the direct European commercial real estate investment.

Tony Horrell, head of European Capital Markets at JLL, said: “ This is the second consecutive quarter of increasing transaction volumes and we believe that we have now seen the lowest quarterly volumes that we will experience in this downturn (in Q1 2009). We expect volumes in Q4 2009 to be the strongest quarter of the year, and for full year volumes to reach in excess of €60bn. Despite the increase in transactional activity, we expect year end volumes to be down -45% on 2008, which in turn was down -55% on 2007.”

Investor interest remains focused mainly on prime, secure income producing product and the market remains segmented into these very prime assets and everything else. Active investors also have a clear preference for the deeper, transparent markets of Western Europe together with those markets where prices have fallen the furthest, by up to -50% in some cases. JLL believes the result of this is that markets across Europe are now experiencing different levels of investor attention and are facing very different prospects. This is leading to a more dislocated European investment market than JLL has seen for some time.

Horrell said: “As we moved through the summer period sentiment surrounding the market improved markedly and today there are clear signs of new found confidence in some European markets. Sentiment clearly has the ability to move markets (and often to trump fundamentals) and at the moment, sentiment is one of the key drivers of the increase in transactional interest and activity, which is evident in all sectors and most markets.”