The European commercial real estate investment market continues to recover, driven by an increase in demand for prime retail property assets, according to the latest CB Richard Ellis (CBRE) European Capital Markets report.

Direct European commercial real estate investment reached EUR 28 bn in the first quarter of 2011 - a 32% increase on the same period last year. The latest results, while lower than the EUR 38.6 bn transacted in Q4 2010, are in line with the continuing increase in investment activity that started in late 2009 and was maintained through 2010.

Investment in retail property in Q1 2011 continued to grow at a greater pace than the rest of the European market, accounting for 43% of total transactions in the quarter. The EUR 12.2 bn transacted represented a quarter-on-quarter increase of 4% and the highest quarterly total since Q4 2007.

Industrial and logistics property also experienced an uplift in investment activity in Q1 2011 to EUR 2.8 bn. This is a significant increase over both the Q1 2010 and Q4 2010 figures and represents 10% of the European total in Q1 2011. The industrial sector also saw the steepest quarterly declines in yield, with the EU-27 Prime Yield Index falling 8 basis points (bps) to 7.72%.

The recent recovery in the manufacturing sector, combined with yield premiums over other commercial sectors (still achievable even for prime logistic space), is expected to support further increases in investor demand toward the sector.