Transaction volumes in the European commercial real estate market are expected to fall by around 20 pct in 2008, according to property consultancy firm Jones Lang LaSalle.

In addition, the company expects further outward movement in yields in 2008, most likely in the first half of the year with the greatest in offices and a much smaller shift in retail and industrial.

'We are expecting yields overall to have moved out by about 40 basis points by the end of 2008. Yields on secondary assets will take a greater hit, with an outward movement of at least 50 bps more than for prime,' said Tony Horrell, chief executive officer of European capital markets at Jones Lang LaSalle.

The expected fall in European transaction volumes follows on from 2007 when the number of deals fell by an estimated 13 pct 220 bln eur, according to the latest research from the property firm.

While Horrell expects total transaction volumes for 2008 to be around 20 pct lower than last year, he believes that the economic backdrop will be strong enough to generate positive demand side conditions in Europe's occupier markets.

He believes the price correction that started in the latter half of 2007 will continue through the first half of 2008, with a new market consensus on fair value to be achieved by mid-year.

In the second half of 2007 prime yields moved out across many European markets, with office yields showing the greatest movement of around 30 bps on average across Europe as a whole. Yields on retail property moved out by an average of 25 bps, while industrial warehousing moved by about 10 bps.

The outward shift in yields has been a Europe-wide phenomenon, although the UK market was impacted most quickly and saw an even more pronounced shift in yields.

Jones Lang LaSalle's forecasts for leasing market activity remain upbeat in 2008, with rental growth expected to be positive, albeit at a slower rate than in 2007.

'Overall, we are anticipating that gross office take-up will be just 10 pct lower in 2008 than 2007,' said Horrell.

'Some markets will be affected more than others, particularly those exposed to financial services such as London, Madrid and Frankfurt, where there is likely to be a relatively greater softening in demand,' he added.