Current development in the key real estate markets in Europe.
The European real estate investment market recorded EUR213 billion (bn) in transactions over the past year, its highest level since the start of the financial crisis and a respectable increase of 13 percent compared to 2013. For the second year in succession, the real estate transactions volumes in Europe grew more strongly than in the USA or the Asia-Pacific region. Cross border capital inflows are driven by the supply of good investment, a flagging economic environment in Asia and high prices for investment properties in the USA.
The high transaction volumes have been driven mainly by global investors. In 2014, non-European investors invested EUR65 bn. This is 6 percent more than 2007 prior to the crisis.
The sheer volume of capital targeting European real estate is leading to yield compression and a strong overall return is anticipated for 2015.
A high level of activity can also be seen in the field of non-performing loans. Real Capital Analytics believes that property loans with a nominal value of nearly EUR60 bn have been sold over the past year.
Office properties have enjoyed the most popularity with around 44 percent of total direct investments, followed by investments in retail premises, at 22 percent. Residential and industrial properties each accounted for an 11 percent share. Compared to 2013, the strongest increases in volumes invested were seen in hotel investments (plus 30 percent) and industrial premises (plus 27 percent).
The UK remains the most important investment market in the European region. Investments here stood at EUR69 bn, which corresponds to a share of almost 30 percent of the overall European property investment market.
Investment volume growth of 16 percent was recorded compared to 2013. Transaction activity was again concentrated around London, with almost EUR32 bn or 47 percent of total nationwide investment activity. However, other cities in the UK such Manchester, Glasgow and Bristol are also now observing a significant influx of investor funds.
In Germany, Europe’s second largest investment market, transaction volumes declined by 1 percent compared to 2013, with an investment volume of EUR45 bn. In 2013, there had been an exceptionally high level of residential portfolio transactions.
In France, an increasing volume of transactions can be seen again, with a total of EUR25 bn, a significant increase of 31 percent. This growth is mainly due to transaction activity in the capital, Paris. The Paris metropolitan region accounted for almost three quarters of the total French transaction volume and, compared to 2013, has registered exceptional growth of 44 percent.
Much foreign capital continues to flow into Spain and the transaction volume was 134 percent higher year-over-year. In contrast, transaction activity in Italy is losing momentum. Compared to 2013, the transaction volume was only 5 percent higher, which is attributable to the stagnant outlook for growth in the Eurozone’s third largest economy. In Ireland, the volume of transactions increased again, by 89 percent.
The European Central Bank decision on 22 January 2015, to purchase Eurozone government bonds valued at EUR60 bn each month (Quantitative Easing) should be reflected in lower financing costs, which will add further impetus to the European real estate market. With the Euro exchange rate under pressure, the relative attractiveness of Euro investments will tend to increase. It is widely anticipate there will be further on the growth seen in 2015. This optimism is being dampened by uncertainties in the political landscape. These risks while hard to quantify should not be overlooked when considering the outlook for investment trends in 2015 and beyond.