Escalating concerns over the economic impact of Brexit drove the volume of property investment transactions in the UK down by 31% year-on-year in the first half of 2019 to €23.4bn. The wider slowdown across Europe was visible in a 15% drop in deal volume to €114bn between January and June, Real Capital Analytics’ Europe Capital Trends Q2 report shows.
European retail real estate transaction volume dived by 51% to total €12.6bn in the first six months of this year. The retreat in this property sector, which has been most marked in the UK, due predominately to the challenge presented by e-commerce and the extended Brexit process, now appears to be echoing across Europe. Retail looks set to end the year with the worst performance since the depths of the Global Financial Crisis in 2009.
Investors appear to be switching out of retail property into the more defensive ‘Beds’ sectors – apartments, hotels, senior housing and care homes. Apartments overtook retail as the second-largest real estate investment sector, after offices, in the second half of 2018 and have clearly consolidated that lead in the first half of 2019, with European transaction volume up 6% to €23.5 billion over the same period of last year.
The European office investment market had the slowest start in five years in the first half of 2019, with €47.6bn in transactions completed, a 9% decline over the same six months of 2018. RCA’s hedonic data for Europe’s major office markets show the extended period of yield-driven capital growth turning a corner and starting to turn upwards from historic lows. Office yields in London have risen 50 basis points since the middle of 2015.
Deal activity in industrial/logistics properties, which has been one of the most ‘in-vogue’ investment sectors in Europe, boosted partly by burgeoning e-commerce volumes, was down in nine of the Top 10 markets year-on-year, although Eurozone yields are still compressing on average. In the UK, transactions dropped 40% in the first-half and yields have started to tick up from their all-time lows, while yields for Eurozone industrial stock have continued to move in.
Chinese and Hong Kong investors sold €3.2 billion in European assets in the first-half of 2019 versus acquisitions of just €1bn. In the UK, April to June was the slowest quarter for property investment since 2012, and both cross-border and domestic investment levels are at a six-year low.
Tom Leahy, RCA’s Senior Director of EMEA Analytics, said: “The political process surrounding Brexit is clearly unsettling property investors in the UK market, who are becoming increasingly risk-averse. But we also saw transaction volumes slow in most major European markets in the first half of 2019, with the notable exceptions of Spain and Sweden. That slowdown was magnified by the sharp declines in retail investments, but excluded defensive segments such as apartments, hotels, senior housing and care homes. These ‘Beds’ sectors are benefitting from structural market factors, and are now attracting around a third of all the investment capital being placed in European property.”