The European commercial real estate investment market finished 2012 strongly, according to figures released by CBRE Group, Inc. Although there is typically a seasonal uplift in activity in the final quarter of the year, the activity level was particularly pronounced in 2012, with several countries reporting their highest quarterly investment activity totals since 2007. Total European investment reached 41.6 billion in Q4 2012, up by 48% on Q3 2012 and 16% on Q4 2011.
For 2012 as a whole, the 120.4 billion of investment transactions matched the 120.3 billion recorded in 2011. A slight increase in Western Europe offset a slowdown in activity in CEE, although there was a strong finish to the year in both Russia and Poland. It is notable that Q4 2012 was the most active quarter for Poland since 2006.
A few large transactions in Q4 2012 brought activity in both Germany and Norway to their highest levels since 2007. Germany was of particular interest, with a purchase of over 1 billion of assets in eastern Germany by US private equity firm Lone Star. Both the relatively opportunistic nature of the buyer, and the diversity of the assets acquired, suggest that investor interest may have begun to return to the secondary commercial property market in Europe, albeit in isolated circumstances. In Norway too, a few large transactions were responsible for the strength of the investment market. However, here the transactions in question were focused on prime stock; a large shopping center and a prime office building.
There were also signs of recovery in the Irish market. Although activity was light compared to the years before the financial crisis, a more predictable economic environment has resulted in a sharp rise in the value of completed investment transactions relative to the years 2008-2011.
Examining 2012 versus 2011, investment activity in the UK in Q4 increased by about 8% although it was effectively flat in sterling. The UK continues to display significant polarization, with the investment market in London continuing to grow, but activity in the rest of the UK remaining weak.
In contrast to most of the remainder of Europe, activity in Italy, Spain and Portugal was down significantly over the past year. However, there was a flourish of activity in Spain in the final weeks of 2012, with 922 million of transactions completed in the final quarter.
Jonathan Hull, Head of EMEA Capital Markets, CBRE, said:
"The European investment market has displayed further polarization in 2012 with a North-South divide becoming increasingly apparent. Turnover in the final quarter of the year was at record-breaking levels in some markets including Germany and Norway, both of which continue to prove popular for investors seeking a safe haven. London has also outperformed historic totals and continues to drive the UK and European markets with activity sustained by a high proportion of foreign investment."
Valentin Gavrilov, Director, Research Department in CBRE, Russia, said:
"We do observe a steady recovery of the investors' interest to the risky assets, including commercial real estate. This trend is, first of all, a result of a reduction in the investment risks. The latter are decreasing due to the stabilization of the situation in the euro area and the growing understanding of how its economic problems will be addressed in the future.
At the same time, prices do not yet fully reflect these changes, creating exciting opportunities for the professional investors. In this regard, for example, Morgan Stanley Real Estate Fund's interest to the Russian CRE is easy to explain. Of course, the situation still may worsen in the future, but the most aggressive players had already started betting on a positive result as early as in mid-2012."