Commercial real estate investment activity rose significantly in the UK and France in the second quarter of 2012 (Q2 2012), as compared with both Q1 2012 and Q2 2011, as investors sought the most liquid markets at a time of further financial uncertainty, according to the latest research by global property adviser CBRE Group, Inc (CBRE).
Investment turnover in the European commercial real estate market showed a further slight downturn in Q2 2012, falling to 24 billion from the 27 billion recorded in the first quarter. The fall of just 3% quarter-on-quarter comes despite deepening financial anxiety in the Eurozone and reflects the fact that prime real estate is seen as a safe haven at a time of heightened uncertainty.
The Q2 2012 activity shows a substantial shift in national trends compared to those that have been evident over the last couple of years. The main beneficiaries were France largely as a result of three major transactions and the UK, with both markets recording significantly higher levels of transactions in Q2 2012 compared to both Q1 2012 and Q2 2011. In particular, the London and Paris markets are seeing high levels of office investment transactions.
In contrast, markets that had been growing strongly Germany, the Nordics, and Central and Eastern Europe (CEE) have seen a slowdown in real estate investment activity. This is particularly true in comparison to the same time last year, when these three regions were the main drivers of investment activity.
Demand remains strong for high-quality properties in these locations, illustrated by the high prices that are achieved when such stock comes to the market such as Maximilianhöfe, a prime mixed-use asset in Munich, which sold for approximately 270 million in Q2. However, the level of investment activity in these regions is being held back by the shortage of prime stock.
Jonathan Hull, Head of EMEA Capital Markets, CBRE, commented: "While the lack of prime stock caused a slowdown in market activity in both Germany and the Nordics during Q2 2012, interest in these markets remains strong. Investors remain highly sensitive to the underlying economics of each market and their exposure to the Eurozone crisis, benefitting the northern European markets and placing Germany, the Nordics and the UK at the top of investors' target lists."
Over the past two years, European investment activity has essentially been stable aside from the high market turnover that is commonly seen around the end of the year at about 25 to 27 billion per quarter while further growth in activity is constrained by limited prime stock and a lack of lending from banks. The market is therefore heavily dependent on investors that purchase assets with a high proportion of equity. Yields in the core markets that attract such investors are stable, but there has been some upward movement in smaller and more peripheral markets.