European commercial real estate investment fell 40% in the first quarter of 2016 from a year earlier, as volatility in global financial markets led investors to reassess prospects for the asset class following record transaction activity in 2015.
Analysis by Real Capital Analytics revealed a total of €46.7bn of properties exchanged hands in the first three months of 2016, compared with the €77.6bn of deals registered in the first quarter of last year. Investment fell across all of the major western European commercial real estate markets, led by a 59% drop in France. All sectors, with the exception of industrial properties, were also affected.
Tom Leahy, RCA’s director of EMEA analytics, said: “The high level of investment last year was unsustainable, so a slowdown was probably inevitable. The volatility in financial and commodities markets, concerns about China, falling global trade volumes, and uncertainty surrounding the United Kingdom’s referendum on European Union membership are just some of the factors that caused many investors to take stock. However, pricing is holding up and the fundamentals that have made real estate so attractive to investors remain in place.”
Concerns about the outcome of the June 23 referendum on the UK’s membership of the EU and a slowdown after the strongest quarter on record contributed to a 43% drop in investment in the UK compared with first-quarter 2015. Investment volumes totalled €14.4bn in Q1 2016, while the volume of deals involving properties in London fell by 47% from a year earlier to €6.7bn.
Leahy commented: “Uncertainty over the ‘Brexit’ vote is certainly contributing to the drop in the U.K. market, but it needs to be seen in the broader context of the slowdown across Europe. It is one factor among many that is causing investors to rein in their purchases of commercial real estate in Europe’s largest investment market at a time when yields remain below their long-term average, particularly for prime assets, and deal volumes in the fourth quarter were at record levels.”
Nine of the 10 most active commercial real estate markets in Europe, by value of deals, registered falling investment volumes. France, the third largest, suffered a 59% decline in the first quarter from a year earlier to €3.5bn, while there was a 36% slowdown in second-ranked Germany, to €9.9bn of transactions.
The slide in commercial real estate investment was not confined to Europe, since the US registered a 20% drop in the same period, while investment activity also weakened in the other major global real estate markets of Australia, Canada, China and Japan, according to RCA data.
Countries that bucked the quarterly negative trend in Europe were Finland and Poland. The value of transactions in Finland more than doubled as a result of Sponda’s €539m purchase of the Forum shopping centre and five neighbouring office properties in central Helsinki. Purchases of regional shopping centres by Union Investment and CBRE Global Investors helped lift activity in Poland by 59% to €646m.
Industrial properties registered an 8% increase in investment from first-quarter 2015 to €6.2bn. Significant sector deals included the purchase of a portfolio of 18 warehouses from IM Properties by Malaysia’s Employees Provident Fund for £114m and Catena AB’s takeover of fellow Nordic logistics operator Tribona.
Leahy concluded: “While Europe’s real estate markets still present pockets of value and opportunities for investors, it’s unlikely that transaction volumes will eclipse the levels that we saw last year in the light of the uncertainty factors like the Brexit vote have cast over the market. A second-half rebound in the event of a remain vote is not off the cards, though.”
