European commercial real estate recorded its strongest quarter of the year in Q4 2016 with investment volume reaching a record high of €86.8bn. This total represents an increase of 5% on Q4 2015, which held the previous record for investment volumes. A very buoyant German market provided a significant boost to the European total, with volumes reaching a record of €19.8bn in Q4 2016. The Netherlands also saw the largest ever year-on-year growth with investment up 17 per cent on 2015 to €13.5bn.
- Investment volumes up 5% on Q4 2015
- Record level of activity in The Netherlands
- Germany dominates Q4 investment volumes with transactions totaling €19.8bn
- 1.6% was the share of Russia in European investment volume in 2016
Overall, total investment activity in 2016 reached €251.1bn; a 10% decrease on 2015, due to a weaker first half of the year. Excluding the UK, total investment volumes for the year rose five percent from €182.7bn in 2015 to €190.9bn in 2016. Uncertainty in the UK surrounding the EU referendum as well as other factors, including Chinese financial market turbulence, reduced global capital flows causing investment levels to fall across the EU. Despite this, the industrial sector in UK and indeed in the rest of Europe, bucked the overall market trend, outperforming every other sector with a four per cent increase in investment volumes on 2015.
Sentiment picked up significantly in the second half of 2016 and investment levels for most of Europe were generally either stable or up on 2015. Commercial real estate investment in Spain and the Netherlands were particularly resilient. In 2016, more than €13.5bn was invested in Dutch commercial real estate alone. This surpassed the previous highest record of €13.2bn in the Netherlands in 2007.
Germany also performed strongly, with a record fourth quarter of €19.8bn bringing investment turnover above the €50bn mark for the year. Germany is considered one of the world’s most in-demand investment markets by property investors, and core property in Germany remains highly regarded as a safe haven.
In 2016, investment in the UK market recorded a 28% decrease compared to 2015 when measured in sterling (37% in Euros). This differential demonstrates the impact of the depreciation of the pound which occurred following the EU referendum in June 2016 and follows an all-time record for total UK property investment in 2015 of €94.8bn. Following the fall in value of the pound, in the later part of 2016 the UK market has seen increased interest from foreign capital as the UK now offers much better value for non-sterling denominated buyers. Property continues to offer a significant premium over returns on the bond market and the fundamentals of UK and continental European real estate remain attractive. As such, UK investment volumes improved moderately quarter on quarter from €11.9bn in Q3 2016 to €15.1bn in Q4 2016.
Jonathan Hull, Managing Director of Investment Properties, EMEA at CBRE, commented: “Continental European markets continued to perform strongly in the latter half of 2016 with investors prepared to pay a premium to secure the best product. Germany maintains its position at the top of investors’ wish list for core property assets and is likely to continue to be seen as safe haven for global capital. Interest and sentiment in the London market is improving and the devaluation of sterling made prime London assets particularly attractive to overseas buyers. The UK’s economic fundamentals remain strong and this will underpin investor confidence in 2017.”
Olesya Dzuba, Director, Head of Research, CBRE in Russia said: “The 2016 investment volume in Russia amounted to €4.1bn ($4.5bn), being 36% higher than the same period of 2015. About 34% of this amount has been formed by the government sector deals, while there were no such deals in 2015. There was still significant mismatch between buyer and seller expectations that in some cases prevented deal closure. Meanwhile, there is high investment activity in the market. On the back of stability and expectations of gradual economic and market recovery, as well as understanding of available capital that is looking to invest in real estate in Russia, we forecast the investment volume in 2017 to be at €4.5bn ($5bn)”.