Following a stellar performance in Q1 2011, which saw a 32% year-on-year increase, direct real estate investment volumes in Europe during the second quarter of 2011 (Q2 2011) reached 24.8 billion, reflecting 4% growth compared with the equivalent period last year, according to the latest Global Capital Flows research from Jones Lang LaSalle.
Although growth slowed in Q2 2011, investment activity in the first half of the year (H1 2011) is still up 17% year-on-year. Second quarter growth rates were quite diverse across Europe; Northern Europe reported strong increases in volumes, while the UK and Southern Europe saw declines.
Robert Stassen, Head of EMEA Capital Markets Research at Jones Lang LaSalle commented: "The first quarter of this year saw some exceptionally large deals completing, including the sale of the UK's Trafford Centre (1.9 billion) and the Centro Shopping Centre in Germany (650 million), but this momentum did not continue during the second quarter. Although this would explain much of the quarterly volatility, tight supply of product, particularly in the popular Central London market may also have held back investment volume growth."
Stassen continued: "Current market evidence suggests that larger deals now take longer to close and we suspect that some deals currently under offer have been pushed back into the second half of the year. The average deal size in Q2 2011 was 37.4 million, down from 46.3 million in Q1 2011 and 41.5 million in 2010."
Germany's investment market performed well in Q2 2011, recording an increase in investment volumes of 36% compared with Q2 2010 and accounting for around 22% of the total activity in Q2 2011.
Hela Hinrichs, Director EMEA Research at Jones Lang LaSalle, added: "In addition to the more liquid markets, such as Germany and the UK, other countries have seen increased activity; for example, the Nordics and Russia both reported better than anticipated investment volumes.
"Russia saw activity up over 200% on the equivalent period last year and the Nordics recorded increases of 70% year-on-year and 83% quarter-on-quarter. Sweden was particularly active with over 2.0 billion traded, an increase of almost 50% in comparison with the equivalent period last year."
Hinrichs added: "Unsurprisingly, following the additional EU bail-out in Greece, investment volumes in Southern Europe were sluggish; reporting volumes down 70% year-on-year. Italy, though, was most resilient decreasing by 39%."
Although the UK remains the most liquid real estate investment market in the EMEA region its investment volumes were down 14% (11% in Sterling) compared with activity levels in Q2 2010. This followed an exceptionally strong first three months of the year where volumes increased 44% year-on-year resulting in a more modest 12% increase for H1 2011 versus the same period last year.
Stassen concluded: "While demand for London assets remains relatively healthy, London's City and West End office markets have been characterized by an extremely tight supply of prime assets and this is expected to continue through to year end. Tight supply is not just constrained to the offices market; there is demand from sovereign wealth funds for super-prime shopping centers yet limited suitable product has come on to the market."
Offices accounted for 49% of European volumes in Q2 2011; reclaiming the top spot, while retail, although remaining popular amongst investors across the region, accounted for 27% of activity across Europe. The share of industrial declined to 8% from 9% quarteron-quarter. In the buoyant German market, however, retail took the greatest share of activity with 44%. Investors across Europe continued to resist compromises on quality and remain focused on income growth a trend from which German retail is benefitting.
Source: Jones Lang LaSalle