According to data from BNP Paribas Real Estate, Europe’s economy is holding up fairly well in the face of a slowdown in emerging markets. Cheap money, credit and oil are providing it with support, while trade and capital flows are shifting in directions that are favourable for the single market. After working very hard to improve their fiscal and trade position, southern European countries continue to make up ground.
During 2015, the total investment volume in Europe amounted to €259bn, increasing by 17% compared 2014. Office share of total volume decreased slightly from 46% to 44%, but increased by 17% in volume compared to 2014.
The on-going good performances are mainly due to the significant weight of mega deals. The share of mega deals reached 48% at the end of 2015 compared to 45% in 2014.
During 2015 only, the share of foreign investment reached 52%. Americans stayed focused on the European commercial real estate market and represent 32.8% of the foreign investment volume. 61% of their investment went towards the UK and Germany, 10% each towards France and South Europe.
Foreign investors remain active and were responsible for 51% of the total investment volume in the UK, 50% in the Germany and 39% in France.
“Europe attracts the largest level of foreign capital in the world and investment into Europe is at an all-time high.” said Céline Cotasson-Fauvet head of European analysis at BNP Paribas Real Estate.” “The Americans still remain the largest overseas owners and active investors within Europe. They are generally more opportunistic in nature than other international investors. This is definitely set to continue.”
German investment market activity was quite dynamic with an increase of 40% compared to 2014, the second best result since 2007 high. France and the UK more marginally increased (4% and 5% compared to 2014). The year 2015 is the second consecutive year that the UK topped 2007 results (+18%).
“As expected, UK/GERMANY/FRANCE still lead the European RE market in terms of volume, representing 66% of transactions this year with the strongest y-o-y growth coming from Germany said Aymeric Le Roux, executive director international advisory and alliances BNP Paribas Real Estate. But the strongest percentage increases are held by smaller markets like Belgium, Spain, Netherlands with increases between 20% and 50% even three-digit growth in Portugal.”
With an investment volume of €8.3bn in 2015, the Netherlands registered a new record volume over the last eight years. 64% of the investment volume is done by foreign investors, with a majority from the USA (32%), the UK (31%). Eurozone investors (27%) come mostly from Germany. Forty-one percent of the investment volume was made up of >€100m deals thanks to several portfolio.
In Belgium, investment volume amounted to €3.9bn in 2015 a growth of 26% compared to 2014. Ireland recorded €3.6bn of investment during 2015, dropping by 21% over an outstanding 2014. Luxembourg signed its best yearly investment volume since 2008, 8% up on 2014.
With more than €8bn invested in 2015, Italy recorded a new record high, 57% up on 2014. 71% of the investment volume was brought by foreign investors. During the first nine months of 2015, the investment volume in Spain reached €10.5bn, an unprecedented record, +51% over 2014. In Poland, €4bn were invested during 2015, an increase of 33% compared to last year.
The drop in office prime yields continued over 2015. Amongst star performers central London is leading the way with Paris, followed by the key German cities of Munich and Berlin. They’ve all hit their historic lows in terms of yield while this is going to take little more time in the rest of Europe but what has been achieved so far is huge. For example, Madrid, Dublin and Lisbon have dropped between 150bps and 200bps in the last 18 months.
“Real estate appear as a very good risk/return investment compared to the currently very volatile equity markets and the lacklustre bond markets. Many investors including very large sovereign wealth funds are increasing their allocations to alternative investments and especially real estate” said Etienne Prongue director of international investment group at BNP Paribas Real Estate.
The letting activity in central London remained robust despite a slight decline in 2015 compared to the strong performance in 2014. In Paris, buoyant activity during Q4 2015 contributed to maintain take-up to standard levels. The ongoing healthy state of the labour market in Germany sustained the surge in occupier demand in the four main cities, boosted by small and medium sized deals.
Office take-up in Brussels slowed down significantly in 2015 as large deals emanating from the public sector represented only 20% of the take-up in volume vs 54% in 2014 at the same period.
The favorable macroeconomic situation in Spain and Poland already resulted in better office take-up performance in Madrid, Barcelona and Warsaw. Although the job market in Italy remained weak, the letting activity increased thanks to mega deals in Milan recorded during Q4 2015.
