Commercial Real Estate Investments in Europe at All-Time-High Since 2007

Posted by Staff writer ( on Aug 31, 2015 06:00 AM EDT
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NEWPORT, UNITED KINGDOM - APRIL 21: A man walks along the empty high street on April 21, 2008 in Newport, Wales. A poll by researchers Fitch has revealed 10 'sub-prime' blackspots across the UK - areas where large numbers of homeowners with chequered credit history have been given loans - with the worst area named as Newport in South Wales, where more than one in 10 homes are seen as at high risk of repossession as the credit crunch bites. The Bank of England has announced details today of a 50bn GBP funding rescue plan to help kick start the mortgage market and prevent the credit crisis causing more damage to the UK banking system, housing market and economy. (Photo : Matt Cardy/Getty Images)

The first half of the year proved to be a good period for the European commercial real estate industry.  Investment volumes rose to its highest levels since 2007, which amounted to €102.5 billion (approximately $115 billion) and marked a 25 percent on same period last year.

The increased levels of commercial real estate activity in Europe was based on a report released last week by the international real estate advisor, Savills, states Europe's Property Magazine International.  Around 16 countries participated in the report, which included the United Kingdom, France, Portugal, Spain, Austria, Italy and many others.  The key metrics used for the report ranged from gross domestic product (GDP) and office rental growth to prime yields and yield shifts.

The report, titled the European Investment Briefing, indicated that the European market is on track to surpass the €230 (approximately $258) target set for the year.  Investors also favored core markets in Europe wherein UK, Germany and France accounted for 67.8 percent of the total volume, stated Lydia Brissy, director at Savills' European research team.  Brissy also mentioned that the share of markets outside the three countries is also increasing given "stronger investor interest for non-core countries."  These non-core countries reportedly offer "attractive pricing and supply of large assets and portfolios." 

Brissy added, "Overall, investors are more open to move up the risk curve. They seek future yield compression by targeting secondary or alternative assets in core cities, or prime assets in secondary markets."

The report also cited that the office sector continued to top the investment activity in most European countries, with an average of 39 percent of total transaction volume per country. However, investment deals in Germany, Finland, Netherlands, Norway and Portugal were boosted mostly by movements in the retail property sector.  These countries posted large scale retail sale transactions in the past quarter with volume levels of 42 percent, 43 percent, 62 percent and 83 percent, respectively.

Apart from office and retail property market movements, cross border investments also increased in nearly all of the 16 European countries surveyed, states Savills.  U.S. investors were seen as the most active, along with growing interest from the Asia Pacific and the Middle East investors.  Head of European Investment at Savills, Marcus Lemli, said in a statement included in the report that international investors continued to boost investment volumes, particularly from the U.S. equity funds which reportedly have been buying retail or office properties in Europe.

Lemli added, "Despite all of the economic uncertainty caused by the Greek crisis, the commercial property market activity across Europe has proven resilient... We are therefore forecasting an increase of at least 10-20 % in the commercial investment activity this year and further yield compression for two thirds of our markets. I have no doubt that, despite current unease surrounding the economic slowdown in China, investor appetite will remain high in H2 2015 as Europe continues to recover and remain an attractive place for investment."

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