European commercial property investment has been tipped to reach €230bn this year by advisory firm Knight Frank.

Transaction volumes reached €104.9bn in the first half of this year – a 29% increase on the same period in 2014.

A total investment volume of €230bn would make 2015 the best year since the market peak of 2007, the firm said.

Andrew Sim, head of European Capital Markets at Knight Frank, said: “Investment volumes continue to be driven upwards by the strong international demand for European commercial property, particularly from US investors, and by the increasing number of large portfolio deals.

“These trends are expected to continue over the rest of the year.”

Annual European investment in 2015 could be more than 20% year on year, Sim said.

Knight Frank said Europe’s two largest markets, the UK and Germany, performed strongly in H1, providing a significant boost to overall deal volumes.

The UK is on course for a record-breaking year for investment, while the German market has been buoyed the strong performances of Frankfurt and Berlin.

As investors move up the risk curve and seek value in non-core markets, Knight Frank said the revival of activity in Europe’s peripheral countries had continued.

Spain and Ireland, which have led the peripheral market recovery over the last 18 months, continue to attract heightened levels of investment.

However, the company said the most impressive increases in activity during the first six months of this year came in Italy and Portugal.

The weight of money targeting commercial property has led to widespread yield compression.

Prime office yields hardened in Amsterdam, Lisbon, Madrid, Milan and Paris. 

Knight Frank’s European-weighted average prime office yield moved to 4.9%, its lowest level since mid-2007.

Despite the investment volume increases and yield compression, rental growth was “patchy” in the second quarter of this year, Knight Frank said.

Dublin, Madrid and Vienna were among a small number of European markets to record increases in prime office rents.

The company said rental growth was expected to become more prevalent in the medium term, on the back of the improving European economy and falling availability levels, particularly for offices in central business districts.