Germany leads Europe’s Q4 real estate transactions slump, MSCI report

A report from MSCI Real Assets has revealed that European real estate investment activities during the last quarter of 2022 recorded declines, led by Germany.

According to the report, the volume of completed commercial real estate transactions in Europe plunged 66% to €53.9bn in the fourth quarter the from a year earlier, with all the major real estate sectors registering declines.

The Q4 Europe Capital Trends report showed that investment volumes in Germany fell 84% in the fourth quarter from a year earlier to €9.7bn.

Investment activity in Europe in 2022 fell 25% to €291.5bn. Germany recorded a 55% drop in investment in 2022 compared with the record €113bn the country posted in 2021, ceding its place to the UK as the continent’s top national investment market.

The report said investor sentiment was adversely affected by the economic impact of sanctions on Russia, the country’s major source of energy supplies, and as higher interest rates made German real estate appear very expensive.

Despite regaining its top position as Europe’s largest commercial real estate investment market, the UK recorded a 61% fall in investment volumes in the fourth quarter from a year earlier to €11.5bn. For the year as a whole, UK transactions totaled €7.3b, a 15% decline from 2021.

London also returned to first place in Europe’s top investment destinations in spite of a 13% decline in overall investment volumes in 2022 to €25.5bn euros. This followed a two-year hiatus when it lagged behind Paris (2020) and Berlin (2021).

Europe’s largest single property transaction was the National Pension Service of South Korea’s €1.4bn purchase, through LaSalle Investment Management, of the UBS headquarters in the City of London.

France also recorded a decline in the fourth quarter of 2022 as investment volumes fell 39% to €8.7bn, however overall investment volumes for the entire year were 3% higher at €37.8bn, according to the report.

Tom Leahy, the head of EMEA real assets research at MSCI, said: “The extraordinary change of fortune for the German market highlights what a tumultuous year it has been. The uncertain economic outlook, interest rate hikes, accelerating inflation and the conflict in Ukraine have made the investment landscape unrecognizable from a year ago.

“The speed at which values have corrected, to reflect higher borrowing costs, has created a wide disparity in price expectations for buyers and sellers, resulting in the dramatic drop in transaction volumes.”

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