France and Germany drive European volume growth - CBRE

France and Germany led the way as total commercial real estate investment reached €46 bn in the second quarter of 2014, taking the total for the first half of the year to €84 bn, according to the latest research from CBRE.

This compares to €67 bn in H1 2013. The rate of growth has been consistent since the end of 2012 at approximately 30% per annum.

There was a big uptick in investment in France in Q2 2014 with €7.3 bn of transactions, bringing the H1 2014 total to €11.1 bn. This represents an 84% increase on the €6 bn recorded in the first half of 2013. The vast majority (69%) of transactions attracted domestic buyers, although France also saw a significant inflow of capital from the Middle East. This reversed the position in Q1 2014, when local buyers made up only 36% of the market.

In Germany investment activity reached nearly €7 bn in Q2 2014, bringing the H1 2014 total close to €17 bn. This represents a strong quarter when compared to the Q2 totals of previous years, despite a slight decrease on an exceptional Q1 2014. A notable feature of the German market in H1 2014 has been the growth in cross-border investment, with investors from the US, UK and France all active.

The continued growth in the European market has been achieved with countries such as the Netherlands (up by 109% H1 2014 compared to H1 2013), Spain (106%), and Sweden (30%) now making significant contributions. This is despite a relatively slow increase in the UK market of 11% over the last 12 months.

RETURN OF MEGA DEALS
H1 2014 saw the completion of four separate transactions over €1 bn for the first time since 2007. The UK has dominated very large real estate transactions recently, so it is notable that two of these transactions took place in France, one in Germany and one multi-country portfolio. Spain, the Netherlands and Ireland recorded a higher proportion of Europe’s €100 mln-plus transactions than would normally be the case — 19 between the three countries and almost double the historic average.

There was also a significant shift in buyer type recorded in H1 2014, with the proportion of investment by collective investment vehicles—mostly property funds —seeing a sharp rise and the activity of institutional investors falling back equally sharply. The start of this shift was already evident in H2 2013, but the trend has continued in H1 2014 and now represents a significant turnaround in the market.

Jonathan Hull, managing director, EMEA Capital Markets, CBRE, commented: 'Direct institutional investment generally remains at the core and core-plus end of the real estate market throughout the property cycle, so it is no coincidence that this shift has come at a time when we are seeing greater risk taking by investors. However, the size and speed of the shift over just 12 months is yet another indication of how quickly sentiment has turned around.'

H1 2014 also saw a significant increase in buying activity from US-based investors, with acquisitions reaching nearly €11.5 bn in H1 2014, compared to €6.3 bn in H1 2013. The UK attracted the majority of this investment (36%), with Germany (23%) and France (17%) also favoured destinations. Ireland and Italy also received over €500 mln of US investment.

The most significant shift in terms of buyer nationality in Europe in H1 2014 was the jump in buying activity from US-based investors who were responsible for 63% of cross-regional investment in the region.

US-based investors targeted a range of European locations, with assets acquired in at least 15 European countries investment in H1 2014. The city that attracted the biggest concentration of US investment was Paris at nearly €1.9 bn.