Germany posts 'record start to year' for investment - RCA

The German market registered a record start to the year, with €16.5 bn of transactions, according to RCA data. This total was 33% stronger than a year earlier and eclipsed the volumes registered in 2007, the previous high watermark for first-quarter activity.

'Germany overtook the UK for the first time as Europe’s top investment market in 2016 because it offers stability and visibility for many investors, as the Continent’s largest economy,' commented Tom Leahy, RCA’s senior director of EMEA Analytics. 'Political risk is playing a greater part in investment decisions than previously in this cycle, while economic fundamentals remain broadly supportive for Europe’s real estate markets – low inflation and interest rates, falling unemployment and steadily improving growth.'

Europe down overall
Positive investment flows in Germany and Spain were insufficient, however, to offset the impact of slower activity as Britain prepared to trigger the formal process of leaving the European Union, Dutch voters went to the polls and campaigning in France’s presidential elections took some unexpected turns to make the outcome less predictable, the report said. Commercial property deals completed in Europe in January through March totalled €53.5 bn, a 16% drop from a year earlier and the weakest start of the year since 2014.

Offices in Germany attracted the most investment in the first quarter, enabling nine German cities to rank in Europe’s top 20 investment destinations. While London retained its position as Europe’s largest market, despite a 34% fall in investment from the first quarter of 2016, Berlin and Munich relegated Paris to fourth place. Aiding their rise was the completion of Blackstone’s €3.3 bn takeover of OfficeFirst Immobilien, the quarter’s largest portfolio transaction. Uncertainty over the presidential elections in France also deterred some investment in the French capital.

Purchases of French commercial real estate fell 36% to €3.9 bn as the outcome of the elections became harder to predict because of campaign setbacks for front-runner candidates. The Dutch market also weakened, with flows dropping 31% to €2.3 bn, reflecting the build-up to a mid-March general election.

Brexit bites
The value of transactions in the UK fell 43% to €11.3 bn. The government gave formal notification of its intention to quit the EU on March 29th, officially starting the negotiation process. British investors were conspicuous by their absence from the Central London office market, accounting for eight deals worth £238 mln, their lowest level of investment on record. This has been offset partially by some large deals involving overseas buyers from Hong Kong, Germany Italy and the US, which helped maintain market liquidity, albeit at a lower level than 18 months ago.

Spain recorded a 66% jump in transaction volumes in the first quarter to €3.6 bn, propelling it back to levels of investment last seen a decade ago. Another market experiencing strong growth was the Czech Republic, where transaction volumes leaped by 160% to €1.5 bn.

'The Dutch election result and current expectations for the outcome of the second-round run-off of the French presidential elections suggest that concerns over political risk may ease. This may be a fillip for real estate investment in Europe, where fundamentals remain positive. Germany itself has federal elections in September, although the capital flows show that investors are not factoring in the potential for disruption to the country’s property market,' concluded Leahy.