German real estate investment activity has captured a 34% share of the European total so far this year while the UK market share has fallen to 20%, according to new research published by Savills.
France remains in third place, accounting for 11% so far this year. This is down on last year given the weight of Korean investment targeting the French capital in 2019, although it is still above the five-year average of 10%.
Investor activity across different asset classes has changed tack over the course of the year, the research shows. The share of office investment has fallen from 40% in 2019 to 34% year-to-date, with Savills observing proportional increases in retail (from 13% to 15%) and multifamily (12% to 17%). A shortage of prime logistics stock continues to frustrate buyers, as logistics’ share rose from 12% to 13% of total transactions.
European average prime office yields have hardened by 1 basis points during the period Q1-Q3 2020 from 3.61% to 3.60%. However, Savills is beginning to observe a divergence in yield movement between core and non-core markets. During the Q1-Q3 2020 period, prime office yields have compressed in Oslo (-40 bps), Milan (-25 bps), Paris CBD (-15 bps), Stuttgart (-10 bps) and Hamburg (-10 bps). However, Warsaw (+40 bps), Manchester (+25 bps), La Defense (+25 bps) and Helsinki (+10 bps) moved outwards. Many investors are being cautious due to the heightened financing, occupational and liquidity risks across non-core locations.
The European logistics sector continues to shine through amid times of adversity, with average prime yields compressing over the last six months by 7bps to 4.84%. Multifamily yields are now stabilising in most markets, following a significant inward yield shift trend over the past five years.
‘In many respects, the supply/demand dynamic appears similar to 2019 with rising equity commitments to European real estate, although we are observing a shift back to core strategies,’ said Mike Barnes, associate European Research, Savills. ‘As we move into 2021, we expect to see more price-point clarity emerging for core-plus, given the shortage of vendors for ultra-core/core stock. We are maintaining our European investment volumes forecast of between €220 bn and €260 bn during 2020, down 15-30% year-on-year.’
Tris Larder, joint head of Savills regional investment advisory EMEA, said: ‘Government fiscal stimulus has, to a large extent, helped tenants to keep paying rent and supported the commercial property market. In this fourth quarter the cracks are beginning to appear and pricing is coming under pressure, although this is by no means uniform with some markets more exposed to pricing corrections than others.’
He added: ‘With retail investors struggling for alternative places to park their savings the big retail funds are still raising substantial equity, private equity funds have serious firepower to deploy and the major institutional investors are vying for opportunities so this could present a buying possibility for many of our clients.’
