Investment volume set to climb further in 2015 - brokers

Data published by various brokers in the last two weeks confirms the powerful surge in real estate investment globally. Volumes rose in most regions and markets in 2014 and this will likely continue this year, albeit at a slower pace in some markets.

JLL put preliminary global volumes for last year at $700 bn (€594 bn), up 18% on 2013. The Americas were the main target, attracting $298 bn of investment in 2014, up 24% on 2013. Europe was not far behind, rising 21% to $267 bn for the full year.

Commenting on the JLL figures to PropertyEU, Arthur de Haast, lead director of the international capital group at JLL, said: 'Despite there being more uncertainty in the world than there was 12 months ago, we expect direct real estate to continue to appeal in a low interest rate environment, so we are forecasting global transactional volumes of between $730 and $750 bn in 2015, which would be the sixth consecutive year of volume growth.'

Whilst the biggest markets of the UK, France and Germany recorded solid growth of 17%, some of the smaller markets saw considerably higher growth: the Nordics (up 41%), CEE (up 51%), Benelux (up 61%) and Southern Europe (up 70%).

Cushman & Wakefield tracked €7.3 bn of investment in the CEE region, up from €5.2 bn the year before and moving towards the 2007 record of €9.3 bn. James Chapman, head of CE capital markets at Cushman & Wakefield, said: 'Central Europe has become an established part of any pan-European investment strategy. Warsaw has been the gateway for this but activity is clearly growing rapidly in secondary cities and across all CE countries. The region offers quality assets, large-scale platforms and robust occupational markets all driven by the fastest growing economies of any European region.'

GERMANY
A wave of foreign investment in Germany – Europe’s largest economy - propelled the country’s commercial property market to its third-strongest year on record in 2014. The 12-month sales total of €40.15 bn was boosted by a strong last quarter in which assets worth €14.7 bn changed hands, according to a report by BNP Paribas Real Estate.

Hotels and logistics were the fastest growing sectors, accounting for 7.6% and 10.5% of all transactions respectively, but the market continued to be dominated by office sales, which made up 42.2% of the total, followed by retail (23.2%).

The arrival of investors from Asia and the Middle East boosted the proportion of foreign buyers from 33% to 48% by the end of the year. Historically low interest rates and the recovery in the German economy also had a galvanising effect on the market. More than half of the total volume of transactions (55%) took place in the ‘big six’ German cities – Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne and Munich. But their individual fortunes diverged widely, with Frankfurt growing by 43% compared to just 4% for Düsseldorf.

Piotr Bienkowski, chairman of the management board at BNP Paribas Real Estate Germany, said demand would continue to be high in 2015. ‘The historically favourable interest rate environment, clearly better financial conditions and a generally stable German economic picture represent an extremely attractive environment for investors. It is hardly surprising that they are prepared to invest more of their own capital than in the years before the financial crisis.’

IRELAND AND RUSSIA
Over on the western fringe of the continent, Central London volumes reached £20.5 bn (€26.2 bn) in 2014, well above the 10-year annual average but down on the £22.4 bn in 2013 which went on record as the most active year ever, according to research by DTZ. Ireland, which is doggedly climbing out of one of the deepest post-financial crisis troughs, also turned in a feisty performance. The Island nation, CBRE reported, saw €4.5 bn of investment transactions in 2014, a 156% increase on the €1.8 bn of deals the year before. To put this remarkable achievement into context, it is worth noting that the Irish volume is 50% higher than the total achieved in Russia.

Until relatively recently Russia was the place international investors wanted to tap into and talk of annual volumes of €10 bn-plus were more than plausible. But that was before mounting economic problems and geopolitical tensions triggered a massive retreat by foreign capital out of the market. Russian real estate investment plunged almost 60% to just $3.5 bn (€3 bn) last year and will likely drop even further over the next 12 months to the lowest level in 10 years, according JLL analysts.

Foreigners invested just $830 mln in the Russian real estate market, down 78% year-on-year. To be fair investor unease is only part of the story as 2013 was characterised by a few very large and difficult-to-repeat transactions. Yet international appetite for even moderate-sized lots has cooled. 'The Russian real estate investment market reflects the situation in the economy,' said Tom Mundy, head of research for Russia and CIS. 'The economic downturn is the main negative factor. The conflict in Ukraine, foreign policy tension, the volatile exchange rate and low oil prices have accelerated the deterioration of the Russian investment climate. As a result, foreign investors have either cancelled their plans or put them on hold.'

For more, see the Deal Watch in the February edition of PropertyEU Magazine.