JLL: European real estate investment up 32% in Q1

Direct commercial real estate investment volumes in Europe reached EUR 26 bn in the first quarter 2011 (Q1 2011), representing an increase of 32% year-on-year, according to new research from Jones Lang LaSalle (JLL). Successful debt and equity issuance has provided liquidity to the market, which in turn drove cross-border investment from equity-rich investors.

JLL expects the current positive trends to continue and maintains its forecast for 2011 of up to a 30% increase in volumes across the region compared to 2010 figures (EUR 102 bn), as the volume of equity targeting European markets continues to rise.

Predominately driven by a continuing interest in core London assets, the UK continued to dominate the European investment market in Q1 2011, capturing 38% of all investment capital in the region (compared with 35% in Q1 2010). Significant activity was also witnessed in the French, German and Swiss investment markets, whilst Poland, Russia and the Czech Republic all experienced a strong start to 2011 with volumes up notably on those recorded in Q1 2010.

Russia, in particular, has seen a defined uptick in transactional activity; at EUR 763 mln, investment volumes in Q1 are almost three times higher than levels seen in the first quarter of 2010. In Poland, activity is 200% higher in comparison to Q1 2010 and investment volumes for the Czech Republic are already 89% of its 2010 total.

'In 2010 investors sought shelter in the core mature markets of the UK, France and Germany; however the increasing shortage of available product is shifting capital flows towards secondary and emerging markets such as Warsaw, Budapest, Prague and Moscow,' said Richard Bloxam, director EMEA Capital Markets at JLL. 'We expect to see further transactional activity in these areas as investors seek to move up the risk curve and look outside of their domestic markets.'

In contrast, the ongoing Eurozone sovereign debt crisis is dampening activity on the Iberian Peninsula, with Portugal and Spain recording significant year-on-year falls in volumes, down 72% and 53% respectively. For most cross-border investors, the risk in these markets remains too high but there are a number of active domestic opportunistic funds seeking core assets.