New research from global property consultancy Knight Frank suggests that Germany is the European market with the greatest potential to receive additional global real estate investment.
The new ‘Gravity’ method, based on the models used to forecast international trade, estimates which markets should attract more capital than current levels.
According to the data, Germany could attract a further $3.1 bn (approximately €2.7 bn) of real estate capital per year.
William Matthews, head of commercial research at Knight Frank, explained: ‘For the first time we have applied the type of spatial interaction model used to forecast global trade to estimate the level of real estate investment that global markets could support.’
‘While competition provided by domestic investors in each market is one factor that can crowd out inbound investment, our feeling is that this sort of barrier will become less important over time, as appetite for cross-border transactions increases,’ Matthews added.
This model comprises 40 variables which impact on inbound real estate investment, such as GDP per capita, relative strength of currency and location of the country. It also considers a range of social and cultural factors that impact upon the flow of capital from one country to another, such as shared language, existing trade agreements, and shared common religious worship.
The analysis shows that six countries in Europe are attracting less inbound real estate investment than expected: Germany is followed by Switzerland, Sweden, France, Belgium and Austria.
Ole Sauer, head of Capital Markets, Berlin, at Knight Frank commented: ‘The potential inbound capital will have a hugely positive effect on domestic German investors and, more importantly, the overall positive sentiment surrounding our healthy real estate market’.
‘This confidence is already leading to a surge in new Grade A office developments, an area where Germany is definitely behind international competing markets who have a far greater number of state-of-the-art office complexes,’ Sauer concluded.
The table above illustrates which countries should see more inbound real estate investment than current levels.
