The Nordics, Benelux and CEE saw increased trading as Q1 European volumes plunged 40% compared to the first three months of 2015.

Successful real estate investing is really not suited to the overly impulsive – a lesson learnt all too painfully during the last crisis. Getting the required returns from long-term bets on bricks and mortar necessitates a lot of research, assessment and negotiation. It is therefore hardly surprising that commercial property trading tends to be somewhat restrained in the first few months of a new year, as investors recover from end-of-year splurges and seek to get a measure of the prevailing internal and external factors shaping the year ahead. This was more apparent than ever in the first three months of 2016.

Real Capital Analytics (RCA) reported that European volumes plunged 40% to almost €47 bn compared to €78 bn in Q1 last year, as global financial market volatility caused investors to ease off the accelerator after a record 2015. All major western markets slowed, led by a 59% drop in France.

JLL's analysis of Q1 is less stark, but the trend is the same. Global real estate transaction volumes, JLL research shows, dropped 17% year-on-year to $128 bn (€112 bn) amid a somewhat more bearish sentiment toward the geopolitical environment.

The US and Asian real estate markets saw volumes 16% lower at €53 bn and €18 bn respectively, JLL said. Europe was down the most; 20% in dollar terms to $46 bn (€40 bn). The UK and France – two of the Big-3 core markets in Europe – were the furthest fallers in terms of real estate spend in Q1 (-37% and -30% respectively). This was despite the UK claiming the largest deal of the period: US investment bank Goldman Sachs and residential specialist Greystar joining with British charitable foundation Wellcome Trust in a €2.6 bn student accommodation joint venture. Similarly, France was the venue of the second-largest transaction in Q1, as Amundi Real Estate led a group of institutional investors in the acquisition of a portfolio of healthcare assets from Gecina, the Paris-listed REIT, for €1.3 bn.

Causes of the downturn
Last month, we postulated that the looming 'Brexit' referendum is leading some investors to pause, or at least slow down, their acquisition programmes in the UK, and among those who are going ahead with deals, some are insisting on opt-out clauses that will activate should the British citizenry decide to part company with the European Union. There is also a more basic factor at play: the apparently endless demand for real estate as a replacement for other, poor performing, asset classes is feeding a huge bubble of capital that is weighing down the market, leading to a corresponding rise in pricing. In a report, A View From the Top, Colliers International notes that a bull market is rumbling on despite ‘political, economic and financial headwinds’. European real estate, and the core markets in particular, the property adviser says, appear to be 'walking a tightrope' at the height of pricing.

That said, sentiment appears to be neither rising or falling into any convincing trend. 'Since mid-2013 the property industry has enjoyed a bullish market, however over the last six months since the Chinese share crisis, political, economic and financial volatility has given investors a cause for a pause,' says Colliers International chief economist Walter Boettcher. ‘There looks to be considerable life left in this bull. Many of the property market drivers that helped to achieve record volumes and pricing in the UK and Europe remain unchanged and will go some way to keep property on the radar of international investors through 2016 and beyond.’

Germany seen as 'not Britian' 
Germany is the Big-3 core market that has benefitted in recent years from its stable economic performance and abundance of investment locations. More recently, it had been tipped to draw in more capital, thanks simply to the fact that Germany knows it is the centre of Europe and is not plagued like Britain by a geographical identity crisis. Yet, German investment volumes were down 7%, according to JLL, compared to Q1 2015. There were nevertheless several transactions in the €200 mln bracket, though some of these involved domestic investment managers, making it difficult to ascertain whether the capital deployed was local or cross-border, or a mixture of both.

The largest transaction in which the volume was reported was Munich-based fund manager Wealthcap completing the acquisition of the new headquarters of energy group Baywa in Munich for €280 mln. Two months earlier, Wealthcap acquired an office property in Frankfurt from fellow German real estate fund manager Commerz Real for €86 mln. Wealthcap is a wholly-owned subsidiary of Italian banking group UniCredit but the equity it uses for real estate transaction is mainly German. This is not necessarily always the case for Patrizia Immobilien, another 'domestic' heavyweight investor which has pooled funds and separate mandates for both German and cross-border institutional investors. In early April, a German occupational pension scheme was the beneficiary when Patrizia acquired a 25-asset retail portfolio of mainly big-box properties, centred on Bavaria, Baden-Württemberg and Hamburg, for €320 mln. German retail property has been a major theme for Patrizia in recent months. In January the company acquired a 21-asset retail portfolio in the states of Bavaria, Lower Saxony and Schleswig-Holstein for €250 mln. Equity came from Patrizia’s recently established Handels-Invest Deutschland II fund. In December 2015, Patrizia picked up a similar 18-asset retail portfolio on behalf of a special fund for savings banks, insurance companies and pension funds.

Regional stars
It was left to Europe’s largely notional regional blocs – the Nordics, Benelux and CEE – to show gains in trading volumes. Some €7.6 bn was invested in the Nordic region during Q1 2016 which, according to CBRE, was 10% up on the same period the year before. The result also equated to 15% of the total spend in Europe in the period. All four Nordic markets turned in a strong performance but it was Sweden that really shone, bouncing back from a volume dip in 2015 to affirm its position as the biggest market in the region. Data from Savills shows SEK 35 bn (€3.8 bn) of commercial real estate changed hands in Sweden in the first three months of 2016. The performance was 39% up on Q1 2015 and 11% higher than the previous Q1 record in 2007, an all-time high for a first quarter period. 'The increased appetite for property lending among banks has led to a competitive climate, meaning more favourable terms for property owners,’ comments Peter Wiman, head of research, Savills Sweden. ‘Sweden is characterised by a strong expansionary monetary policy and the economy is expected to remain robust throughout 2016. This in turn has made our commercial property an increasingly desirable asset and fuelled demand from investors here and abroad.'

The largest transaction was Sveafastigheter, the investment arm of Stockholm-based Brunswick Real Estate, selling 97 properties in Sweden and Finland to Switzerland’s Partners Group for €450 mln. The portfolio comprised retail properties, offices and hotels with a total lettable area of 360,000 m2.
Central and Eastern Europe is often said to be ‘on everyone’s radar’, though the deal volumes do not always reflect this. This time around the region was buoyed by some really big deals, such as South African REIT Redefine paying some €900 mln for a 75% stake in an 18-asset portfolio in Poland built up by developer Echo Investments. Blackstone’s Logicor took over Immofinanz’s German and CEE logistics business for over €500 mln.

Benelux – like CEE – is more geographical shorthand than anything else, as the constituent markets often do not have that much in common except proximity. But foreign capital is increasingly finding its way to both the BE for Belgium and NE for the Netherlands. In March, Patrizia acquired the Astro Tower in Brussels for an estimated €156 mln on behalf of a Korean consortium. A month earlier Taiwanese insurer Fubon Life emerged as the buyer of Brussels’ Ellipse building for €125 mln. Over in the Netherlands, Goldman Sachs and Valad Europe bought the 20-office Zenith portfolio for €182 mln, and Patrizia acquired 1,200 residential units for €150 mln. ?