The UK retook first place from Germany as the top European real estate investment location during the first nine months of 2017 when €185 bn of commercial property changed hands, Real Capital Analytics (RCA) has reported.
The value of transactions in the UK rose 5% to €47.3 bn in the first nine months, led by the continued strength of investment in London. Germany registered a 12% increase in investment in the first nine months, with €45.2 bn of commercial property sales.
This means the UK has regained its traditional position - at least for the time being - as the largest investment market in Europe. During 2016 uncertainty generated by the Brexit vote led to a 40% year-on-year drop in full-year volumes for UK to €59 bn. Germany ended the year on €59 bn, despite its own 19% investment drop.
UK capital
London accounted for 49% of trading in UK commercial real estate in the first nine months of 2017. This was mainly due to large deals involving Hong Kong and Chinese buyers. These included the UK's largest ever single asset transaction, which completed in August - Lee Kum Kee’s €1.47 bn purchase of 20 Fenchurch Street, known as the Walkie Talkie.
Large office transactions in the City of London ensured investors headquartered outside Europe accounted for a record 37% share of overall investment in European commercial
real estate during the third quarter, RCA data show.
Tom Leahy, RCA’s senior director of EMEA Analytics, said, 'Although headline London volume growth is positive, the number of properties traded was the lowest since 2013, underscoring the impact of the large London office towers. As long as London continues to maintain its status as a global city it will appeal to international investors, particularly while the recent depreciation of sterling provides them with an attractive entry point.'
See also, European retail property volumes plummet in 9m 2017
Price growth diverges post-Brexit
Third-quarter data showed a 50% jump in UK real estate investment from the same period a year earlier. However, Leahy said that this reflected the weakness of the market in the months immediately after the June 2016 Brexit referendum.
Outside London, there was a 27% and a 40% drop in investment in Manchester and Birmingham respectively, suggesting that the uncertainties over the terms of Brexit are weighing on sentiment. In another sign of the mixed fortunes of the British market, UK institutional investors preferred to invest more in Continental Europe than in the domestic market, a pattern that last occurred in 2009, RCA data show.
Among Europe’s other largest real estate investment markets, Germany registered a 12% increase in investment in the first nine months, with €45.2 bn of commercial property sales. High prices in Germany’s Big Seven cities continue to persuade more investors to look for opportunities in the mid-sized cities.
Elsewhere, the Dutch and Spanish markets continued their recovery, while investment in Finland received a boost following Blackstone’s take-private acquisition of Sponda. In Central & Eastern Europe, investment picked up in Russia, Hungary, the Czech Republic, Romania and Bulgaria.
France
Off-setting this was the continued weakness of the French market, Europe’s third-largest, in spite of the more confident mood in business surveys following the presidential and legislative elections. France had a 32% drop in transactions in the first nine months to €13.1 bn, however, RCA data suggests the final quarter of 2017 may be stronger, since €2.4 bn of sales have already completed and there are €6.7 bn more that are pending.
Other weaker markets were Poland, Sweden, Switzerland, Ireland and Italy. RCA's Leahy concluded: 'We're reaching a new stage in the real estate investment cycle as high prices and strong competition combine with greater risk awareness and discipline from investors to keep volumes steady but not booming. The interest rate outlook is still broadly supportive for real estate investment, however, and this bodes well for Europe’s investment markets for the year-end and into 2018.'
