European Commercial Real Estate Investment up 2.5% in Q2 2016
Positive Signs Within the Market Despite Caution Following Brexit
Commercial real estate investment remained strong across Europe in the second quarter of 2016 totalling €54.0 billion, up 2.5% on the previous quarter and 30.4% on the 10 year average, new research shows.
However, overall activity fell short compared to the second quarter of 2015 with the office sector having the strongest quarter, seeing an 8.3% increase on the first three months of 2016, driven by a particularly strong performance in the Nordic region.
The research from CBRE also points out that despite uncertainty in the UK caused by the European Union referendum, sentiment remained strong in other European markets and investment levels were stable year on year.
Investment volumes in France and Sweden, Europe’s third and fourth largest markets were particularly resilient. The data shows that over the last year investment in these markets has grown 32% and 20% respectively. Indeed, second quarter results in both France and Sweden were boosted by buoyant office sectors.
Ireland also performed extremely strongly, transacting a record €2.3 billion of commercial property deals in the second quarter of 2016, more than double that of the same quarter last year, although the sale of the Blanchardstown Centre for close to €1 billion closed during this quarter.
Poland followed suit, transacting €1.5 billion in the second quarter, over three times the level recorded in the same period last year.
But Germany showed decreased levels of investment in the second quarter, which is likely connected to a lack of availability of stock in the core markets, which dampened the European total.
Core property in Germany remains highly regarded as a safe haven and sentiment remains strong.
The UK also performed less strongly than its continental European counterparts in the run up to the Brexit vote although strong fundamentals continue to underpin the UK market. The recent depreciation of sterling, coupled with low interest rates, has attracted the attention of overseas investors to the UK, and with the spread between bond yields and property being the widest on record, the fundamentals of UK and continental European real estate remain attractive.
‘Whilst investors have reacted cautiously to Brexit, the market fundamentals remain strong and investors still have significant capital to deploy. The uncertainty means that many investors will watch and see how the market develops before deciding how to act, said Jonathan Hull, managing director of Investment Properties EMEA at CBRE.
‘However, sentiment is already improving as the UK enters a more stable political environment and there are signs that the market is responding positively to this,’ he added.
According to Miles Gibson, head of UK research at CBRE, the EU referendum risk was undoubtedly one factor affecting investment activity in the second quarter. ‘But instability in the financial markets earlier in the year was similarly important in causing investors to be more risk averse,’ he added.