Research - SEPTEMBER 11, 2018

Commercial real estate markets remain strong in Europe, reports BNP Paribas Real Estate

by Andrea Zander

The strong global growth rates of late 2017 slowed slightly in early 2018, reflecting tighter monetary conditions and emerging capacity constraints, according to BNP Paribas Real Estate.

Growth assumptions for the world economy remain at a high level for 2018 underpinned by a powerful combination of job creation, rising company profits and easy access to financing. The slowdown in Eurozone growth mirrors the global economic trend. Consequently, the ECB has already announced that it does not intend to raise interest rates before summer 2019. The attainment of inflation with the central bank’s target still requires a high level of monetary support.

Commercial real estate investment in Europe advanced again during first half 2018 to reach €115.4 billion ($133.78 billion), 2 percent above the same period in 2017.

“2017 was the record year for investment volumes in Europe and 2018 began strongly, notably with some very large office deals. Global investors believe in the positive economic environment and the healthy occupier markets in Europe,” said Larry Young, head of international investment group at BNP Paribas Real Estate. This confidence benefited the office sector (+9 percent), reflected in a share of 44 percent of total investment volume. The retail investment volume stabilized, while the industrial & logistics sector fell (–16 percent) to 12 percent market share; however, this was from a very high level in 2017.

Germany contributed greatly to this performance by exceeding the previous year’s result (+0.1 percent) and recording the second-best first-half turnover of all time (€26.1 billion/$30.26 billion). The United Kingdom (€30 billion/$35 billion) remains the leading European market despite a –6 percent reduction versus first half 2017. The French investment market experienced an exceptional first half (+48 percent vs. 2017) with volumes of €12.5 billion ($14.5 billion). Most of other European countries experienced an upturn, including Ireland (+224 percent), Poland (+110 percent) and Belgium (+81 percent). Only Czech Republic (–57 percent), Italy (–35 percent) and Spain (–22 percent) saw reductions compared to 2017.

Foreign investor presence in the investment market declined. With almost €57 billion ($66 billion) invested during first half 2018, foreign investment volume decreased by 5 percent versus first half 2017 and now represents a share of 49 percent. The change reflects shifts in investor composition. After a year dominated by Asian activity, investment from this region slowed in first half 2018 (–24 percent). However, there are large deals ongoing, notably in the United Kingdom. European cross-border investors were also less active (–13 percent). Middle East and North American investors were more present in the market with 19 percent and 5 percent increases, respectively.

The dynamism of the European office letting market did not wane in second quarter. Transactions amounted to 4.79 million square meters (51.56 million square feet) since January — a rise in take-up of 4 percent compared to first half 2017. The market in Central London rallied to finish 26 percent up vs. first half 2017. Deals for large units continued to drive the volumes in Central Paris, where they increased by 12 percent compared to the same period in 2017. Despite a very slight dip (–2 percent) due to exceptional results in first half 2017, the attractiveness of the four main German cities remained unchanged, while outstanding results in first half were also observed in Lisbon, Warsaw and Dublin.



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