Investment in the European commercial real estate market slowed sharply in the first three months of 2018 following a record fourth quarter as investors reassessed pricing and prospects across markets, research by Real Capital Analytics (RCA) shows.
The value of transactions completed in January through March totaled €49.3 billion ($59 billion), a 27 percent decline from the same period a year earlier and the weakest quarter in four years, according to RCA. The slowdown followed a record €118.7 billion ($142.2 billion) of sales in the fourth quarter of last year, which lifted investment volumes for the 12 months to March 31, 6 percent higher than the equivalent year-earlier period.
The slowdown affected 15 of Europe’s 20 most active commercial real estate markets and also affected all of the main real estate sectors, RCA data showed.
“The exceptionally strong final three months of 2017 clearly took the wind out of the sails of market activity during the first quarter,” said Tom Leahy, RCA’s senior director of EMEA Analytics. “Prices continue to advance in major markets, however, so investors are asking themselves how much further the current cycle has left to run.”
RCA pricing indicators calculated from repeat-sales data reveal that, on average, real estate continued to appreciate in many western European markets. In Germany, prices were, on average, more than 30 percent higher in the first quarter than a year earlier, while in metropolitan Amsterdam prices were 28 percent higher, on average. Elsewhere, the pace of asset price inflation is moderating, with values in the Nordic region 13 percent higher and in Central London 5 percent higher.
Each of the quarter’s three most active markets — in order, the United Kingdom, Germany and France — registered weaker investment activity with declines of 5 percent, 36 percent and 36 percent, respectively.
Poland was a notable exception to the generalized slide. It enjoyed a record quarter in January through March with a transaction volume of €2.7 billion ($3.23 billion), which was more than double the activity from a year earlier and elevated it to sixth place in RCA’s European country rankings.
The largest single property transaction in Poland was Malaysia’s Employees Provident Fund acquisition of the Galeria Katowicka shopping center in Katowice for approximately €300 million ($359 million).
Poland’s performance was boosted mainly by the €1 billion ($1.2 billion) sale of the M1 portfolio of shopping centers and hypermarkets to a consortium of funds managed by Oaktree Capital Management, Pacific Investment Management Co. and Redefine Properties of South Africa. The consortium simultaneously sold a dozen of the properties to Echo Polska Properties, the listed company in which Redefine is a major shareholder, for €692 million ($828 million).
Large transactions also caused notable spikes in certain markets. These included Eurocommercial Properties’ €468 million ($560 million) purchase of the Woluwe Shopping Centre in Brussels, which helped investment volumes almost double in the first quarter. Similarly, Blackstone’s sale of three shopping centers in Greater Lisbon to Immochan for a total of more than €400 million ($479 million) also propelled the city to 11th place in RCA’s ranking of Europe’s top investment destinations in the first three months of 2018.
Leahy concluded: “The general slowdown in European investment activity during the first quarter runs contrary to the positive outlook indicated by investor intention surveys and capital raising activity. It would therefore be unwise to jump to any firm conclusions from one quarter’s data, especially coming straight off the back of the strongest three months ever for the market.”
