Flurry of recent deals softens concerns of a European downturn
The European real estate market has got off to a racing start in fourth quarter 2018, alleviating concerns that it had begun to enter a downward spiral in the summer.
Real Capital Analytics (RCA) says that Europe has seen €30 billion ($34 billion) of deals concluded in recent weeks, with another €28 billion pending ($32 billion). The figures are a strong improvement on the €49.5 billion ($56.1 billion) of transactions completed in July through to September (a 30 percent decline from the same period a year earlier).
RCA says that the slowdown in European real estate investment that was evident in the first-half of 2018 deepened over the summer months, with office investment falling by 36 percent and retail by 27 percent year-on-year.
London continues to attract by far the most capital for real estate investment overall even though just 80 transactions were completed in London in the third quarter, the lowest number for seven years. Investment into London was almost double that of second-placed Paris where third quarter investment was at a nine-year low. RCA believes that this drop for the French capital may be due to the end of the post-election economic honeymoon for President Macron.
At a country level, transaction volume in Italy in Q3 represented the slowest three months since 2012, as rising domestic bond yields and the stand-off between the populist governing coalition and the European Commission took their toll on investor sentiment.
Overall, there was a sharp drop of 27 percent in capital flows into Europe from non-European institutions in Q3 2018, meaning that deal flows from the three biggest sources of non-European capital have slowed substantially in 2018 so far. U.S. headquartered money is down 25 percent year-on-year, Chinese allocations have reduced by 54 percent and Hong Kong capital has fallen by 61 percent.
South Korean investors, however, are on track for a record year in Europe. They have completed €3.4 billion ($3.9 billion) in deals so far in 2018 and have another €3.9 billion ($4.4 billion) in the pipeline, mostly for the London market.
Tom Leahy, RCA’s senior director of EMEA Analytics, says: “In our Q2 report we said the volume of pending deals indicated a stronger second half and, despite the slow summer, we still think this is the case. There has also not yet been a change in pricing trends. Yields in some markets are starting to drift sideways, but there is no sign of a major turn.”
Nevertheless, he warns that a combination of macro factors is giving investors pause, not least the prospect of a disorderly Brexit and slowing European economic growth as worries over trade and a U.S.-China showdown persist.
“Concerns over a loss of momentum in the global economy suggest 2019 may be a more difficult year,” he adds.
