Research - APRIL 27, 2017

Germany widens its lead in Europe’s commercial property investment markets

by Andrea Waitrovich

Germany widened its lead over the United Kingdom as Europe’s top destination for commercial real estate investment during the first quarter of 2017, according to Real Capital Analytics.

“Germany overtook the United Kingdom for the first time as Europe’s top investment market in 2016 because it offers stability and visibility for many investors, as the continent’s largest economy,” said Tom Leahy, RCA’s senior director of EMEA Analytics. “Political risk is playing a greater part in investment decisions than previously in this cycle, while economic fundamentals remain broadly supportive for Europe’s real estate markets — low inflation and interest rates, falling unemployment, and steadily improving growth.”

Germany totaled €16.5 billion ($17.9 billion) in first quarter transaction volume. This total was 33 percent stronger than a year earlier and eclipsed the volume registered in 2007, the previous high watermark for first-quarter activity.

Positive investment flows in Germany and Spain were insufficient, however, to offset the impact of slower activity as Britain prepared to trigger the formal process of leaving the European Union, Dutch voters went to the polls and campaigning in France’s presidential elections took some unexpected turns to make the outcome less predictable. Commercial property deals completed in Europe in January through March totaled €53.5 billion ($58.13billion), a 16 percent drop from a year earlier and the weakest start of the year since 2014.

Office properties in Germany attracted the most investment in the first quarter, enabling nine German cities to rank in Europe’s top 20 investment destinations. While London retained its position as Europe’s most popular market, despite a 34 percent fall in investment from the first quarter of 2016, Berlin and Munich moved up in the rankings, relegating Paris to fourth place. Aiding their rise was the completion of Blackstone’s €3.3 billion ($3.6 billion) takeover of OfficeFirst Immobilien, the quarter’s largest portfolio transaction. In addition, uncertainty over the presidential election in France deterred some investment in the French capital.

Purchases of French commercial real estate fell 36 percent to €3.9 billion ($4.2 billion) as the outcome of the elections became harder to predict because of campaign setbacks for front-runner candidates. The Dutch market also weakened, with flows dropping 31 percent to €2.3 billion ($2.5 billion), reflecting the build-up to a mid-March general election.

The value of transactions in the United Kingdom fell 43 percent to €11.3 billion ($12.28 billion). The government gave formal notification of its intention to quit the EU on March 29, officially starting the negotiation process. British investors were conspicuous by their absence from the Central London office market, accounting for eight deals worth £238 million ($307 million), their lowest level of investment on record. This has been offset partially by some large deals involving overseas buyers from Hong Kong, Germany, Italy and the U.S., which helped maintain market liquidity, albeit at a lower level than 18 months ago.

Spain recorded a 66 percent jump in transaction volumes in the first quarter to €3.6 billion ($3.9 billion), propelling it back to levels of investment last seen a decade ago prior to the global financial crisis. The largest deals included Intu Properties’ €530 million ($575 million) acquisition of the Xanadú mall in Madrid, the biggest single property transaction in Europe of the quarter, and Blackstone’s purchase of a 3,500-unit residential portfolio from BBVA for about €300 million ($326 million).

Another market experiencing strong growth was the Czech Republic, where transaction volume increased by 160 percent to €1.5 billion ($1.6 billion). This was due to large deals, notably Deutsche EuroShop’s €374 million ($406 million) purchase of the Olympia Center in Brno and the Czech assets in a larger portfolio of CEE properties acquired by CPI Property Group from CBRE Global Investors.

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