European real estate investment totalled €213bn for 2014, an increase of around 13% on 2013’s figures. Quarter four’s total investment turnover reached €68bn, of which 52% was cross-border, reports Colliers International in its latest European Capital Flows research.
Offices retain top billing as most traded asset class at €94bn (44%), followed by retail with €48bn (22%), but the largest increases in transaction volumes came from the hotel and industrial markets, at €15bn (+30%) and €24bn (+27%) respectively.
London continues to attract international investors, looking for secure incomes, with Central London offices leading overseas capital’s preferences. Asian insurance companies have stepped up their investment following the further easing of restrictions on overseas investment by China, with Taikang Life the latest entry. The headline deal nonetheless was the Qatar Investment Authority’s acquisition of the Canary Wharf financial district with Brookfield for some €2.6bn.
The residential sector in London also continues to see interest from Asia and the Middle-East, even if sale prices for residential are expected to stabilise in 2015. There are also a number of alternative sectors generating interest, including Student Accommodation.
The Netherlands has seen a recent surge in residential investment, with the disposal of a couple of residential portfolios boosting the investment coffers to nearly €9bn, these signs of recovery are encouraging both domestic and foreign capital to explore this sector further.
The Central and regional governments in Spain and Italy have been actively disposing of public sector office portfolios, on a sale and leaseback basis, to restore their finances. In Spain, the Andalucian regional government recently sold off a 70 offices portfolio for circa €300m to US equity fund, WP Carey. This acquisition follows other disposals by both Catalonia and Barcelona government offices to AXA and Zurich last year and in 2013.
The peripherals have seen large increases in volumes, but from a low base with Spain and Ireland leading the surge due to strong property fundamentals whereas we see Italy, Portugal and Greece, still have low direct investment volumes, which will remain until their economies improve.
There has been more US activity in 2014, including North Star Asset Management, which entered Europe by buying a pan-European mixed use portfolio, spanning eight countries for circa €500m, as well as a pan-European, 11 property office portfolio from SEB for circa €1bn. These factors, coupled with increased activity in the shopping centre market right across the region, shows that Europe is back on the agenda with global investors, looking for reliable returns. The notable deals completed in this category, demonstrate the ongoing pan-European appeal in the Shopping Centre sector, including acquisitions and disposals in France, Italy, Spain, UK, Belgium and Poland.
This data further reinforces the findings from Colliers Global Investor Sentiment Survey 2015 – which shows that shopping centres came second to CBD offices in Western European investors’ preferences and also suggests that Shopping Centre investment could increase further during 2015. Research carried out by Real Capital Analytics (RCA), totals European Shopping Centre investment surpassing €20bn in 2014, compared to a total figure of €18bn in 2013. Almost all of the larger European markets, including UK, France, Spain and Italy recorded two-digit growth in transactions volumes during the period.
Investment in the German commercial property market reached almost €40bn during 2014 and up to €53bn if including residential transactions – the highest amount since the financial crisis. This illustrates the continuing appeal of Germany as a safe haven destination, with access to large lot sizes and an opportunity to pick up good stock, given that some German open-ended funds are under pressure to sell. Frankfurt saw the most activity in Q4, with a number of office towers and large office blocks being sold to international investors, all contributing to making it the third largest European cross-border investment market in 2014, with circa €1.8bn deals.
France saw investment volumes increase through 2014 to some €25bn, but unlike the UK, capital is seeking Paris (75%) of volumes, and not taking regional risk.
Richard Divall, Head of Cross-Border Capital Markets, Colliers International said: “2014 set record pre-crisis investment volumes with the UK, Paris and periphery markets like Spain and The Netherlands contributing greatly. Germany started strongly but had a weak Q4 although Germany still appeals to international capital. We are starting to see capital move to secondary markets within relatively strong economies in Europe like UK and Germany, but concentrating on Paris only in France.
“2015 will continue to be a strong year in Europe as the market cycle attracts opportunistic capital from around the world where Asia is slowing and The US has recovered quicker and is already at peak pricing. The geopolitical issues such as Ukraine, Ebola and terrorism continue to weigh on investors decision making however, real estate as an asset class will continue to be a very attractive alternative asset class for higher returns. Liquidity of some European markets continues to be an issue and the likes of the UK and Paris as safe haven status will continue to attract casual sources from around the world.”
