EMEA real estate market dominates 2015 cross-border investment

EMEA attracts more inward investment from overseas capital than any other global market, according to analysis undertaken by international real estate advisor Savills.  In total, EMEA real estate markets received $183 billion of capital funding during 2015, 63% of which originated from overseas.

With cross-border capital now responsible for eight of every 18 real estate transactions in the region, EMEA has proved to be significantly more attractive to international investors than other markets, which have typically seen funding for just one in every ten deals coming from a cross-border source. North America was the biggest source of investment, spending $75 billion in EMEA in 2015, compared to domestic and Asian investors who invested $68 billion and $24 billion respectively. 

Rasheed Hassan, head of cross border investment at Savills, comments: “For core buyers, there are a number of capital cities and gateway cities across EMEA such as London, Paris and the five big German cities, all of which offer an abundance of Grade A real estate with secure income steams. For more opportunistic buyers, in particular American funds, there are still distressed / value-add opportunities throughout EMEA in locations such as Spain, Greece and Italy. In addition, mainland Europe is behind the US and UK in its recovery following the GFC, which is providing NPL (non-performing loan) and large portfolio deals.”

Savills notes that we are also now seeing additional flow from a number of investment houses in North America that traditionally concentrated on the value-add market, but have now raised new funds with a lower cost of capital and, as a result, are also looking at core assets throughout EMEA.

The firm highlights that North American investors in general tend to be more highly leveraged, with average loan to values of 64%, compared to Asian buyers at 53% and those from EMEA at 59%.

Rasheed continues: “As the amount of Asian investment started to increase dramatically in EMEA, particularly from pension funds, state funds and insurance companies, there was a concern that this would create less liquidity in some of the European markets as they typically have much longer investment horizons and lower leveraged transactions than US / domestic investors or buy in cash. However, we have seen growing examples of these investors trading.

“By comparison, the US investors for the largest deals are typically funds who, by design, are geared to trade and doing so is common place. The fund life-span is defined with clear investment and divestment periods and the more highly leveraged investors, who typically have shorter hold durations due to the cost of their debt, are focussed on enhancing returns where possible with shorter  hold periods. This has therefore generated a greater fluidity in the EMEA real estate market.”

View the Savills analysis of loan to value ratios here.

Yolande Barnes, head of Savills world research, adds: “EMEA is truly a global market, attracting significant inbound investment from far and wide, but in particular North America. However, while transactional activity has focused largely on core prime European cities to date, we forecast that lower levels of activity will be on the cards for these locations in the next five years. Smaller cities which are already successfully harnessing the tech economy, such as Dublin and Warsaw, or second tier cities, such as Bristol and Leeds, are among those where rental growth and investor interest should impact total returns.”

Savills notes other potential investment opportunities in EMEA include those that are emerging as solutions to long-term demographic and macroeconomic changes. These include care homes and private healthcare clinics in affluent countries with ageing populations, such as France and Germany and micro-apartment developments in cities experiencing rapid urbanisation and an increase in single-person households such as the UK and Netherlands. In addition, prime green offices, particularly those that offer flexible, sustainable spaces favoured by 21st Century occupiers focused on corporate social responsibility, could prove to be an astute investment.