European real estate investors to target peripheral markets in 2016

The countries to experience the greatest increase in investment volumes in 2015 were Norway (118%), Greece (108%) and Belgium (42%). However Ireland (-14%), Austria (-16%), Denmark (-17%), Sweden (-9%) and Finland (-3%) all experienced negative yoy growth following weaker turnover figures in the second half of the year.

The total volume of commercial real estate transactions in Europe recorded in the first two months of 2016 was almost 30% lower than the same period last year, but very much in line with 2014.

Savills confirms that, despite investment activity slowing in the first couple of months of 2016 due to investors reacting to regional economic and geopolitical concerns, strong investment activity is anticipated within peripheral markets and markets which have not yet reached the end of their cycles: Denmark (50% market peak), Finland (69%), France (87%), Italy (83%), Netherlands (70%), Portugal (64%), Spain (82%), and Sweden (93%).

Eri Mitsostergiou, Director of European Research at Savills, says: “Low interest rates and loose monetary policy in Europe continued to underpin investor demand for commercial real estate last year and over half of its countries surpassed their previous investment peak of 2007/2008. The countries that witnessed negative year-on-year growth were those to have already experienced striking recovery in 2014, showing that the investment activity in these markets is gradually normalising.”

Cross border investors are driving the investment activity in these peripheral markets, namely in Portugal (87% of activity attributable to cross border investment), Spain (57%) and Ireland (57%) and Italy (63%). In Spain however, domestic investors are closing in on cross border investors due to the presence of the SOCIMIs (Spanish REITs). Cross border investors outspent domestic buyers also in Poland (82%), Netherlands (69%) and Germany (61%).

“High competition for the best properties and low supply of new product in the market is leading investors to diversify their strategies in terms of types of assets and geographies. Interestingly these markets all share the common characteristics that they are smaller overall in size and therefore offer less significant single deal opportunities at the upswing of their market cycle,” comments Eri Mitsostergiou. “It will therefore be increasingly commonplace for investors to enter these market places through portfolio acquisitions, diversifying the risk, achieving scale and speedy exposure.”

Marcus Lemli, Head of European Investment at Savills, comments: “Real estate continues to compare favourably to other asset classes although uncertainty due to a number of factors including growth in the global economy, stock market wobbles in the first months, and political developments like the refugee crisis and the upcoming Brexit, have created a slowdown in activity. We anticipate a pent up demand for assets within peripheral markets and sectors later this year, with further yield compression potential and positive future rental growth prospects. Compared to the previous market cycle peak, some jurisdictions have not reached yet their potential and these could also show some further growth in activity such as Italy, Netherlands, Spain and France.”

For Savills latest European Investment Bulleting click here.