Real estate investors head to non-core European markets

Commercial real estate investment volumes in over half of Europe’s markets have risen this year, with some non core markets seeing stronger growth than the core. However, a lack of stock in Germany and Spain, and the uncertainty caused during the EU referendum in the first and second quarters in the UK, led to a drop in volumes in these markets, says Savills. 

Total investment volumes in the 15 EU markets Savills monitors decreased by 29% year-on-year in the first three quarters of 2016 to €122 billion. If the UK is excluded, volumes dropped by 8% across the remaining 14 countries. Investment fell by 18% in Germany and 19% in Spain, but rose by 18% in France, 23% in both Sweden and Italy, 27% in Poland and 36% in Ireland. Nonetheless, in terms of value, to date Germany has received the highest volume of commercial real estate investment, €32.5 billion, and the UK the second (€29.7 billion) – the first time Germany has outstripped the UK since 2007.

Marcus Lemli, head of European investment at Savills, says: “The uncertainty caused by the EU Referendum affected UK volumes but has had little impact on continental Europe.  We have now reached the stage of the investment cycle where a shortage of large-scale quality assets in key locations such as Germany and Spain has caused activity to slow in these markets, with investors looking to deploy capital elsewhere. The Netherlands, Poland and Italy are at earlier stages of their cycles and still offer prime yields in some market segments above the European core markets, presenting more attractive returns and the potential for further yield compression, hence why they have proved attractive.”

Savills forecasts that investment into non-core European markets will continue to rise in the last quarter, helping year-end European investment volumes reach just shy of their 2015 levels.

Eri Mitsostergiou, director of European research at Savills, adds: “Once the fourth quarter is taken into account we expect 2016 investment volumes to have grown by between 10-15% year-on-year in Austria, Ireland, the Netherlands and Sweden, as they absorb the excess capital that is competing for good quality investments in Europe. As a result we anticipate core markets’ share of total annual investment to drop to a historic low of 65%, compared to the 10 year average of 73%, although total continental European volumes will remain broadly comparable to those in 2015.”