A strong UK market and a near record in Germany last year boosted commercial real estate investment in all of Europe by 9.3% to a record €286bn, according to adviser CBRE. Industrial is now the fastest-growing investment asset, with hotels also expanding fast.
UK investment last year rose 11.6% on 2016, driven by large international capital inflows, marked by several landmark deals - notably the sale of 20 Fenchurch Street (The Walkie Talkie) for £1.28 bn and the sale 122 Leadenhall Street (The Cheesegrater) for £1.15bn, CBRE said in a year-end report. German investment rose 8.4%, after a strong fourth quarter, taking annual investment above the €50bn-mark for the fifth time since 2006.
But most European markets reached elevated levels. The Nordics, Austria, Italy, Netherlands as well as the eastern European region all posted records. Dutch investment hit €19.5bn, a 42.7% increase on 2016, surpassing the prior peak of €13.7bn. France, after a subdued start, picked up in the final quarter, reaching €26.8bn for the year. CBRE said investor sentiment was positive in light of President Emmanuel Macron’s election and recent economic reforms.
CBRE Managing Director, EMEA Investment Properties Jonathan Hull commented: "2017 proved to be a record year for real estate investment, driven largely by notable corporate platform transactions." The scarcity of prime product across major capitals drove yields to record lows. Looking forward, capital flows into real estate should remain strong as the asset class has retained its competitive advantage against many others. "Industrial and logistics is now the fastest-growing sector in real estate across Europe, underlining the strong fundamentals," Hull noted.
Platform deals and corporate acquisitions dominated in 2017. Of particular note were the €12.3bn sale of Blackstone's Logicor logistics firm to the China Investment Corporation sovereign fund, and the €2.4bn sale of IDI Gazeley to Global Logistics Properties, a Singapore REIT which also channels Chinese money. As a result, investment activity in European industrial real estate reached a record of €42.5bn in 2017, up 67% on 2016 and a 78.9% increase on 2015.
Other sectors also outperformed previous years, with hotels reaching a total €21.8 bn, a 17.5% increase on 2016. Office investment around Europe reached €114.5bn, just ahead of the previous record in 2015 and 4.4% up on 2016.
BIE COMMENT: No question that CBRE and other advisers have the best view ahead, but the 'fly in the ointment' is tightening labour markets in developed Europe. The '60s boomer demographic is retiring, and the challenge this year will be the search for labour. Ergo the theme of 2018: upside risk to bond yield and official rate forecasts. The property yield gap with 10-year bonds will narrow.