Europe’s commercial real estate in 2017 experienced the third most active year on record for investment, rising 4 % from 2016 to €293.4bn, according to global research firm Real Capital Analytics. Volume was propelled by several large deals. It sees the outlook for 2018 as good.
Deals with a minimum value of €500m accounted for almost a quarter of 2017 volume, the highest proportion in a decade, RCA said in a new report – though 2017 ranked behind 2015 and 2007 as the most active on record. “Last year was all about the big deal,” said Tom Leahy, RCA’s senior director of EMEA analytics. “The weight of capital targeting real estate has increased competition for good properties, pushing large investors deploy their money in portfolios or corporate M&A.”
This reflects the mid- to late stages of the real estate cycle, which is being sustained by historically low interest rates, accelerating economic growth and subdued inflation.
The main corporate deals were headed by China Investment Corporation’s €12.2bn acquisition of pan-European warehouse group Logicor from US giant manager Blackstone, and also included French Gecina’s takeover of listed peer Eurosic and the purchase of Finland's Sponda by US fund Areim and Blackstone.
In single assets, four properties were sold last year for prices over €1bn. The largest was the sale of Coeur Défense in Paris’s western business district to Amundi, Primonial REIM and Predica CA Assurances for an estimated €1.8bn - followed closely by the acquisition of Berlin's Sony Center by Canada's Oxford Properties for 1.1bn.
RCA’s analysis of pricing trends overall shows that investors were buying at much lower yields to acquire these larger office buildings. The shortage of Grade A stock also supported a rise in development and forward purchases of assets under construction. Project purchases rose by 30 % to €13.6bn, while forward sales totalled €33.7bn.
“It’s getting so difficult for investors to get their hands on single prime properties in the core European markets that they are prepared to take on some of the development risk to acquire them,” Leahy commented. “When sizeable, grade-A properties come onto the market, the competition prices them at a premium to comparable smaller assets.”
All of the top five most active European markets registered rising investment in 2017. The UK returned to first place after being eclipsed in 2016 by Germany, which last year ranked second in spite of an 8 % increase in investment volumes. Spain, after a 35 % jump in CRE investment to €20.9bn chiefly concentrated on Madrid, came in fourth after France. In Barcelona, Catalonian separatists’ bid to secede contributed to a 16 % decline in CRE investment.
RCA said industrial and logistics made the strongest advances, with investment up 38 % to €42bn due to investor confidence that it is benefitting from supply chain changes and the surge of online commerce.
Looking ahead, Leahy said: “The outlook for continental Europe’s real estate markets is good as monetary conditions look stable and economic growth feeds through into rents. There is a broad diversity of investors. We expect the French market will have a big year in 2018 after a very strong final quarter last year. ”