Commercial property markets in Europe are in best shape since before global economic crisis
Europe’s commercial real estate markets are in better shape than at any time since the global financial crisis, according to new research.
The Eurozone is showing good economic growth for the first time in many years and this is creating more stability and growth, particularly in the UK, Germany, France and the Netherlands.
International real estate adviser Knight Frank’s newly appointed European Capital Markets Board are optimistic for the future of the European real estate markets despite uncertainty caused by the Brexit process.
‘The Eurozone is showing good economic growth for the first time since the global financial crisis and despite the uncertainty over the Brexit negotiations, the UK is experiencing record low levels of unemployment,’ said Andrew Sim, head of Global Capital Markets at Knight Frank.
‘London in particular is continuing to power ahead, with confidence indices rising and office take-up by the tech and creative sectors actually having increased in the first half of 2017 compared with the same period in 2016. The upshot is that London remained the most active investment market in Europe in the first half of 2017, with prices having risen to pre-referendum levels despite an air of uncertainty,’ he pointed out.
‘We expect an increase in activity as the prospect of a two or three year transitional deal for Britain when leaving the European Union sinks in, leaving more and more investors expecting the return of the London capital markets status quo’,’ he added.
According to Hanns-Joachim Fredrich, head of Capital Markets Germany at Knight Frank, explained that in Germany pricing is looking sharp, with offices in central business districts trading at record levels with record demand forcing up prices. ‘Investment into Frankfurt has significantly increased due to the ongoing Brexit discussions, however a lack of suitable product is hindering its deployment,’ he said.
‘All property classes are benefiting from the strong investor demand, not only prime offices and retail but also hotels, residential and healthcare. Due to the extremely high investor demand for residential, there is a shortage of commercial developments within Germany’s top seven cities. Most office developments are pre-let two or three years before completion,’ he explained.
‘Knight Frank recommends now is the time to activate existing land with building rights and start speculative development to benefit from the shortage of existing schemes underway and the strong take-up of the dwindling office space available,’ he added.
In France there is growing demand from overseas investors, boosted by the election of President Emmanuel Macron. ‘There is belief, momentum and activity, with the vacancy rate on Paris’s Ile de France falling sharply to now sit at 6.6%. In the central business district vacancy rates are now 3.1%,’ said Vincent Bollaert, the firm’s head of Capital Markets in France.
‘Our view is that the occupational market is going to strengthen further as well, and post-Brexit we expect the tech sector to account for up to 15% of total employment in Paris. This is all underpinning a strong investment market, with prime yields sitting between 3% and 3.25% – a record low for the central business district. While French investors accounted for 63% of transactions in the first half of this year we are finding there is growing demand from overseas buyers in the second half,’ he added.
Amsterdam is becoming an increasingly attractive market for investors seeking an alternative to more expensive European markets such as London, Paris and Berlin, according to Fred Rikken, head of Capital Markets in the Netherlands.
‘High office vacancy rates were previously a concern for those looking to deploy capital, but availability is now rapidly tumbling and supply shortages have emerged in the most sought-after office districts,’ he said.
‘Combined with strong demand from the city’s vibrant and expanding technology sector, tight supply will drive rental growth, and create opportunities for new development, however, a lack of suitable core investment product would be the biggest challenge in the next 12 months,’ he added.