European commercial property investment activity at highest since 2007

Commercial property investment activity in Europe reached its highest level since 2007, totalling €102.5 billion in the first half of 2015, the latest market analysis report shows.

The investment volume across the 16 participating countries was 25% up on the same period last year, according to the European Investment Briefing report from international real estate advisor Savills.

The firm says that in line with its quarter one forecasts, the European investment market is on track to top €230 billion by the end of this year as commercial property investors continue to favour core markets, with the UK, Germany and France still accounting for 67.8% of the total volume.

‘However, the share of the markets outside of the top three countries is increasing, due to stronger investor interest for non-core countries, which offer attractive pricing and supply of large assets and portfolios,’ said Lydia Brissy, director at Savills’ European research team.

‘Overall, investors are more open to move up the risk curve. They seek future yield compression by targeting secondary or alternative assets in core cities, or prime assets in secondary markets,’ she added.

The report shows that the office sector continued to dominate the investment activity in most countries across Europe, capturing about 39% of the transaction volume per country on average.

The only exceptions where retail properties accounted for a higher share of property investment deals were Germany at 42%, Finland at 43%, the Netherlands also at 43%, Norway at 62% and Portugal at 83%, which saw the sale of large scale retail portfolios in the past quarter.

Savills has also reported that cross border investment increased in nearly all countries across Europe and especially in the peripheral markets, where US investors have been notably active. There has also been growing interest from investors from Asia Pacific and the Middle East. The share of non-domestic investment ranged from 10% in Sweden to over 80% in markets such as Italy, Poland and Portugal.

Marcus Lemli, head of European Investment at Savills, explained that international investors have continued to drive up volumes, particularly the equity funds from the US, which have been acquiring retail portfolios or landmark office buildings.

This has enabled some of the more peripheral countries to record the strongest rises in investment volumes over the first six months of 2015, notably Portugal at 720%, Norway at 391% and Italy at 154%.

In the second quarter of 2015 the share of US money invested out of the cross border volume has been remarkable, according to the report, averaging 40% per country, and accounting for as much as 93% in Portugal, and 66% in Ireland.

‘With healthy investor interest, Europe has seen a shift towards larger transactions. The most significant rises in portfolio deals were noted in Germany and the Nordic markets and consequently, there has been a marked uplift in activity in the regional markets,’ said Lemli.

In the first half of this year, the volume of investment in regional markets rose to more than half of the total volume in each country, compared to an average of one third last year, the report also says and points out that it is interesting that both France and the UK saw above average activity in their regional markets.

‘Despite all of the economic uncertainty caused by the Greek crisis, the commercial property market activity across Europe has proven resilient. There is certainly potential for increasing investment volumes in the context of low interest rates, availability of finance and generally better economic conditions,’ said Lemli.

‘We are therefore forecasting an increase of at least 10 to 20 % in the commercial investment activity this year and further yield compression for two thirds of our markets. I have no doubt that, despite current unease surrounding the economic slowdown in China, investor appetite will remain high in the second half of 2015 as Europe continues to recover and remain an attractive place for investment,’ he added.