The past year saw a strong investment activity in European real estate with an increase in investment volume of 17% year-on-year. The transaction volume for European investment properties stood at around EUR 178bn, the highest volume since 2007.
Investments have been driven by globally active investors who acquired almost EUR 50bn of European real estate in 2013. US investors accounted for the largest share of inbound capital and have increased their investment activity by 16% y-o-y. Sovereign Wealth Funds and large global investment funds were also very active on the European real estate investment market with some of them making multi billion investments throughout the year.
The office sector attracted the greatest interest with 41 % of total European transaction volume in 2013. Retail investments had a share of 23% of all investments and the residential property sector received 16% of the capital investments.
Most active markets
The UK has remained the most important investment market in the European area. An increase in investment activity by 33% compared to the previous year has lead to a total of EUR 59bn invested in 2013. London still is a significant driver of volumes with EUR 33bn invested in the past year. Also the German property investment market saw a y-o-y growth of 13% and concluded the year with a total of EUR 42bn invested. In contrast, France has recorded a fall of -7% in transaction volumes. Headline prime yields in Paris have increased in the course of the year, while initial yields for investments outside the French capital fell at the same time. As a result spreads have narrowed within the country.
Periphery marks rebound
Investors have intensified their quest for returns in a relentlessly competitive market. After years of focus on core markets, they have showed an increased readiness to pursue value-add opportunities. As a result, countries like Spain (transaction volume +88% compared to the previous year), Italy (+88%) or even Greece (+679%, although mainly resulting from one portfolio transaction) benefited from this renewed interest and demand. The Italian transaction market even recorded its highest activity level since 2008, with a total investment volume of EUR 4.7bn. The increased investor interest in peripheral markets has led to a fall in initial yields of up to 80bps for office property investments within just one year.
In contrast, the Scandinavian countries have recorded stagnating or even falling transaction volumes (Sweden: 0%, Norway: -36%, Finland: -29% and Denmark: -16%).
It seems that the trend I discussed on in my October 2013 Blog has further accentuated. However, while the southern region slowly seems to escape the bottom of the cycle, activity in most of the CEE countries – except for the most advanced, larger markets – remains at low levels. This is a clear sign that global investment capital remains focused on sustainable cash flows, but not at any price.
KPMG’s European Real SnapShot! covers more than 20 countries across the continent and provides you with deeper insights into the individual real estate investment markets on a biannual basis