The European real estate investment market recorded a total transaction volume of EUR 213bn in 2014. This is the highest level since the start of the recent financial crisis and reflects an increase of 13% compared to 2013. The transaction volumes have been driven mainly by global investors. In 2014, non-European investors invested EUR 65bn in European properties. This is 6% more than was invested by this group in 2007, the year before the crisis. Office properties have enjoyed the most popularity with around 44% of total direct investments in property. They are followed by investments in retail premises, at 22%. Residential and industrial properties each accounted for an 11% share. Compared to 2013, the strongest increases in volumes invested were seen in hotel investments (+30%) and industrial premises (+27%).
Major real estate investment markets continue to deliver growth
The UK remains the most important investment market in the European region. Investments here stood at EUR 69bn (almost 30% of the overall European property investment market). This reflects a growth of 16% in investment volume compared to 2013. Transaction activity was again concentrated around London, with almost EUR 32bn or 47% of total nationwide investment activity, but other cities such as Manchester, Glasgow and Bristol are also now observing a significant influx of capital.
Germany was again Europe’s second largest investment market and experienced a slight decline (1% y-o-y) in investment volume. Transaction activity in the amount of EUR 45bn is still remarkable given the fact that the previous year was characterized by large residential portfolio transactions that added to the high volume.
France is back on the investors’ map again. A significant y-o-y increase of 31% has led to a total transaction volume of EUR 25bn. Growth was mainly driven by transaction activity in the Paris metropolitan area, which has registered exceptional growth of 44% and accounted for almost three quarters of the total French transaction volume.
Significant amounts of foreign capital continue to flow into the peripheral markets. Spain’s transaction volume was 134% higher y-o-y. In contrast, transaction activity in Italy is losing momentum. Due to the stagnant outlook for growth in the Eurozone’s third largest economy, transaction volume in Italy was only a low 5% higher than in 2013. Ireland’s real estate investment market is doing better and transaction volume increased again, by 89%.
Quantitative Easing fuels real estate investments
The European Central Bank has now started its program to purchase Eurozone government bonds valued at EUR 60bn each month. It is to be expected that this measure will add further impetus to the European real estate market as financing costs are likely to decrease. In addition, the relative attractiveness of Euro investments may increase as a result of the pressure that’s being put on the Euro exchange rate by the ECB measures. Given the lack of investment alternatives with a comparable risk/return profile it is anticipated that investments in real estate will grow further in 2015. However, there are some uncertainties that at some point may negatively affect the positive outlooks: Besides the geopolitical tensions there is a fragile political landscape in some of the countries and the effects of the monetary policies in the different economies are yet to be seen, especially with regard to the developments in the real economy that still has to undergo structural reforms.