- Volumes across Continental Europe are 3% higher in H1 2016 at €77bn, compared to UK’s 35% decline to €32bn
- Sweden sees more traded in first half of 2016 than in the whole of 2015
- Domestic investors increased their market share reflecting stronger activity in France, Germany and Sweden
- Volume growth on the continent will be insufficient to offset a weaker UK
London, August 10, 2016 – European investment activity in commercial real estate totalled €56.8bn in the second quarter of this year, a 9% increase on the first quarter, according to new research from Cushman & Wakefield.
Despite the increase the level of trading in the first half of the year totalled €109bn, 12% down on the same period in 2015, with the UK – Europe’s largest market – acting as a drag on overall European performance.
Concern over Brexit and uncertainty surrounding the decision was a significant factor in restricting the volume of trading in the UK to €32bn in the first half of the year, a 35% decrease on the same period a year ago.
Nigel Almond, Head of EMEA Capital Markets Research at Cushman & Wakefield, said: “After excluding pan-European portfolios, activity across Continental Europe continues to shine with volumes in the first half of 2016 reaching €77bn, a 3% increase on the €74bn recorded in the same period last year. Despite seeing a rise quarter-on-quarter in Germany, volumes for the first half of the year reached €18bn, a 26% drop on H1 2015. France saw modest growth of 2% over the same period.”
A spike in investment activity in Sweden has seen trading surpass French volumes in Q2 and over H1 2016. At €7.3bn Sweden registered its highest-ever quarterly volumes pushing up volumes for the half year to €10.6bn. This is more than the €10bn traded in the whole of 2015. Activity was buoyed by Castellum talking control of the Norporten portfolio in Sweden from the Second and Sixth National Pension funds for over €2bn.
Central and Eastern Europe (CEE) also recorded significant investment growth to surpass €4bn in the first half of 2016, a 60% increase on the same period the previous year.
Across Europe as a whole, 19 of the 29 markets tracked recorded an increase in H1 2016 volumes compared to H1 2015. Domestic investors took the opportunity to increase their share in a weaker market, accounting for 61% of activity, the highest share for the first half of a year since 2013. This was largely upheld by stronger domestic activity in France with increased activity also evident in Germany and Sweden. On the other hand, non-European shares slipped to 21%, well below the near 30% levels that have been seen in recent years.
Beyond continued activity from globally-sourced funds, the next key sources of non-European investment were from the US, Singapore, South Africa and Hong Kong. The growth in activity from South Africa reflects, in part, a growing number of listed funds targeting the CEE region.
Unlisted funds continued to dominate as the most active buyers over the first half of 2016. Of significance has been the growth of private companies and individuals, who took a 24% share of the market during this period, reflecting strong levels of investment in the UK, Germany, Sweden and the Netherlands. The majority of this was from domestic companies or individuals, although the UK did see over a third of capital sourced from overseas investors. On the contrary, institutions and listed companies were less active during the first half of the year.
Although markets have started to settle in the wake of the UK’s decision to leave the EU, uncertainty still remains. The impact appears to be greatest in the UK, although even here, while some deals in the market at the time of the vote have fallen away the majority continue to progress, especially across Central London compared to the rest of the UK.
Stephen Screene, CM Investment Sales at Cushman & Wakefield, added: “Across Europe as a whole there appears to be minimal impact from Brexit with a number of major portfolio sales progressing. As such, we expect the trends in the first half to hold firm in the second half of the year, with continued growth in activity across the Continent with some capital displaced from the UK and focused more on Germany and France. This being said, despite the growth we have seen on the continent, this is unlikely to offset a weaker UK, leading to a reduction in the volume of trading across Europe this year.”
Jan-Willem Bastijn, Head of EMEA Capital Market at Cushman & Wakefield, commented: “The increase in volumes that we have seen across Continental Europe during the first half of the year has largely been accelerated by domestic investors who have acted on opportunity and increased their share in the weaker market, particularly in France, Germany and Sweden. Despite non-European shares slipping in this quarter, we should expect to see more private opportunistic dollar-denominated capital targeting the UK, notably Central London, which currently offers a 10% currency discount.”
Soren Rodian Olsen, Partner at Cushman & Wakefield in Poland, commented, “The Polish market mirrors the general situation across the European Continent with investment volumes and investor sentiment so far unaffected by Brexit. During Q2 Poland saw EUR 1.5 billion investment transactions, representing 59% of the entire CEE region. Poland continues to attract inflows from European investment funds as well as from overseas capital sources, and we expect 2016 to be another strong performing year.”