Savills warns the lack of disposable stock continues to be the main challenge for investment activity, while ambitious pricing is also often lengthening the process of closing deals.
Marcus Lemli, Savills Head of European Investment & CEO Savills Germany, explains:
“Demand for European property remains strong and continues to attract capital, 50% of it being cross border. However, the slowing economy and geopolitical uncertainties reinforced a conscious focus on quality, both in prime and secondary markets where activity has been particularly strong.”
In Q1 2019, the volume of investment into European commercial real estate totalled €44.7bn, 21% down compared to Q1 2018, off the back of the second highest Q1 recorded last year. This decline is widespread in almost all European countries except Greece (+165%), Romania (+161%), the Czech Republic (+160%) and Sweden (+72%), which all experienced significant investment activity during the first quarter of this year.
Sweden, where development activity is fuelling the market with forward-funding opportunities, is expected to particularly stand out this year (+8%), following €2.9bn (SEK 31bn) in investment volumes in Q1, the highest volume ever observed for a first quarter, driven by a small number of particularly large deals, according to Savills.
Sweden’s Q1 investment haul is also the fourth largest volume after the UK (€14bn), Germany (€11bn), and France (€4bn), propelling the Nordics’ total European volume of 14.5%, compared to 11.2% last year, Savills data shows, whilst the share of core countries remained relatively unchanged (63.5% in Q1 2019 – 64.9% in Q1 2018). Elsewhere, Italy’s year-end investment volume should be in line with 2018, predicts Savills. “
Overall, investor demand in Europe remained focussed on offices, accounting for 41% of the total investment volume into commercial property in Q1 2019. The H1 decrease in pan-European investment turnover was witnessed across the main sectors. The retail segment recorded the sharpest decline in activity, -39% compared to Q1 2018.
Marcus Lemli, Savills Head of European Investment & CEO Savills Germany, added:
“Despite this tentative start in 2019, European real estate continues to attract capital, almost 50% of which is cross -border. The lack of disposable stock continues to be the main drag on investment activity. Additionally, strong pressure on prices is often lengthening the duration to close deals. In the face of the slowing economy and geopolitical uncertainties, investors’ demand for European property remains strong but has reinforced a conscious flight to quality.
“A low-interest rate environment and the most likely extension of the QE programme by the ECB will continue to offer an attractive yield spread for prime commercial products. We expect the 2019 European commercial investment volumes to reach €219bn by the end of the year, which will be approximately 13% below last year’s turnover.”