RCA: Paris Closing Investment Gap with London

The second quarter was the slowest quarter for property investment in the UK since 2012, including six-year lows for both cross-border and domestic investment levels, according to Real Capital Analytics.

France fared relatively better than the other large European real estate investment markets in H1, although transaction volumes were down 11% year-on-year, RCA data shows. The Paris office market was buoyed by an influx of capital from South Korea, with more than €2.0 billion of deals in the first-half involving a South Korean purchaser.

The gap between Paris and London – the number two and number one most active metropolitan real estate investment market in Europe – continued to narrow markedly in the first six months of 2019. The French capital lagged its UK counterpart by about €1.2 billion in transactions. Investment volume fell by 34% year-on-year in London to €11.3 billion, while Paris was down a modest 6% at €10.1 billion.

Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains:

“London remains Europe’s biggest commercial property market, but the UK capital has registered a weak six months. Deal volume dropped 34% year-on-year and in the City submarket Q2’19 activity was the lowest for any quarter since 2009.

“One of the reasons for London’s doldrums is that overseas players who had previously supported deal volume have shifted their sights. South Korean buyers switched to Paris in 2019 because of the reported difficulty some of the securities firms experienced in syndicating their purchases among fellow South Korean institutions. More than €2b of Paris deals involved a South Korean purchaser in H1’19. With the recent completion of the Tour Majunga deal and another €1.4 billion pending, there is more to come in Paris.”

Germany retained the top slot as the most active European national investment market in H1, slightly ahead of the UK, but deal volume fell by 21% due primarily to declining office transactions. Cumulatively, the largest seven German city office markets ended 2018 at record levels, but the first six months of 2019 were particularly slow.

In Frankfurt, deal volume fell by 50%, with only two €100 million-plus deals completed. RCA has recorded three pending deal completions totalling over €1.0 billion for Frankfurt in the second-half of 2019, so the market should recover some ground in coming months.

In the apartment sector, by contrast, German institutions acquired more properties through to June 2019 than they did for all of 2018. Prices for the average German apartment have almost doubled since the start of 2007, driven by strong demand from both listed and nonlisted investors.

RCA’s Commercial Property Price Indices (CPPI) show there is a strong correlation between the start of the European Central Bank’s quantitative easing programme and the period of very strong German apartment price growth, meaning the five-year compound annual growth rate (CAGR) is almost double that of the 10-year rate.

Spain and Sweden both stand out among the group of the largest European investment markets as recording increased investment volumes in the first-half.

In Sweden, the first six months data were flattered by a particularly slow comparative period a year prior, but the market also seems to have benefitted by the central bank’s dovish policy towards rates and there was a strong showing from the office, apartment and industrial sectors.

Spain similarly recorded growth from a low base. However, here transaction volumes are close to a record, with almost €24 billion invested in the market over the last 12 months and demand particularly strong for office and residential assets.

james.wallace@realassetmedia.com