The final quarter of 2019 was the second most active quarter on record, but activity lifted European real estate investment to only a slightly softer finish overall for 2019, after a dismal start to the year. However, as the Brexit drama came to a conclusion, the UK recorded its weakest yearly deal volume since the EU membership referendum took place in 2016, Real Capital Analytics’ European Capital Trends 2019 report shows.
UK investment transactions at €58.7 billion (£49.3 billion) in 2019 were down 16% year-on-year, although transactions rose 14% to €20.3 billion in the fourth quarter compared with the same period a year earlier. Deal volume for December was 60% higher than the monthly average investment volume for the UK over the past five years and Central London office yields moved in by 20 basis points in the second-half to a two-year low.
Investment deals in the London market totalled €25.7 billion (£21.6 billion) last year, a 22% fall over 2018, to relegate the city to second place among European metropolitan markets, behind Paris, for the first time.
London is still the first-placed European destination for overseas capital, but cross-border deal volume was down 33% year-on-year in 2019. The UK was the biggest recipient of North American investment last year, but, at just over £8.5 billion, volume was around a half of the level recorded at the peak of the market in 2015.
Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains:
“At the start of 2019, expectations that interest rates would rise contributed to the lowest level of European real estate investment activity for a first half since 2014. As these concerns dissipated with the ECB keeping rates low to stimulate growth, transactions came roaring back, particularly in Germany and France, which both experienced a record year. But the UK has danced to a different Brexit tune in the past four years, which together with a meltdown in the retail sector, has weighed heavily on investor sentiment towards the market. Investment levels were unusually high in the UK in December, however, and the political clarity secured through Boris Johson’s emphatic electoral win presages a better 2020.”
According to RCA’s ECT 2019 report, the Top Buyers in the UK market in 2019 were:
- Unite Students REIT
- M&G Real Estate
- Legal & General