INVESTMENT IN EUROPEAN COMMERCIAL PROPERTY REACHES A €86.8BN RECORD IN Q4 2016
· Investment volumes up 5% on Q4 2015
· Record level of activity in The Netherlands
· Germany dominates Q4 investment volumes with transactions totaling €19.8bn
European commercial real estate recorded its strongest quarter of the year in Q4 2016 with investment volume reaching a record high of €86.8 billion. This total represents an increase of five per cent on Q4 2015, which held the previous record for investment volumes. A very buoyant German market provided a significant boost to the European total, with volumes reaching a record of €19.8 billion in Q4 2016. The Netherlands also saw the largest ever year-on-year growth with investment up 17 per cent on 2015 to €13.5 billion.
Overall, total investment activity in 2016 reached €251.1 billion; a 10 per cent decrease on 2015, due to a weaker first half of the year. Excluding the UK, total investment volumes for the year rose five percent from €182.7 billion in 2015 to €190.9 billion in 2016. Uncertainty in the UK surrounding the EU referendum as well as other factors, including Chinese financial market turbulence, reduced global capital flows causing investment levels to fall across the EU. Despite this, the industrial sector in UK and indeed in the rest of Europe, bucked the overall market trend, outperforming every other sector with a four per cent increase in investment volumes on 2015.
Sentiment picked up significantly in the second half of 2016 and investment levels for most of Europe were generally either stable or up on 2015. Commercial real estate investment in Spain and the Netherlands were particularly resilient. In 2016, more than €13.5 billion was invested in Dutch commercial real estate alone. This surpassed the previous highest record of €13.2 billion in the Netherlands in 2007.
Germany also performed strongly, with a record fourth quarter of €19.8 billion bringing investment turnover above the €50 billion mark for the year. Germany is considered one of the world’s most in-demand investment markets by property investors, and core property in Germany remains highly regarded as a safe haven.
In 2016, investment in the UK market recorded a 28 per cent decrease compared to 2015 when measured in sterling (37 per cent in euros). This differential demonstrates the impact of the depreciation of the pound which occurred following the EU referendum in June 2016 and follows an all-time record for total UK property investment in 2015 of €94.8 billion. Following the fall in value of the pound, in the later part of 2016 the UK market has seen increased interest from foreign capital as the UK now offers much better value for non-sterling denominated buyers. Property continues to offer a significant premium over returns on the bond market and the fundamentals of UK and continental European real estate remain attractive. As such, UK investment volumes improved moderately quarter on quarter from €11.9 billion in Q3 2016 to €15.1 billion in Q4 2016.
Continental European markets continued to perform strongly in the latter half of 2016 with investors prepared to pay a premium to secure the best product. Germany maintains its position at the top of investors’ wish list for core property assets and is likely to continue to be seen as safe haven for global capital. Interest and sentiment in the London market is improving and the devaluation of sterling made prime London assets particularly attractive to overseas buyers. The UK’s economic fundamentals remain strong and this will underpin investor confidence in 2017.