European Investment Market

Michał Stępień, Associate of Investment Consultancy Department, Poland
Michał Stępień, Associate of Investment Consultancy Department, Poland
According to the analyses of Savills, this year’s volume of investment transactions on the European commercial real estate market may be similar to the one from the previous year.

The value of investment transactions on the European commercial real estate market amounted to 46 billion euro in Q1 2018, which is 8% less than the previous year in the analogical period. According to the experts of Savills, this result is compliant with the average long-term interest rate (-3%) despite unpredictability typical for Q1.

Poland is one of the countries with the increased volume of investment transactions in Q1 2018 (+329%). The increases are also recorded in Belgium (+248%) and Luxembourg (+144%). One of the factors which has contributed to the increased turns in Poland is sales of the portfolio of commercial properties for 1 billion euro. According to data prepared by Savills, the largest investment markets in Europe are still Great Britain, Germany and France (63% of invested capital in total).

The largest decreases in investment activity are recorded in Romania (-81%), Czech Republic (-77%) and Holland (-53%). However, these decreased turns may be temporary and there might be the next increase in the investment activity in the coming months.

The main investment directions among international investors in Europe

The amount of foreign capital invested in Europe in Q1 this year is stable. However, there are some apparent differences in allocation of certain classes of assets as well as interest in particular geographical locations depending on home countries of the investors.

 

The main investment directions among international investors in Europe in the last two years

 

Home country Target sectors Countries of interest
Australia Office Main markets
Canada Office, commercial and logistic Holland, Germany, Great Britain
China Logistic Germany, France, Holland
Hong Kong Office Great Britain
South Korea Office Germany, France, Belgium
Latin America Office Spain
Singapore Mainly logistic, commercial, hotel Holland, Germany, Great Britain
RPA Commercial Central and Eastern Europe
Thailand Hotel Central and Eastern Europe, Great Britain
USA All sectors Entire Europe

 

In spite of the slackening investment activity in the first quarter, we envisage that the turns on the real estate market for the entire year will be similar to the last year’s volume and they will amount to ca. 242 billion euro. The best European properties are still the preferred class of assets due to attractive differences between capitalization rates and long-term lending rate as well as good prospects for increased rent rates. The most capital will still be envisaged for investments in office properties, but the investors will also search for other possibilities of locating their means in alternative assets – says Marcus Lemli, Director of Investment Department, Europe, Savills.

Poland benefits from the high activity of the investors

The activity of investors in Poland is currently really high. According to the forecasts of Savills, the year-long volume of transactions might amount to 6 billion euro. Poland is currently the beneficiary of another year of high activity of the European investors. Due to the large portfolios in the commercial, office and warehouse sectors as well as prohibitive prices on the leading markets of Western Europe, the capital inflow to Poland is currently very high. The investors are attracted by relatively higher return rates and "healthier" level of rents in our country. Traditionally, the investors concentrate on the best assets in each commercial sector and search for opportunities in buildings with potential of value increase or scale effect by building attractive portfolios – says Michał Stępień, Associate, Investment Consultancy Department, Savills, Poland.

Capitalization rates for the best office investments

The experts of Savills point out that capitalization rates for office properties dropped to a record low level due to the maintained high interest of the investors in this particular class of assets. They currently amount to 3.86% for the office buildings in the Central Business Area, dropping averagely by -22 pb year-by-year. In comparison to Q1 2017, the most significant changes may be observed in Frankfurt (-70), Amsterdam (-60), Lisbon (-50) and Helsinki (-50). What is more, due to insufficient supply of high quality office space in the central locations, capitalization rates for secondary office building in CBA and attractive office buildings outside CBA are under great pressure. They are lower by respectively 32 pb to 4.9% and by 37 pb to 4.91%.

The capitalization rates for the best office properties will be maintained at the stable level on the main markets but they will be lower in other regions of the continent, especially in the countries of Central and Eastern Europe as well as Southern Europe. There will be also lower differences due to capitalization rates between certain classes of assets and locations, however, the most attractive assets will still arouse the greatest interest among investors – says Lydia Brissy, Head of Research Department, Great Britain.

The capitalization rates for the best office real estates in Poland will achieve record low values this year, however, they will be maintained at the attractive level in relation to the leading markets of Western Europe, especially in the context of relatively low rent rates. It is worth pointing out the difference between capitalization rates for the best office real estates in the city center of Warsaw and the rates for investments located outside CBA is still relatively higher in comparison to the western markets. The potential compression of capitalization rates for secondary properties situated in the city center of Warsaw and the best buildings situated outside CBA is becoming the main magnet for slightly more speculative investment capital – says Michał Stępień, Polish Department, Savills.

 


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