This positive feeling has already extended to Italy as well as to Portugal, and now to Greece and Cyprus. After a few years of weak investment activity, the volume of investment in southern Europe has increased by 277% in 2017, compared to the minimum of €5.2 billion registered in 2012. According to Savills, the total volume has increased 8% YoY, and southern European markets now account for 10% of total EU investment volumes, compared to 5% in 2012.
Alice Marwick, of the Research Europe department at Savills, says that "economic growth, the drop of unemployment rates and renewed consumer confidence are attracting investors back to southern Europe". There are big differences between the countries of the region, but share key features. It is important to note that, so far this year, all depend on cross-border capital flows. Foreign investors represent 70% of all activity in the countries of southern Europe, in comparison with EU average, where cross-border investors represent 52% of the total volume".
European and US funds are dominant in cross-border investment, with 37% and 38% respectively of foreign investment, according to Savills. In Spain, the majority of cross-border capital, 48%, has been invested in retail assets. In Portugal, this segment has also been attracting the interest of foreign investors since 2012, however, offices exceed it with €372 million compared to €352 million invested in retail.
Savills indicates that Spain is the third tourist destination worldwide, with an annual increase of 10.3%, but Portugal, where tourism has grown by 19% only with visitors from China, is also experiencing growth in the last year. In Greece, the travel and tourism sector accounts for 18.6% of GDP and, although the Greek market, unlike the rest of the region, is still dominated by domestic investment, as economic fundamentals improve, investors will be watching for opportunities within the hotel segment market.
"As Spain's recovery has superseded the rest of the region and the supply of distressed assets has become limited, investment opportunities are increasingly frequent in Portugal, Italy and Greece”, suggests Alice Marwick. "In addition, while investment volumes continue to grow in Spain, office and retail returns are at record lows (3.25% and 4.25% respectively) and maintain the compression trend due to the imbalance between supply and demand. In the core market, there are few opportunities to get an adequate return, but there is room for income growth”.