Strong occupier expansion, low vacancy rates and limited development pipelines have supported a gradual shift in market conditions to favour landlords, resulting in rental growth and stability across the majority of European markets during 2018. This has supported property values and returns, despite yields being at their cyclical peak, a situation likely to continue into 2019. That’s according to Colliers International, which today has released its latest Capital Flows Report to coincide with international property and investment trade fair, EXPO REAL (8-10 October 2018).
«Despite the typical late market property cycle conditions, we expect 2018 will be another strong year for real estate investment in Europe. There are a number of broader macro concerns impacting global investor decision making, including rate rises in the US, global trade disputes, low growth in Europe and the fear of a ‘Hard BREXIT’ or a ‘No Deal’. Although it’s more apparent that investors are more cautious about quality of income, genuine rental growth and active asset management initiatives, the willingness to target real estate and diversify global portfolios continues», said Richard Divall, Colliers’ Head of Cross Border Capital Markets I EMEA.
UK, France and Germany lead on investment activity, with France up 30 per cent compared to 2017. UK volumes remain static. Germany is trading above the five-year average, and provisional results point to an increase on Q3 2017, despite some pricing challenges and a lack of quality product resulting from limited development activity between 2013-15.The Netherlands, Benelux, Finland, Ireland and Poland have seen increased investor attention with late property cycle improving fundamentals as investors chase yield and returns and diversify their portfolios.
«Despite the fall in activity overall, 2018 will be another strong year for investment in Europe. More markets feature on the upside than the down and we are seeing the wave of money looking for a home continue to ripple out from Europe’s core with the Netherlands, Spain, Finland and Denmark benefitting and even Tier 2 markets like Hungary, Portugal and SEE showing some of the strongest growth markets YTD – all these countries have seen investment rise as a result of their belated, but rapid, economic uplift in recent years and/or significant turnaround in real estate market fundamentals».
«Following the demographic trends of Europe and with the current pricing of offices, logistics and the restructuring of retail, the alternatives sectors are proving attractive to global investors as they offer income with higher yield», said Richard Divall. «One of the main issues, however, is the larger groups are often unable to find any national or regional platforms available in these sectors to buy and will be relying on building portfolios up, which takes time and is hard to find scale».
Colliers’ research highlights a significant increase in investment into residential, with the sector now accounting for 16 per cent of all activity in the past 18 months, compared to only six per cent 10 years ago. «If there is one increasingly clear theme showing through in transaction activity over the last 18 months, relative to the previous cycle of 2007/8, it is the expansion of investment into residential-based assets», said Colliers’ Head of Research & Forecasting for EMEA, Damian Harrington. «North American capital is particularly active in this space, and when reviewing Europe compared to North America, there is a clear growth opportunity – residential investment accounts for around 27 per cent of activity over the past 10 years».