Real estate investment activity in Europe is primarily concentrated in the three main markets of France, Germany and the United Kingdom, and those three countries accounted for a whopping 67.5 percent of European Q2 2015 transaction volume, according to Real Capital Analytics. But markets are not always the same and do not always offer the best opportunities; like the Grand Old Duke of York, they are not always up and they are not always down.
A market that is on the up is Spain. According to a recent European Breakfast poll of more than 150 active investors carried out by hosts Knight Frank (were you invited? Me neither), Spain is the top investment target in Europe. 26.8 percent of investors identified Spain as their preferred investment target for next year; Germany came a close second in the poll, with 25.4 percent, and the United Kingdom a more distant third, with 17.4 percent.
The attractions of Spain are clear — a recent strong recovery from economic lows and real estate values that are still well below their earlier peak. “The fundamental rationale behind investing in Spain is even stronger than this time last year,” says Humphrey White, head of capital markets at Knight Frank Spain. “Prime CBD office rents have risen by 20 percent over the past 12 months, but remain nearly 40 percent below the 2008 peak, and both footfall and sales have increased in dominant shopping centers for six consecutive quarters.”
The strong showing of Germany reflects recent buoyant investment activity in the country. A total of €30 billion ($34 billion) was invested in property there during H1 2015, an increase of 35 percent compared with H1 2014. According to Joachim von Radecke, head of the German desk at Knight Frank in London, “the increase is driven by the rising flow of foreign capital into the country and by the 50 percent increase in domestic investor activity.”
Von Radecke points out that foreign investors’ share of the German market continues to grow, and accounted for almost 60 percent of all transactions in H1 2015.
The United Kingdom may lag in this poll, but Chris Bell, managing director of Europe at Knight Frank, comments: “The United Kingdom is well ahead of the rest of Europe in terms of the property cycle and has already seen significant yield compression. However, it is encouraging that rental growth is beginning to re-emerge more widely across Europe, helped by the strengthening of occupier demand and the steadily falling availability of good-quality space, exacerbated by the lack of development over the preceding recessionary years.”
France, Germany and the United Kingdom may be Europe’s three main markets, but it is telling how RCA’s Q2 2015 transaction numbers point to varied levels of investment activity in the three countries; €3.83 billion ($4.3 billion) for France, €13.84 billion ($15.5 billion) for Germany and €26.05 billion ($29.2 billion) for the United Kingdom. Spain, with Q2 2015 transaction volume of €2.798 billion ($3.1 billion), may be sunny and upcoming, but the United Kingdom’s number puts it in the shade.
Assuming a three- to five-year hold from today, which of these European countries is your preferred investment target?
Spain, 26.8%
Germany, 25.4%
United Kingdom, 17.4%
Benelux, 8.7%
France, 5.8%
Poland, 5.1%
Other southern Europe, 3.6%
Nordics, 2.9%
Other central and eastern Europe, 2.2%
Russia, 2.2%
Source: Knight Frank
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Richard Fleming is editor of Institutional Real Estate Europe.
