Highest investment turnover recorded in Europe since 2007 boosted by cross border buyers, says Savills

Savills latest European Investment Bulletin finds that 2013 recorded the highest pan-European investment volume since 2007 with approximately ?141 billion transacted in the surveyed area*, representing a 21% rise on 2012. Whilst 77% of this investment turnover was recorded in the core markets UK, Germany and France, the peripheral markets have shown significant growth. The markets of Greece (+1011%), Ireland (+210%) and Italy (+138%), alongside UK (+43%), Poland (+28%) and Germany (+20%), recorded the strongest year-on-year increases in transactional volumes. Most notably Greece saw a ten-fold rise in transaction volume, at ?900 million, as a result of the privatisation of the sale of public assets. Going forward in 2014 Savills expects to see double-digit growth in the investment volumes in Ireland (+32%), Sweden (+30%) and France (+24) reflecting a return to normal activity levels. Double digit growth is also expected in Spain (+19%) confirming the ongoing interest in this market with investors believing that prices have bottomed out.
The international real estate advisor notes that cross border investors are playing an important role in the recovery of peripheral investment markets. These buyers are predominantly opportunistic funds looking for higher yields. In Spain, the share of cross-border investment has risen significantly from 36% in 2012 to 78% in 2013 and similarly in Italy the share has increased from 64% to 79% over the same period. Together with Poland (at 91%), Spain and Italy have the highest share of cross-border investment of all countries surveyed in this report. In the core markets, domestic investors continued to dominate with shares ranging from 67% in France and Germany to 88% in Sweden.

Marcus Lemli, head of Savills European investment, says: “Overseas investors are driving activity in many European markets. Non-European buyers have increased their share of the region’s investment volume to almost 30%, up from 25% in 2012. This can be attributed to the investment preferences of global buyers currently active in Europe. For example US investment, the largest global source of cross border money, comes largely in the form of private equity funds who tend to prefer large portfolio acquisitions. Sovereign wealth funds from the Middle East and Asia Pacific, who are the other main group of global players currently active in Europe, usually go for investments of at least ?200 million.”

In terms of sectors the report observes that all asset types saw a year-on-year increase in transaction volume in 2013 with the industrial sector recording the most pronounced rise at +27%. The office sector continues to dominate overall investment share accounting for 47% of the total transaction volume on average across the surveyed area, a slight decrease compared with 2012, at 51% as the market becomes more balanced.

Looking at yields Savills finds that prime CBD office yields in London, Paris and the top six German markets have returned to 2007 levels, at 4.2% on average in these markets at the close of 2013. In comparison, across the entire region surveyed in the report, prime CBD office yields averaged 5.2% in Q413, a contraction of 19bps on Q412 reflecting a yield compression for the sixth consecutive quarter.

Julia Maurer, in Savills European research, explains: “The polarisation between core and periphery yields persists. Going forward we expect prime yields will stay stable across most sectors and markets with some notable exceptions. For example, further hardening of all yields is expected in Germany, perceived as a safe haven by investors, and also in Ireland which is firmly on the radar for global investors. We may also see some yield hardening in Spain.”

According to the research prime shopping yields averaged 5.8% in Q413, against 6% in Q412 whilst prime industrial yields are currently recorded at 7.4% compared with 7.7% in the same period the previous year. The firm expects prime industrial yields to contract in half of the surveyed markets as the sector becomes a more established investment class. This is mainly due to the growth of ecommerce and the entry of some major US and UK institutional players into mainland European markets.

*Savills survey area includes Austria, Belgium, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Poland, Spain, Sweden, UK

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