North American Capital Dominates Transactions in Europe.
Significant Uplift in Investment from Asia, Middle East, and South America.
Non-European real estate investors accounted for 25% of the European market in the second quarter of 2012 (Q2 2012), the highest proportion since Q2 2007, before the financial crisis, according to the latest research from CBRE.
The amount of buying activity from North American real estate investors remains high, but 2012 has also seen a significant increase in activity by buyers from Asia, the Middle East and Latin America, particularly in Q2 2012.
Total real estate investment activity contracted slightly to €24.3 billion in Q2 2012, a drop of 5% compared to Q1 2012 and 9% below the total for Q2 2011. Despite this, the amount of cross-border investment was higher, both as a percentage (making up 46% of the total) and in absolute terms. Although the level of investment flows between European countries increased slightly, the big driver of the growth in cross-border investment was acquisitions by buyers from outside Europe.
The significance of direct real estate investment by non-European buyers is in the relatively small number of markets that they have tended to target, with 62% of the cross-regional investment in H1 2012 going to the United Kingdom (UK) and a further 27% going to France and Germany. North American investors were more diversified than other cross-regional buyers, with London accounting for only 28% of acquisitions while markets in Germany, France, Sweden as well as the rest of the UK accounted for most of the remainder. Investment from Asia has been steadily increasing since 2011, but has been limited almost entirely to London and Paris, with a small number of direct transactions elsewhere in Europe.
Capital flows between European countries remain high despite the eurozone crisis. However, it is notable that the UK was the largest single destination for this intra-regional investment and Germany accounted for nearly half the total, showing a strong bias in favour of ‘safe haven’ destinations.
Non-European investors also targeted the largest lot sizes available in Europe. Whereas the average transaction size in Europe was around €27 million, domestic investors were over-represented in the smaller transactions, with an average deal size of €22 million. The average transaction by a Europe-based, cross-border investor was significantly larger at €56 million, while non-European investors typically targeted the very largest transactions, with an average lot size of €79 million.
Jonathan Hull, Head of EMEA Capital Markets, CBRE, commented:
“Non-European real estate investors are currently dominating the markets in which they are active. All of the ten largest transactions in London in H1 2012 went to foreign investors, with nine of those deals from outside Europe. Cross-regional investors now have a significant influence on pricing in the European market, particularly for the prime product that is in demand.”