European commercial property investment volumes on the up

A report from Knight Frank and Real Capital Analytics found that a total of €25 billion was invested in European commercial real estate in the second quarter of the year - a drop of 13pc from the first quarter, but it took the total for the first six months up to €53.7 billion, 4 per cent higher than the same period in 2012.

Prime assets in core markets were a main driver of activity but demand also rose for the property in peripheral countries and second cities, as confident investors look away from the safer areas for higher yields.

The three largest European markets - the UK, Germany and France - accounted for 64% of total investment activit. On a year-on-year basis, investment volumes were up in Germany (+24%) and the UK (+11%), but fell in France (-20%). London and Paris have remained key targets for international investors entering Europe, but transactional activity slowed in the French capital.

Year-on-year, H1 investment volumes also increased significantly in Spain (+102%), Italy (+113%) and Ireland (+182%), albeit all three countries were recovering from low levels of activity in 2012.

“Significantly, the Spanish investment volume of €1.1 billion included AXA’s purchase of a portfolio of offices in Barcelona for €172 million,” notes Knight Frank. “This was AXA’s first acquisition in Spain since the onset of the financial crisis and provided evidence that international institutional investors are now returning to the Spanish market after being largely absent in recent years.”

Investment volumes in Italy were boosted by the Qatar Investment Authority’s acquisition of a 40% stake in Porta Nuova in Milan, a major urban regeneration project valued at over €2 billion. This was one of several major deals in H1 involving Middle Eastern or Asian buyers, who are now turning away from the familiar destinations of London and Paris to consider other cities.

“For 2013 as a whole, European investment volumes remain on course to reach a similar level to 2012’s total of €118.7 billion,” concludes Knight Frank. “Europe’s gradual emergence from its long recession can be expected to continue to aid sentiment and boost investors’ risk appetite. Activity in peripheral countries should also be encouraged by the stabilisation of yields in these markets, following recent downward price corrections.”