July 21, 2015

European CRE investment increases 15 percent on Q2 2014

European CRE investment increases 15 percent on Q2 2014

Investment into the commercial real estate (CRE) market totalled nearly €56 billion in the second quarter of 2015, up 15 percent on Q2 2014, according to the latest figures from CBRE. Although the rate of year-on-year growth in investment activity has slowed slightly compared with Q1, it is still the highest Q2 total since 2007.

Spain, Portugal, Finland and Norway experienced an exceptional increase in investment levels, each more than doubling on Q2 2014. Germany also had a strong quarter with investment of €12 billion, up 62 percent on Q2 2014.

Although the overall market remains active, a lack of product, rather than a lack of demand, is causing markets in Central and Eastern Europe (CEE) to show relatively low levels of investment, particularly in the retail and industrial sectors. There is also some level of caution being seen in the CEE office sector due to new supply coming into the market.

Investment turnover in the UK was up 10 percent on Q2 2014 when measured in euro, but this increase was almost entirely due to the exchange rate shift; in sterling the total was virtually unchanged from Q2 2014.

Jonathan Hull, Managing Director, EMEA Capital Markets at CBRE, commented: “Investment has increased steadily this quarter, with a strong overall picture for European markets. Not only are the recovery markets of Spain and Portugal experiencing high levels of investment, but the more established countries such as Germany also had strong quarters.

“In recent months we have seen the market trying to balance a lack of stock with the large amount of capital available for investment. This has generated a significant amount of activity in the portfolio sector, and in Q2 we again saw an increase in corporate deals such as Merlin Properties’ recent acquisition of Spanish property company Testa for around €1.8 billion.”

Investment into Russian commercial real estate in H1 2015 amounted to USD 1,088.3 million. This is 31 percent less compared to the same period of 2014. However, it is worth mentioning that the difference between these two figures is explained by one transaction: the exchange of assets between the Moscow government and VTB (VTB acquired Moscow Hotel Company).

As it was in 2009-2010, investors are focused on the office segment: USD 770 million, or 71 percent of the total. The most interesting Q2 offices deals include the sales of Mercedes-Benz Plaza and office building on Bakhrushina 32-34. Both deals occurred in Moscow.

Regional transactions amounted to just 2,6 percent of total H1 2015 volumes. This activity occurred in St. Petersburg.

The largest chunk of investments in the industrial and logistics segment is related to the deal between PNK Group and the structures of BIN Group. The latter acquired logistics park PNK-Chekhov.

By amount of investment transactions, H1 2015 became the 2nd active period in 2011-2015 after H1 2013. Office segment witnessed 13 transactions.

Cross-border investors did not make any acquisition of Russian commercial real estate in Q2 2015. As a result, the H1 share of local investors increased up to 69 percent. This level is pretty standard one for Russian market after the crisis of 2008-2009.

In H1 2015 cross-border investor acquired properties on USD 341 million sold – on USD 277,1 million. Thus, net inflow of foreign investments amounted to USD 64 million.

Andrey Novikov, Managing Director, Capital Markets, CBRE, Russia, commented: “Even though the results of this quarter are below the figures of Q2 last year, an increase of activity has been observed on the market. A significant share of total volume (over 70 percent) is invested in the office segment that can be explained by reaching ‘cyclical extremes’ in Q1 2015 by this sector – the vacancy rate has almost reached its peak, and its growth rate is slowing down, while rental rates have stabilized. This stimulates higher volumes of investment activity, even though risks, related to the geopolitical situation and oil prices, are still in place.”

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