According to Savills’ latest Market in Minutes report, there has been an 18 percent increase in mega deals, those over €100 million, year on year in Q1 2015. Additionally, the firm has also found that portfolio transactions have increased by 23 percent year on year accounting for more than two thirds of the value of all mega deals and 45 percent of the total transaction volume.
Marcus Lemli, Head of European investment at Savills, commented: “We expect to see an increase in mega deals throughout 2015, especially as a result of portfolio sales which we believe will underpin investment activity going forward. The low interest rates and ECB purchase programme will insure demand for real estate remains high in the strong markets such as UK, Germany and France and the recovering ones such as Spain, Italy, Ireland and The Netherlands.”
Savills finds that most of the mega deals were driven by UK, US and German investors who accounted for more than half of the activity in terms of number of deals and 62 percent in terms of total value. Portfolio assets were of particular interest to new entrants to the European investment market who were able to exploit favourable financing conditions and the market cycle pick up.
Michał Ćwikliński, Managing Director, Head of Investment Department in Poland, explained the situation on the Polish investment market: “The volume of the portfolio transactions in Poland has been growing over the last few years. In 2015 however it may reach the record levels with over €1.1 billion worth of portfolio transactions in comparison to ca. €0.5 billion in 2014 (ca. 120 percent growth). There are already ca. €600 million in advanced negotiations or due diligence and another ca. €500 million being marketed in all sectors. Savills on its own is selling a number of portfolios on behalf of their clients in Poland at the moment. The portfolio deals are offering on one hand the lot size and on the other – the diversification of the income and risk and also it is easily divisible, so the exit strategy could be flexible – subdividing into pieces or selling as a whole.”
Ćwikliński continued: “When it comes to the large single assets, whilst there is significant demand for this type of properties and the lot size is very often the driver for the investors, the availability of such properties is very limited. This is partly due to the fact that most of the large offices or shopping centres have been sold over the last few years to the long-term holders. As in 2013 and 2014 there were 12 (ca. €2 billion) and 10 (€1.65 billion) transactions respectively with the value exceeding €100 million, this year we are forecasting the amount of such deals will be 6-7 and they will account for ca. €1.05 billion if closed by the end of 2015.”
Whilst mega deal volumes were up, Savills notes that total Q1 2015 volumes in the area surveyed were down on the previous quarter by one third, at €49.7 billion compared to €69.5 billion. However, Q1 2015 was 25 percent stronger then Q1 2014 which recorded total investment volumes of €38.5 billion. Investors continued to favour the core markets with Germany and the UK accounting for almost two thirds of activity.
The firm reports that the office sector was the most popular with investors, accounting for 40 percent of total activity and as high as 84 percent in France. Notably in the UK the top deals were not dominated by the office sector but the student housing market, with the Liberty Living portfolio accounting for over €1.5 billion. In Germany, the first quarter saw an increase of the share of retail investment transactions due to the sale of the German part of the Corio portfolio.
Eri Mitsostergiou, Director of Research at Savills, added: “Competitive market conditions have led to further yield compression across sectors. The average prime CBD office, shopping centre and industrial yields are all down year on year at 4.87 percent, 5.3 percent and 7.39 percent, respectively. Continued investor demand, especially from the international parties and REIT’s which have been particularly active in Q1 2015, will cause yields to continue to harden.”
