Europe's non-core markets buck the trend with surge in real estate 'megadeal' transactions & cross border activity

04 October 2016

International real estate advisor Savills has reported that some of Europe’s non-core markets are bucking the trend in terms of cross border activity and volumes of commercial real estate megadeals (of €100million plus) during the first six months of this year. 
 
While cross border investment volumes dropped in the core markets, Savills confirms that  they increased in the peripheral markets of Ireland (+81% yoy), Italy (+20%) and Poland (179%). The Nordics also saw an uplift in cross border activity in Sweden (+245%) and Finland (+63%). 
 
“These non-core markets are all at an earlier stage of the current investment cycle,” comments Eri Mitsostergiou, Director of European Research, Savills. “With prime yields in most of the segments of these markets still above the European or core average and with potential for further yield compression, these markets are offering more attractive returns for investors.”
 
The highest yield compression shift (prime CBD yields) in Q2 16 compared to Q2 15 for prime CBD offices was observed in Milan (-75 bps), Warsaw (-75 bps), Brussels (-70bps) and Amsterdam (-60 bps). This compares to -11 bps for the average prime core office yield, which was at 4.26% in Q2 2016.
 
In terms of the volume of megadeals transacted in Europe during H1, Austria (yoy +233%), Ireland (+88%), Sweden (+56%) and Italy (+58%) all performed exceptionally well. On the contrary, Savills reported an average of 31% yoy decline in the volume of megadeals transacted across the continent.
 
For the  past three years, cross-border investors with plenty of capital have been the dominant parties in the purchase of large-scale assets and portfolios, and the core markets of Germany, France and the UK have seen the highest levels of activity. However, this year, these market have experienced the most significant drop in the volume of  megadeals transacted: Germany (-47%), France (-27%), UK (-41%) and also Spain (-47%).
 
 "In the aftermath of the financial crisis, real estate stock in core markets was sold off by banks and there was a good supply of product through the winding down of funds. However it’s very much ‘back to normal’ in these markets and it is the lack of available product on both ends of the risk return spectrum that is suppressing investment volumes, rather than a lack of demand,” comments Marcus Lemli, Head of European Investment, Savills.   “ The strong performance of  some non -core  markets such as Austria and Ireland in terms of size of deals is likely to be attributable to the fact that these markets are slightly behind the core markets in the current investment cycle, and sizeable  investment product and portfolios in particular are still coming onto the market.”
 
Savills anticipates that the trends observed in the first half of the year will continue to characterize the remainder of the year and lead to about 25% lower investment volumes across Europe, which is interestingly still 22% above the ten year average.
 
“We project that in 2016 total volumes in the core markets of the UK,  Germany and France, which have accounted for almost two thirds of all investment activity, will be down by one third this year,” says Eri Mitsostergiou. “On the other hand, the Nordic markets especially Norway and Sweden are likely to see a further increase of over 10% pa in their total commercial investment volumes, while investment in the peripheral markets of Spain and Italy will be broadly in line or even slightly higher compared to 2015.”

 
 

General Enquiries

Savills Margaret Street

 

Key Contacts

Marcus Lemli

Marcus Lemli

CEO Germany / Head of Investment Europe
European Investment

Savills Frankfurt

+49 69 273 000 11

 

Eri Mitsostergiou

Eri Mitsostergiou

Director
European Research

Savills Margaret Street

+40 (0) 728 205 626