2016: Cenral Paris is the #1 investment market in Europe
The economic recovery continues in the Eurozone. Despite a slowdown at mid-year, GDP maintained a stable pace of growth in 2016 with 1.7% on average, notably thanks to investment expenditure and foreign trade that recovered during summer. Eurozone activity appears to have been neither buoyed nor punctured by recent geopolitical events. It should enjoy growth close to 1.5 % in 2017, a slight decline on 2016 due to political uncertainties at national level and some less favourable economic fundamentals (such as raw materials, inflation, oil prices and interest rates). Job creation increased emphatically in the Eurozone over the last year (+1.2%). The unemployment rate remains very high on average (9.8% of the labour force) yet keeps on contracting, suggesting that the pre-crisis level will be reached in early 2020.
The total commercial real estate investment volume in Europe reached €230 bn in 2016, a 10% drop compared to 2015. With €84 bn, the 14 Western European markets monitored in this report posted the same 10% annual drop. Investment volumes may have slowed down over the last nine months but they remain 41% above the 10-year average of € 59.5bn.
With €21.2 bn and only a 5% drop compared to 2015, Central Paris ranked the n°1 European investment market in 2016. Central London remained in line with its long-term average with a volume of €18.9 bn. The Main 4 German markets totalled €23.4bn, 4% down on 2015. Only Berlin recorded a yearly decrease, after a historic high reached in 2015, whereas Munich, Frankfurt and Hamburg generated increases of 6%, 11% and 19% respectively. Although seeing continuous growth for the 7th year in a row, these three markets, conversely to Berlin, have not exceeded their 2007 peaks yet.
With €3 bn, Amsterdam underpinned by strong economic fundamentals and boosted by the office investment volume recorded a 63% increase year-on-year. Dublin, thanks to two very large shopping centre deals set a new record high with an investment volume at €3.6 bn. Luxembourg and Brussels both increased their 2015 figures, the latter soaring to a new high of almost €2 bn. Milan and Madrid after unprecedented figures reached in 2015, ended 2016 14% and 27% down respectively on 2015.
Key interest rates posted new records in 2016. German 10-year bund turned negative in Q3 (-0.19%) and landed at 0.11% in Q4. This, combined with high volume of liquidity tightened prime yields further. For offices, prime yields stood at 3.95 % in Q4 2016 on average among the 14 markets analysed in this report, almost 40 bp down on Q4 2015. On average, high-street retail prime yields reached 3.35% while logistics prime yields stood at 5.74% in Q4 2016.