H1 2019: a cooler investment climate
The total commercial real estate investment volume in Europe reached €56.4bn in Q2 making a cumulative total of €101.7bn in H1 2019, 13% below H1 2018 turnover, which was an all-time record. This result is also below the 5-year average by 7%. The 16 largest city markets monitored within this report posted a 10% decrease compared to H1 2018, reaching €38.8bn.
The office investment volume slightly decreased in H1 2019 (-6%), but its market share progressed reaching 46%, a record for the main sector. The retail segment experienced the strongest decline (-31%), as investors are very cautious about this asset class. The industrial & logistics investment volume also followed a downward trend (-16%), but this remains a strong result considering the record levels of the last two years.
Central Paris (-4%) takes the lead in the European city markets ranking in H1 2019. Offices drove the market, thanks notably to two deals over €1bn: a 28-asset portfolio in the CBD and the Lumière office building. In Central London (-39%), the strong occupier market should attract investors in normal times, but the capital is encountering ongoing Brexit uncertainties over the future of the occupational base, which is dampening the immediate appetite to transact. Germany's four top locations play a significant role in the country's transaction volume and together recorded the second best result in the past 10 years even though it was 16% lower than H1 2018. Berlin (+67%) posted an increase, which represents a new all-time high. Frankfurt (-34%), Munich (-46%) and Hamburg (-49%) faced a lack of product and ended up under the 5-year average. The office sector (+280%) led Madrid’s overall market performance (+104%) while retail plus industrial & logistics sector volumes dropped. Milan (+56%) performed well in H1 2019 due to strong activity in both offices and retail. 2019 is off to a very good start for the Prague market with a 120% progression supported by South Korean investors interest in prime office schemes. In Vienna (+26%), investors' strong appetite for all asset classes resulted in a lack of prime products in the market. In Amsterdam (-34%), the decline is mainly due to the drop in retail volumes (-62%) that now represents a share of only 2% of the turnover. Concentrated activity in the office sector drove Warsaw's excellent performance (+117%): 3 mega deals represented 40% of the investment volume. Brussels experienced a strong decline (-48%) mainly due to the low level of big transactions. The Dublin market (-19%) showed reduced volumes overall although the office sector continues to drive transactions. Luxembourg, where European investors (78%) dominate the market, dropped (-34%) in comparison to record H1 2018.
After reaching historically low levels in 2018, property yields stabilized in most cities, except for Hamburg (-10 bps), Prague and Warsaw (-25 bps) which prime yields contracted between Q1 and Q2 2019. Only Milan showed expansion (+10 bps). The most expensive markets are in Germany: Berlin’s prime office yield remained at 2.70%, followed by Munich (2.80%), then Frankfurt and Hamburg (2.95%). Paris posted a 3.00% prime office yield. The highest prime office yield is in Warsaw (4.50%).