Q3 2018: buying sustained at high level
Total commercial real estate investment volumes in Europe have remained high with €176.7bn invested between Q1 and Q3 2018, a stable result compared to the same period in 2017. The full 2018 turnover will show a decline however, as 2017 was an all-time record due to a very active Q4 that will most likely not be repeated. The European result is once again led by Germany where investment activity continues to boom.
Office investment volumes remained stable, with the growth being held back by limited supply in some of the European markets. Retail investment has seen a decline over 2018 although on an annual rolling basis (that includes the exceptional activity of Q4 2017) it is stable. Industrial & logistics, as well as hotels sectors, have experienced the sharpest declines after both registered a strong year in 2017.
With €66.7bn transacted over the three quarters, the 16 European city markets monitored within this report posted an average 10% increase compared to Q1-Q3 2017. Central London remains the top European city market with €15.8bn invested (-5%). Foreign investors are downplaying uncertainty linked to Brexit negotiations as a major source of risk. Central Paris (+41%) comes second place, mainly due to Paris city performance (both inside and outside CBD) as well as Western crescent district. Following London, and Paris come the four main German markets. Frankfurt (+78%) is number one of the German cities with €6.8bn invested, thanks to a few mega deals. Berlin (-19%) is the only one of the four main cities to register a decline, attributable to insufficient supply as there is still a high level of demand. Then comes Amsterdam that jumps to 7th position despite a substantial decline (-23%) in investment activity except in the industrial & logistics asset class. After three exceptional years, Madrid is now posting declines (-25%) led by office and retail. The record level registered in Brussels is mainly due to South Korean investors who are responsible for the three largest transactions of 2018. Vienna's decline (-38%) is attributable to a lack of product whilst offices remain the top performing asset class in Dublin (+124%). Ongoing momentum meant Milan’s investment decline (-5%), following a good 2017, is smaller than anticipated. All sectors remained very active in Warsaw (+56%) while Luxembourg's great performance (+16%) almost matched its 2017 result. Prague experienced a downturn (-58%) as well as Lisbon (12%) which did not benefit from the buoyant activity in Portugal.
Yield compression has continued since the end of 2017 for half of the main city markets while yields stabilised in the rest. From Q2 to Q3 2018, the Munich prime yield overtook Berlin to achieve Europe’s lowest prime office yield (2.90%), Milan, Amsterdam, Brussels and Warsaw were the other markets to record compression.