Q3 2019: office sector sustaining transaction activity
Total commercial real estate investment volumes in Europe remained high with €169.3bn invested between Q1 and Q3 2019, representing a slight decrease compared to the same period in 2018. Turnover is in line with the results of the previous five years.
The office investment volume increased (+4%) with its share expanding to 47%, a record for the main sector. The retail segment experienced the strongest decrease (-24%), as investors are very cautious about this asset class. Industrial & Logistics investment volumes also followed a downward trend (-10%), but this remains a strong result considering the record levels of the last two years. The hotels segment (+21%) is buoyant, close to 2015 records.
The Central London (-43%) transaction volume continues its downward trajectory; indicative of widespread investor caution afflicting the market and lack of stock. The Central Paris (+17%) office investment represented 84% of the turnover, thanks notably to four deals over €50m. In Germany's top 4 locations, investment increased (+2%) overall. Berlin (+86%) continues to boom with a record turnover, as well as Munich (+4%) that almost reached 2017's historic high. Declines were recorded in Frankfurt (-39%) and Hamburg (-31%), mainly attributed to a lack of supply. Amsterdam (-12%) experienced a decline despite good performance in the hotels sector (+95%). Brussels also experienced strong decline (-35%) mainly due to the low level of retail deals. Madrid’s (+69%) performance was led by offices (+156%) and alternatives.
Milan (+16%) exceeded last year's figure thanks to an improvement in office and retail investment activity. In Dublin (-8%), offices remain the top performing sector, boosted by two mega-deals. Warsaw (+39%) was driven by the record level of office transactions where: five mega deals accounted for almost €1bn. In Vienna (+48%), the shortage of product led investors to switch to alternative asset classes. Luxembourg declined (-45%) in comparison to record 2018 turnover. Nonetheless, European investors (88%) continue to dominate the Luxembourg market. In Prague (+165%), investment was boosted by offices and hotels represented 19% of the turnover. In Lisbon (+53%), the desire of investors to buy is unabated and it is leading many to take on riskier projects not considered before.
After reaching historically low levels in 2018, European office yields have mostly stabilized. Some cities are seeing further compression led by Prague (-75 bps), Amsterdam (-40 bps), Warsaw (-25 bps) and Hamburg (-15 bps). Despite investment activity being strong in Germany, Frankfurt, Berlin and Munich reduced by a smaller amount (-5 bps) although these cities are the most expensive in Europe. Berlin’s prime office yield reached 2.65%, followed by Munich (2.75%), then Frankfurt and Hamburg (2.90%). Paris follows with a 3.00% prime office yield. The highest prime office yield is found in Warsaw (4.50%).