Rising trade tensions between the US and China caused the slowing of European economic growh more than expected in 2019, according to the BNP Paribas Real Estate. After the record level of 2018, commercial real estate investment in Europe remained high while foreign investment decreased by 10% in H1 2019.
“The main feature to watch within Europe will be the geopolitical situation in countries like the UK and Italy. Yet apart from these uncertainties, European growth remains underpinned by solid fundamentals, notably the employment trend, healthy household revenues, strong corporate profits and favourable interest rates”, said Richard Malle, head of International Research for BNP Paribas Real Estate.
In this uncertain environment, 10-year bond yields have reached new floor levels, dipping below zero in Germany (-0.7%), France (-0.4%) and Netherlands (-0.6%). “Since 2014, economic news, whether good or bad, has driven interest rates down. The risk of a sharp increase in long-term interest rates in the coming years is receding. An inflexion in yields therefore looks unlikely in the medium term for the main European real estate markets”, added Richard Malle.
Commercial real estate investment volume in Europe reaches 101.8 billion in H1 2019
According to BNP Paribas Real Estate’s Market Information research, commercial real estate investment volume in Europe reached to 101.8 billion in the first half of 2019, i.e. 13% less than the record level of 2018.
”The decline applies to all asset categories apart from hotels, which were up 26% to € 10.2bn, close to the 2015 record (€ 10.7bn),” stated in the research.
The office segment (€ 47bn) slipped just 6% thanks to two transactions of over € 1bn in Paris and numerous huge deals in the leading German markets.
Logistics fell 16% with investment of € 13.1bn; which remains 30% above the long-term average. The retail segment saw the biggest decline (-31%) with investment of € 16.4bn, well below the long-term average, suggesting dwindling enthusiasm among investors for this asset category.
With investment of € 24.4bn, Germany (-6%) ranked first among European countries. Usually in pole position, the UK was in second place with investment of € 22.1bn, a steep fall compared to H1 2018 (- 33%), but also well below the long-term average. After the record figure of € 34bn in 2018, France started 2019 with the same impetus (+0%) with € 13.7bn invested. The market was driven by offices, which accounted for 70% of the total.
Foreign investment in the European commercial real estate market decreased by 10% in the first half of 2019, compared to the year-earlier period.
“European investors stood out once again, even seeing an increase in their market share since the beginning of the year (45%). US investors, after a peak in activity followed by a withdrawal from the market in 2016, have since been oscillating around € 25bn annually. They invested commensurately in early 2019. Asian investors were less keen (-11%) but have clearly established their presence in Europe in recent years. Middle Eastern investors have been less present in 2019 (-24%) with investment coming in well below the long-term average”. said Larry Young, head of the group’s International Investment division.
Take-up in the leading 15 European office markets remained very high in H1 2019, with 4.75 million m² changing hands over the first 6 months of the year. Despite a 2% fall vs. 2018, the figure for H1 was at its second highest in 10 years. Yet the overall figure conceals major disparities, with some markets showing a distinct slowdown while others continue to break records.
“Thanks to a healthy take-up trend for several years now, European office markets currently boast very low vacancy rates. This means that immediate supply is historically low in most major European cities and competition between occupiers for high-quality assets in the main business districts is as fierce as ever. Prime rents naturally reflect this trend and remain high throughout Europe,” said Aymeric Le Roux, the executive head of International Advisory & Alliances.