By Tom Leahy on June 28th, 2018
It has been a slow start to the year for Europe’s real estate market in comparison with 2017. Total volumes to the end of May were down 20% YOY, and none of the main property sectors recorded growth.
Clearly, investment cannot keep increasing ad infinitum, especially when prices in many markets are at record levels. However, there are variations by country and market, and some remain in the black. Leading the way are those peripheral economies that took longer to recover from the vicissitudes of the GFC and, consequently, are further behind in the real estate cycle.
Ireland, Spain and Portugal have all recorded investment in the first five months of the year well above their long term average, while the Dutch and Finnish markets, which both took a long time to reach escape velocity, go from strength to strength.
Only in Italy, where the shift to a nationalist government may have affected investor sentiment, are volumes below their long term average. Similarly, investment activity in Barcelona has slowed as buyers think twice and sellers decide not to test the market while the referendum question remains in the spotlight.
In Dublin, where volumes have come through strongly in the last six months, investors have looked at the residential sector with interest. Kennedy Wilson has just spent €163m on 274 existing apartments, which are part of a development in the south of the city, as well as an adjacent plot of land they plan to build another 250 plus units on. Kennedy Wilson has also just entered into a 50/50 joint venture with Axa IM Real Assets to target the Irish PRS sector.
In Lisbon, which proved to be the market most delegates wanted to discuss at a recent Iberian Real Estate Summit in London, Q1 investment was the highest level ever recorded. This is due to some very large retail deals, including the acquisition of a portfolio from Blackstone by Immochan.
The one factor that looks to be holding the Portuguese market back is the lack of a domestic REIT regime, which leads to a structural increase in Spain’s liquidity after the reforms in 2012/13. This year, all transaction activity in Lisbon has been from overseas players, which does suggest some degree of risk as and when international investors’ preferences change.
Of the countries formerly known as “peripheral,” only Greece remains in the doldrums. But the recent news of an agreement with the EU supposed to “end the crisis” raises the possibility that investors will start to look there for opportunities, and for example, a Greece-focused opportunity fund was only recently launched by Dromeus Capital.