Real Capital Analytics / July 29th, 2021
London, July 30, 2021 – European commercial property investment returned to positive territory in the second quarter, reversing four consecutive quarters of year-over-year declines, the latest Europe Capital Trends report from Real Capital Analytics shows. The recovery reflects improved dealmaking conditions compared to a year ago and demonstrates the enduring appetite for European commercial property.
Headline commercial property sales rose to €66.7 billion in the second quarter, a 20% increase compared to the same period in 2020, when pandemic-related market uncertainty and hurdles to dealmaking were acute. Deal flow for the first half of the year reached €124.0 billion, 8% below the same period last year. Compared to the pre-pandemic five-year average, overall volume in the first half of 2021 lagged by 16%.
Investors continued their shift towards the logistics sector across major European markets. Sales reached €15.2 billion in the second quarter, surging 138% compared to the same period last year. Volumes hit €26.5 billion over the first half of 2021, which accounted for one-fifth of all deal flow in the period, the highest proportion on record, RCA data shows.
The U.K. was Europe’s top destination for industrial investment, with more than €9 billion invested. Germany was a distant second place, with €3.7 billion in industrial deals, while Sweden was third-placed with €2.8 billion. The e-commerce trend which is benefiting the industrial sector continues to thwart the retail market. Retail sector sales fell back to €6.7 billion, a 2% decline compared to the same quarter in 2020.
Office sales in Europe showed resilience. Transaction volumes reached €22.3 billion in the second quarter, a 42% increase compared to the same quarter last year when the first wave of the pandemic stifled deal activity. Apartment deal flow reached €11.9 billion in the second quarter, a decline of 43% compared to a very strong Q2 2020 when a handful of supersized deals boosted numbers. Hotel sales hit €3.9 billion in the second quarter, a 136% year-over-year increase.
Tom Leahy, RCA’s Senior Director of EMEA Analytics, said: “There are positive signs in the market as we continue to recover from the pandemic disruption. The industrial market remains incredibly buoyant and yields are as low as they have ever been. The U.K. market was a standout performer, supported by a degree of post-Brexit political certainty, a pricing advantage versus Europe’s other core markets, and a slightly accelerated vaccine programme which supported investor confidence.”
The U.K. narrowly overtook Germany to recapture the mantle of the largest investment sales market in Europe. U.K. volume increased to €17.7 billion in the second quarter, a 77% jump on the same quarter last year, and to €30.9 billion in the first half of the year, a 32% upswing. The return of international investors was a catalyst for the U.K.’s market recovery. Canadian investors acquired more assets in the first half of the year than in any six-month period since 2015. German investment in London offices reached a four-year high, led by Union Investment’s revived purchase of One Braham in the City for £468 million (€538 million).
London also regained its crown as the most-invested market in Europe. Deal flow reached €9.4 billion in the first half of the year. Four of the top 10 deals across Europe closed in London, including the largest, Brookfield’s £635 million (€739 million) purchase of 30 Fenchurch Street.
Germany posted investment sales of €17.1 billion in the second quarter, a small increase compared with 2020, and €30.7 billion for the first half of the year, a 16% decline. Germany’s performance relative to the U.K. is partly explained by the different timelines of peak pandemic disruption: the U.K. market slowed substantially at the start of the pandemic, while the third quarter of 2020 was Germany’s low point. Berlin was Europe’s second most active market, behind London, with €6.6 billion in deals over the first half of 2021. Munich was also one of the strongest European investment markets, closing deals worth €4.1 billion in the first six months of the year. Blackstone’s sale of the Media Works office scheme in Munich to a Hines and Union Investment joint venture for €678 million in April was Europe’s second largest deal of the year so far. However, weakness elsewhere, notably in Frankfurt, means transactions overall remain below Germany’s five-year average.
France retained third place in Europe’s top market rankings for the first half of the year, although deal flow slipped to €5.2 billion, down 14% compared to last year. Paris office investment slumped, while retail investment recorded the slowest start to a year since 2008.
Sweden was in fourth place with €5.0 billion worth of deals in the second quarter, a 50% jump compared to H1 2020. Spain, Finland and Ireland all posted very strong quarterly volumes; each of these markets is highly dependent on overseas capital and consequently suffered a sharp slowdown through the pandemic. The pace of the capital returning to these markets has picked up, which could further accelerate in the second half of the year if travel restrictions are loosened. Elsewhere, Italy recorded its best quarter since the end of 2019, with transactions worth €3.2 billion. Demand for industrial stock was strong and U.S. investors were notably active.
Tom Leahy, RCA’s Senior Director of EMEA Analytics will discuss these trends and more in a Real Capital Analytics webinar on August 10. Journalists wishing to join the webinar can register here.
Printable press release with data tables RCA Europe Capital Trends Q2 2021 – MEDIA RELEASE.
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