RCA Insights

These Investors Have Been Plowing Capital Into Europe

By on June 25th, 2019

The sale of Riverbank House in London for £390 million ($530 million) was one of the biggest transactions in the U.K. capital last year. The deal was also the largest single asset acquisition by South African investors in 2018, highlighting the appetite of these players for commercial real estate acquisitions outside their domestic market.

In fact, the gulf between investment activity in South Africa and overseas spending by South African investors has never been greater. These players invested about four times as much internationally than was spent in their home market during 2018. On the back of weaker-than-expected domestic economic growth in the first quarter of 2019, it’s likely that investors will continue to explore overseas exposure.

International activity overtook domestic investment in 2016 and since then the gap between overseas and domestic spending has widened significantly. Domestic acquisition volume fell more than 50% between 2017 and 2018 as listed entities pulled back and became net sellers. Institutional investors, meanwhile, have remained net acquirers and international players have stayed away. (Spending by cross-border investors in South Africa remains negligible — typically less than 5% of annual investment activity.)

South Africa-headquartered investors placed €4.3 billion ($4.9 billion) overseas in 2018, of which over 60% was invested in retail, and nearly 20% into each of the office and industrial sectors. All the cross-border investment for the year took place in Europe, with 30% focused on Poland and 17% into the U.K.

1906 South Africa MAIN_300-01

Listed entities were the top overseas buyers last year, with Redefine, Vukile and NEPI Rockcastle topping the list. The largest deal was the purchase of a Spanish retail asset portfolio by Vukile Property Fund for €489m from Unibail-Rodamco. The acquisition of the Riverbank House office property in Central London was the biggest single asset deal; Oxygen Asset Management purchased the property on behalf of South Africa’s Zeno Capital.

Back in the home market, given slowing transaction activity and the shrinking economy, cap rates may rise and present a buying opportunity. Investors will be reassured if the government can fulfil its objective of boosting economic growth while consolidating the country’s fiscal position. For now though, the capital flows are outbound.

Enjoy reading RCA Insights? Get regular email updates on the latest commentaries and analysis from Real Capital Analytics by becoming a subscriber.

Also on RCA Insights:

UK Politics Wracked With Turmoil But CRE Prices Aren’t 

Europe Stumbles Into ’19; Apartments Gain on Retail

Simon Mallinson

Executive Managing Director, EMEA & APAC
smallinson@rcanalytics.com

Simon Mallinson joined Real Capital Analytics in January 2013. Based in London, Simon has board level responsibility for EMEA and APAC, with a particular passion for the continued development of RCA’s industry-leading client service and capital markets analytics.

Previously, Simon was Senior Director leading European Research at Invesco Real Estate. Prior to Invesco, Simon held a number of roles with IPD (now part of MSCI) in London and the United States. As Head of US Services, based in Chicago, he established IPD’s first North American office.

Simon is a Board Member of US association NCREIF, a member of RICS and is active across a number of other global real estate associations. He holds degrees from both Leeds and Manchester University, UK. Simon has set foot in 48 U.S. states and is looking for an excuse to visit Maine and Alaska.