Our annual ranking of the biggest dealmakers in Europe based on transaction volume over 2022 puts Blackstone in the top spot, followed by AXA IM Alts and Brookfield Asset Management.
It’s no exaggeration to say that 2022 was a year of two halves in the commercial real estate market. The post-pandemic recovery dominated the first quarter, when CBRE recorded €80 bn of transactions across Europe, the second-strongest start to the year ever after 2020.
But the storm clouds that were gathering on the horizon burst open as the war in Ukraine had a seismic effect on global economies. By the fourth quarter the optimism that ushered in the year had well and truly vanished: investment volumes dropped by 58% in the last three months and 18% across the whole year, with the rising cost of borrowing sending transactions and asset prices into reverse.
Data from PropertyEU’s survey of Top 100 Dealmakers suggests the decline was even sharper at the top end of the market: the total transaction volume for the investors in our ranking was down by 27.5%, from €358 bn to €260 bn. This is in line with CBRE’s finding that the decline was steepest for buildings in the €20 mln-plus bracket, as these assets tend to be more dependent on external financing. Financiers have understandably become more cautious since the European Central Bank raised interest rates from zero to 3.5% in less than a year, with at least one more increase expected this summer.
Cross-border investment within Europe was especially hard hit, dropping by 36%, according to Savills, but not all markets fared equally badly: Ireland, for example, almost matched 2021’s investment volume last year, with Brookfield’s takeover of office landlord Hibernia REIT for €1.1 bn and Blackstone’s purchase of Salesforce’s new European HQ in Dublin for €500 mln the standout purchases in a total turnover of more than €5.5 bn.
North American and Asian investors
American and Canadian investors occupy three of the top four spots in our ranking, as well as seven of the top 20 positions and nine out of 20 on the acquisitions side. The strength of the US dollar over the summer was an incentive for US and Canadian investors to spend a total of €48 bn in European markets in 2022, 31% ahead of the five-year average.
Top of the pile was Blackstone, which reinforced its commitment to the region by announcing plans for a new purpose-built European headquarters in London. Blackstone concluded several portfolio deals during the year, particularly in logistics, doubling its platform in Portugal with a pair of acquisitions worth €325 mln and acquiring a €490 mln Swedish portfolio from Corem. These figures do not include the €21 bn recapitalisation of Mileway, the biggest real estate transaction of the year in Europe, which was mainly financed by existing investors after negotiations with Prologis on a sale broke down. But even without Mileway, Blackstone’s deal volume of €21.2 bn was larger than its two closest competitors, AXA IM Alts and Brookfield Asset Management, combined.
Asian investors were also notably active buyers, particularly in the UK, where Singapore’s sovereign wealth fund GIC took advantage of the weak pound to secure headline-grabbing deals such as the €4.43 bn purchase of Student Roost, together with Greystar, from Brookfield AM. Korea’s National Pension Service also weighed in with the acquisition of 5 Broadgate in London for €1.21 bn.
Greystar’s joint venture with GIC helped push it into the top 10 (from 40th in 2021) in what was otherwise an extremely subdued year for residential property. Vonovia topped the ranking in 2021 with its takeover of Deutsche Wohnen, but last year Germany’s largest residential landlord dropped out of the top 100 altogether. The company ruled out a mooted takeover of Adler and early in 2023 said it would not be starting any new construction projects, due to a combination of rising costs and a shortage of building materials. CBRE calculated that investment in residential real estate plummeted by 48% year-on-year in the last quarter of 2022, by far the largest of any sector.
Retail bucks downward trend
Fears of an impending recession took their toll on the office market, which was down by 15%, while logistics dropped by 8% and hotel investment by 9%. The one bright spot was retail, where volumes grew by 20% year-on-year in the final quarter. LaSalle’s acquisition of two McArthurGlen outlet centres in the UK from Nuveen for £600 mln (€715 mln) was the biggest retail transaction in Europe for several years.
In the first quarter of 2023 retail investment was down 6% compared to 2022, but this was still a relatively shallow decline. Patrick Delcol, head of European retail, logistics and hospitality at BNP Paribas Real Estate, says the pendulum swing was inevitable after the sector’s long battle with the rise of e-commerce. ‘That automatically made shopping centres and retail parks more appealing because of the higher net initial yield. So when interest rates started hiking, the segments which were the least hit were those which already offered a risk premium to attract investors.’
The fact that retailers survived the ‘crash test’ of Covid has boosted confidence in the sector, says Delcol, as has the return to physical shopping since the end of the pandemic, with consumers spending more than in 2019. ‘As long as you can catch an investor with a simple retail proposal – not an asset that needs very complex financing, because that’s not available right now – your product is going to appeal to quite a lot of pockets,’ Delcol said.
The question now is when transaction volumes might pick up again. Savills recently estimated that European offices are two-thirds of the way through a price correction as markets move into ‘fair value’ territory – though some core locations such as London, Amsterdam and Hamburg may have fully corrected. Analysts are not anticipating a flood of distressed assets, partly because tighter financing means the continent is not awash with new buildings, as was the case during the last financial crisis. Much will depend on how soon central banks start cutting interest rates and economies start picking up, but Savills believes European cross-border investment will pick up as the rapid price correction and asymmetrical recovery encourages investors to shop for bargains.
The full ranking, plus geographical breakdown and analysis, appears in the July/August issue of PropertyEU Magazine