European commercial deals expected to reach €219b for 2019

European commercial real estate investment volumes are expected to reach €219 bn by the end of the year, 22% above the 10-year average, but 13% down on 2018 figures, according to Savills.

The advisory firm said that 2018 marked the second highest volume ever recorded, and that pricing and a lack of available stock were affecting deal flows this year. Nevertheless, Savills predicts that deals will rise 8% in Sweden - where development activity is providing forward-funding opportunities - and said that a strong year in Italy should see volumes in line with 2018.

'Demand for European property remains strong and continues to attract capital, 50% of it being cross border,' said Marcus Lemli, Savills head of European investment & CEO Savills Germany. 'However, the slowing economy and geopolitical uncertainties reinforced a conscious focus on quality, both in prime and secondary markets where activity has been particularly strong.'

In Q1 2019, the volume of investment into European commercial real estate totalled €44.7 bn, 21% down on Q1 2018. Greece (+165% year-on-year), Romania (+161%), the Czech Republic (+160%) and Sweden (+72%) all outperformed 2018 in the first three months of 2019.

Overall, investor demand in Europe remained focussed on offices, accounting for 41% of the total investment volume into commercial property in Q1 2019. The prime CBD and prime non-CBD office yield gap in Europe continued to narrow, due to the tight supply in these markets, and reflecting the strong investor demand outside of CBDs.

According to Savills, the retail sector recorded the sharpest decline in investment volumes (-39%) over the last year as investors have become increasingly selective for the right product, setting their sights on prime assets of a certain size with strong grocery and food offerings.

The average prime retail warehouse yield (5.16%) hardened by 6 bps year-on-year, but softened quarter-on-quarter notably due to downward price corrections in London and Paris.

Germany’s top six cities saw prime yields continuing to move in (-10bps quarter on quarter). In addition, Savills has seen the average prime shopping centre yield (4.58%) move out by 9 bps annually although it has remained broadly stable on a quarterly basis.

The picture looks quite different for logistics, however, as strong appetite for these assets continues to put downward pressure on prime yields, Savills said. The average prime yield is now 5.15%, -43 bps year-on-year.

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