European investment falls almost 20% in H1 as prices peak

Real estate investment volume in Europe fell 19% to €109.8 bn in the first half of the year as record-high asset prices kept sovereign wealth funds out of the market, research conducted by Real Capital Analytics (RCA) has revealed.

‘RCA’s data for the first half show that most major sources of capital were less active and US-headquartered investors as a group were net sellers,' RCA’s senior director of EMEA Analytics Tom Leahy said. 'Our indicators show that pricing in the core Western European markets is well above the previous peak, reached in 2007,’ he added.

Sovereign wealth funds accounted for 0.2% of Europe’s total investment volumes in H1 2018, compared with a 4.5% share for the whole of 2017.  'These are the weakest investment levels by sovereign wealth funds since 2010,' Leady said.

Germany books 31% decline
The slowdown affected 14 of Europe’s 20 most active markets. Germany and the UK, the two most active markets (together accounting for 48% of total investment activity in Europe), turned in declines in investment volumes of 31% and 11% respectively.

‘We should see an improvement in the second half although it’s very unlikely that we shall see a repeat of the record final quarter of last year,’ Leahy warned.

‘Real estate continues to appeal to generalist investors, who are looking for income-producing assets.  Property is expensive in core markets in historical terms, however, so investors will have to focus on adding value through asset management or targeting markets and sectors where rental growth prospects are good,’ he added.

Some positive signs
In this context, there are also positive signs. The Netherlands increased its volume by 17% with €9.8 bn of transactions. In H1 2018 Dutch market was the fourth most active in Europe thanks to the acceleration of the residential rental and hotel sectors, RCA said.

Other active markets include Ireland with €2.5 bn of transactions, a 84% increase due primarily to a surge in purchases of rental apartment blocks in Dublin; and Lisbon, which became the 13th city with the highest percentage of investments.


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