Total real estate investment in Europe reached €69.5 bn in Q3 2019, representing a decrease of 4% on the same period last year and 14% fall year-to-date, according to the latest data from global real estate advisor, CBRE.
This brings year-to-date investment volumes in Europe to €192 bn against a total of €223 bn for the same period in 2018.
A decline in volumes across Continental Europe is due to fewer ultra-large transactions coupled with a lack of product availability, while in the UK uncertainty around Brexit remains the primary factor. Consequently, investment volumes in the UK continued to fall in Q3 2019, down 29% on Q3 2018 and down 33% year-to-date. Despite the declines, investor sentiment remains high and a deep pool of capital is available across Europe.
France has been a flagship destination for overseas investment in Europe, particularly from Asia, with investment volumes up 44% on the same period last year and with a year-to-date increase of 16%. The market has been driven by large transactions, exemplified by the €850 mln sale of the Majunga Tower in Paris. In addition to France, investment volumes for the 12-month period also increased in Ireland, Italy and Sweden.
In Germany, limited availability of stock and keen pricing are hampering further investment growth. Investment volumes for the quarter remained flat compared with Q3 2018 but are down 11% year-to-date.
The Residential sector once again performed well, with investment volumes up 61% on Q3 2018 and high volumes of global capital now targeting the sector in Europe. As was the case in 2018, the Residential sector is now the second largest after Offices, with volumes surpassing both Retail and Industrial at the end of Q3 2019. However, investor demand could dampen until the market has greater clarity around the impact of the anticipated regulatory changes.
The Office market is still highly liquid and the market fundamentals remain robust as rental growth in supply constrained market continues, but a lack of quality stock has caused investment volumes to dampen slightly. Investment in Q3 2019 showed a slight uptick on the previous two quarters but volumes are broadly flat compared with Q3 2018 and are down 8% year-to-date.
The Retail market remains challenging, with convenience stores and food and retail parks being the only exception; however there has been some stabilisation since the start of the year. Whilst investment volumes declined 18% on Q3 2018 and were down 33% year-to-date, volumes have increased 25% since Q1 2019.
Investor demand for Logistics assets remains strong, despite keen yields. Although there has been substantial development activity, new supply is being comfortably absorbed by occupiers. Investment volumes were flat compared to Q3 2018 and fell by 9% year-to-date.
Chris Brett, head of EMEA Capital Markets, CBRE commented: 'Investment into European real estate remains strong, but as we have seen throughout the year, volumes are softening. A lack of stock and uncertainties around Brexit in the UK market are delaying decision making but that aside, the market is highly liquid with large volumes of capital available to deploy. In line with the approaches by the central banks to lower interest rates, we are seeing further compression of yields in all sectors apart from Retail. Residential is very much the new ‘sweetheart’ of investment in Europe, a trend we expect to continue as demographic patterns and declining levels of home ownership continue to drive demand.'