PropertyEU research reveals that the gap widened between Europe’s top firms in 2015, but this year the tide could be running a little less favourably.
After shadowing each other, running almost neck and neck for a number of years, with little to choose between them in terms of European investment volumes traded on behalf of clients, CBRE has at last pulled clearly ahead of JLL in the PropertyEU Top Brokers league table for 2015.
Following a 45% surge in volume of investment deals handled in lot sizes of more than €20 mln, CBRE has put a gap of just over €10 bn between it and its closest rival, with a volume of about €56.3 bn compared to JLL’s €46.2 bn. CBRE’s figure is 22% more than JLL’s and even when deals of less than €20 mln are included, JLL’s €49 bn total remains 18% less than CBRE’s €59.8 bn.
Gap opens between top agents
Despite the new-found distance between them, the two firms are both well ahead of the pack. To put it into perspective, JLL’s 2015 investment volume is roughly twice that of third-placed Cushman & Wakefield’s €23.5 bn in €20 mln-plus deals, a figure which includes an approximately three-month contribution from DTZ, whose merger with C&W became effective in September 2015.
BNP Paribas Real Estate, Savills and Colliers International follow C&W with roughly €2 bn gaps separating each of them respectively. But although the scale is different, all of these firms’ deal volumes grew in 2015 and by a respectable amount, roughly 20%. JLL’s figure, for example, was up 19%. In the case of BNP Paribas RE, the figure was 29% but that figure may have been skewed by methodology, notably the inclusion of figures from its alliances.
To what is CBRE’s deal surge attributable? The firm’s managing director for European capital markets Jonny Hull contends: ‘More than some of our competitors we have kept a strong team in London. Our central team works on a pan-European basis. We are very sector focused so there is a group working in offices, another in retail and another in logistics and clients know that there is local expertise in the markets, but there is oversight from London to make sure they are connecting the capital and giving a consistent service across the region.’
The firm has increased investment volume handled in all western European regions, but more in some than others. While it increased volume by 43% in the UK to almost €25 bn, 68% in Germany to €9 bn, 43% in France to nearly €4 bn, the figure for Spain and Italy increased by 99%, albeit from a lower base, from €3.7 bn to €7.3bn.
‘We’ve been involved in some of the largest deals in the Spanish market in that time, both portfolio deals and single assets. One of the deals that we did was the Testa portfolio.’
Testa was a €3 bn Spanish property company and formerly the real estate subsidiary of construction Group Sacyr. The merger between Merlin and Testa created a property giant with assets of around €5.5 bn and gross rents of €290 mln from a portfolio of just under 1,000 assets mostly offices in Madrid and Barcelona. A residential portfolio was put on the market earlier this year following the merger.
‘Evolution of the REIT market in Spain has meant a lot more transactional activity and certainly our business in Spain has seen significant growth,’ Hull says.
Joining the dots
CBRE’s activity in each of the main sectors remains, for the most part, close to the average of the top 10 brokers: offices 35.5%(average 38%); retail 23.1% (23%); industrial 20.5% (17%); hotels 9.1% (6%); residential 3.5% (6.5%).
Undoubtedly, most firms were helped by the strong investment market of 2015 and investment volumes passing through the top brokers’ hands increased by upwards of 20% in several cases. Brokers were striving for a larger slice of a growing pie.
Which way in 2016?
‘We spend a lot of time trying to build a connected platform that works globally and I think that, more than ever, through 2015 we certainly had a strong market and we were able to really connect the dots globally when we saw capital moving through the US and Asia, coming into Europe,’ Hull says.
Hull adds: ‘We had a lot of value-add capital focused on Europe from the US, we saw potential growth in the market with a slowing US market and growing European market and diversifying capital from Asia. We have a very significant Asia platform and spend a lot of time making sure that when working with clients we can provide a complete global service and I would hope that one of the differentiators is that we have built a platform that does that.’
Prospects for brokers in 2016 will be heavily determined by the direction of the investment market. Last year the weakness of the euro meant that although US investors actually spent 9% less in Europe than in 2014, in dollar terms this translated into 8% growth in local currency and all major markets experiencing significant gains, according to JLL figures in early January. The total investment volume was $253 bn (€230 bn).
JLL found that Germany and the Nordics were the standout performers with almost 30% growth. Central and Eastern Europe was the only sub-region to see a decline on last year’s volumes, although Russia bucked this trend with volumes up almost 50%, despite a last-quarter dip.
Pause for breath
At the start of this year, investment activity ‘took a pause for breath’, according to Cushman & Wakefield. European investment activity totalled €45.6 bn in Q1 2016 – 14% down on Q1 2015, and 15% below the three year quarterly average. Nevertheless, head of EMEA capital markets research at Cushman & Wakefield Nigel Almond observed: ‘Despite an underwhelming first quarter, investment activity continues to grow across Europe on a year-on-year rolling annual basis. The UK, continues to attract the biggest share of activity, however this share has ebbed away as investors explore opportunities in other locations. As such, the strongest growth in volumes has been located elsewhere in Europe.'
Brexit, of course, has cast its shadow over the market with uncertainty before the vote and confusion afterwards as funds were directed towards markets providing an alternative to the UK. By August, C&W figures indicated that volumes across continental Europe were 3% higher in the first half of 2016 at €77 bn, while the UK had endured a 35% decline to €32 bn. Brexit benefi ts for non-UK markets were revealed, particularly in Sweden. A spike in investment activity saw trading in Sweden surpass French volumes over H1 2016. Volumes for the half year were €10.6 bn, more than the €10 bn traded in the whole of 2015. The figure was buoyed in particular by Castellum talking control of the Norrporten portfolio in Sweden from the Second and Sixth National Pension funds for over €2 bn.
Central and Eastern Europe (CEE) recorded 60% investment growth, exceeding €4 bn in the first half of 2016. Across Europe as a whole, 19 of the 29 markets that are tracked recorded an increase in H1 2016 volumes compared to H1 2015.
Domestic investors increase share
Nevertheless, C&W says that volume growth on the Continent will be insufficient to off set the weakened UK whose €32 bn first-half volume, 35% down on the corresponding period of 2015, acted as ‘a drag’ on overall European performance. In Germany too, volumes for the first half of the year at €18 bn, were 26% down on H1 2015 while France saw only modest growth of 2% in the same period.
C&W points out that domestic investors have taken the opportunity to increase their share in the weaker market and accounted for 61% of activity, while the non-European share slipped to 21%, well below the almost 30% of recent years. Jan-Willem Bastijn, head of EMEA capital markets at Cushman & Wakefield, commented: ‘The increase in volumes that we have seen across continental Europe during the first half of the year has largely been accelerated by domestic investors who have acted on opportunity and increased their share in the weaker market, particularly in France, Germany and Sweden.’
Institutional strength boosts Europe
The effect of Brexit has perhaps not been as immediate as had been envisaged. ‘I think that overall it is going to be quite a strong year. However, Brexit will have had an impact in the summer months in the UK but, interestingly, as we look at our wider business across continental Europe the markets have actually held up very strongly and we have seen little impact in markets outside the UK and little impact on pricing,’ CBRE's Hull says. ‘We have probably seen a strengthening market in Germany and other larger continental markets. There is strong European demand from the institutional side and strong inward flows from Asia and the US — it is certainly not all bad news.’
But Hull acknowledges that Brexit is ‘a fairly long game’. And he points out that it is not the only source of uncertainty with a number of elections on the horizon in various countries in Europe including Germany, France and the Netherlands. Meanwhile, none of the top brokers are standing still. JLL's world-wide annual revenues grew more than five times to $6 bn under CEO Colin Dyer, who is retiring and president Christian Ulbrich will now also assume this role.
Cushman & Wakefield continues the integration of DTZ and has taken on DTZ Sherry FitzGerald as exclusive affiliate in the Republic of Ireland, to be rebranded as Cushman & Wakefield. And in April Savills acquired Deloitte Real Estate’s City of London team of four people. But a large turnover is not the same as profitability. As CBRE’s Jonathan Hull concedes: ‘Scale alone doesn’t help anybody. I think we have a very strong focus on client care and being very close to our most valued clients and I think that is probably the thing that has made a difference, certainly across the major markets.'