Germany's share of European investment increases as European prime office and logistics yields harden
According to Savills latest research, German real estate investment activity rose from 28 per cent to 34 per cent while the UK market share has fallen from 27 per cent to 20 per cent of Europe’s total with the countries in first and second place respectively.
France remains in third place, accounting for 11 per cent so far this year. This is down on last year given the weight of Korean investment targeting the French capital in 2019, although it is still above the five year average of 10 per cent.
Savills research highlights that investor activity across different asset classes has changed tack over the course of the year. The share of office investment has fallen from 40 per cent in 2019 to 34 per cent YTD, with Savills observing proportional increases in retail (from 13 per cent to 15 per cent) and multifamily (12 per cent to 17 per cent). A shortage of prime logistics stock continues to frustrate buyers, as logistics’ share rose from 12 per cent to 13 per cent of total transactions.
European average prime office yields have hardened by 1bp during the period Q1-Q3 2020 from 3.61 per cent to 3.60 per cent. However, Savills is beginning to observe a divergence in yield movement between core and non-core markets. During the Q1-Q3 2020 period, prime office yields have compressed in Oslo (-40 bps), Milan (-25 bps), Paris CBD (-15 bps), Stuttgart (-10 bps) and Hamburg (-10 bps). However, Warsaw (+40 bps), Manchester (+25 bps), La Defense (+25 bps) and Helsinki (+10 bps) moved outwards. Many investors are being cautious due to the heightened financing, occupational and liquidity risks across non-core locations.
The European logistics sector continues to shine through amid times of adversity, with average prime yields compressing over the last six months by 7bps to 4.84 per cent. Multifamily yields are now stabilising in most markets, following a significant inward yield shift trend over the past five years.
Savills notes that Europe’s final quarter investment transaction volumes have traditionally marked a circa 48 per cent increase compared to the average recorded in Q1-Q3 quarterly investment volumes. This could be of particular relevance to investors looking at the Netherlands, where the real estate transfer tax on commercial transactions will rise from 6 per cent to 8 per cent and on residential transactions from 2 per cent to 8 per cent from January 2021.
Mike Barnes, Associate European Research, Savills, says: “In many respects, the supply/demand dynamic appears similar to 2019 with rising equity commitments to European real estate, although we are observing a shift back to core strategies.
“As we move into 2021, we expect to see more price-point clarity emerging for core-plus, given the shortage of vendors for ultra-core/core stock. We are maintaining our European investment volumes forecast of between €220bn and EUR260 billion during 2020, down 15-30 per cent yoy.”
Tris Larder, Joint Head of Savills Regional Investment Advisory EMEA, says: “Government fiscal stimulus has, to a large extent, helped tenants to keep paying rent and supported the commercial property market. In this fourth quarter the cracks are beginning to appear and pricing is coming under pressure, although this is by no means uniform with some markets more exposed to pricing corrections than others.
“With retail investors struggling for alternative places to park their savings the big retail funds are still raising substantial equity, private equity funds have serious firepower to deploy and the major institutional investors are vying for opportunities so this could present a buying possibility for many of our clients.”