Rise in investment in European commercial real estate from Asia and North America

EDNESDAY, 09 OCTOBER 2013

A significant increase in cross border investment over the past year, particularly from Asia and North America, is driving strong growth in the European commercial real estate investment market, according to the latest research from global property advisor CBRE.

Europe is the most exposed global region to cross border property and since 2007 inflows from outside Europe have accounted for 18% of all investment activity.

 

The report points out that the proportion of cross border investment coming from outside Europe has increased markedly in recent years with capital from Asian investors and more recently from North America entering the European market in increasing amounts.

 

Cross regional capital, that which comes into the European market from other parts of the world, and intra regional capital which is cross border investment, but from inside Europe, re roughly equal in terms of total value of transactions executed, each making up just over 20% of total buying activity in Europe recently.

 

However, the report points out that these two different types of cross border investor tend to invest in very different types of property and, to an extent, in different locations too.

 

In the first half of 2013 domestic investors in Europe were highly concentrated in smaller transactions, with an average transaction size of €21 million. Cross border investors from other parts of Europe targeted larger lot sizes, averaging €42 million per transaction. However, those from outside Europe entirely invested in still larger lot sizes, with an average deal size of €94 million. Of the 35 UK transactions in the first half of 2013 with a lot size of £100 million or more, 22 were bought, either in whole or in part, by an investor from outside Europe.

 

The report also said that there is also very narrow distribution of cross regional capital, with the top10 cities accounting for 60% of global investment into European commercial real estate from 2012 to the first half of 2013.London, Paris and the main German cities take a very high proportion of the total due to the transparency, overall liquidity and a steady flow of the right type of investment opportunities available in these markets.

 

Cross regional investors from different continents also appear to have different characteristics in terms of the countries they invest in and the type of properties they buy.

 

Investment from North America into Europe has tended to come in the form of collective investment vehicles. These funds often invest on behalf of institutions, but are more likely to use leverage and appear to be more focused on returns than diversification. They have typically invested in a wider range of locations than other cross regional investors and have been more likely to look at value add and opportunistic acquisitions. Investors from North America have shown a strong bias towards Germany compared to other cross regional investors.

 

 

Buyers from the Middle East are more diverse in nature, with a variety of institutional, mostly sovereign wealth funds, and private capital making up the total. A disproportionate amount of Middle Eastern capital is invested in alternative sectors, particularly hotels. The majority of Middle Eastern investment into Europe has been into the UK, but a significant amount has also been targeted at France and Germany.

 

Investment from Asia has tended to be direct investment by institutions such as sovereign wealth funds, pension funds and insurance companies. Investment has been concentrated in a relatively small number of locations, with a strong preference for the UK, and is also highly concentrated in the office sector. Notably, investors from Asia have the largest average lot size for their transactions.

 

‘Europe will be a natural home for much of the real estate allocation from global capital flows as long as its markets retain the characteristics of transparency and liquidity, while also offering diversification benefits against assets that are denominated in, or pegged to, the dollar,’ said Jonathan Hull, head of EMEA capital markets at CBRE.

 

‘These factors have helped attract the institutional style capital that typically makes up the flows out of Asia. There is no reason to expect these fundamentals to change in the foreseeable future; therefore, we can expect capital from outside Europe to continue influencing the European market over several more years,’ he explained.

 

‘Looking ahead, Asian investment in particular is expected to grow as China, Japan and Taiwan, and then countries such as Thailand, Indonesia and ultimately India, become sources of cross-regional capital flows. Sovereign wealth funds from countries where natural resources are only now starting to be exploited, such as Kazakhstan and Azerbaijan, are also likely to be of future significance with a number of African countries also showing some potential,’ he added.

 

 

 

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