Europe

Europe investment overview Q2 2016

Investment is down on a year ago, but hotspots such as Germany and the Netherlands may be able to counter Brexit jitters

Cautious optimism with a dash of apprehension is in the air as Europe’s property market slowed down at the start of 2016. Overall investment dipped by 15% year-on-year in the first quarter, with commercial investment down by 36.9%. According to Knight Frank’s European Quarterly Commercial Outlook report, it is the biggest year-on-year fall since Q3 2009.

Despite this, Q1 proved to be the second-strongest start to the year since the financial crash, behind 2015. Parts of Germany were particularly active, with transaction volumes doubling in Düsseldorf and up by 80% in Berlin, year-on-year. The country as a whole also saw foreign investment rise by 30% in the same period. Neil Blake, head of research at CBRE, says: “This idea that all of Europe is in the doldrums just isn’t true.”

GDP growth of 0.5% in the eurozone in Q1 will further help bolster confidence, says Chris Bell, managing director for Europe at Knight Frank. This, combined with rental growth in Dublin, Berlin and Prague, among others, and a shortage of supply in places like Madrid, is giving investors a good reason to be optimistic about the rest of the year.

Paris and London, however, have both reported an overseas investment slump in the wake of uncertainty, exacerbated by the UK’s upcoming Brexit vote, France’s slow economic growth and its record levels of unemployment. Cross-border transactions in Paris dwindled to $1.9bn in the first quarter, down from $4.1bn a year ago. In London, the figure was $5.8bn, down from $9bn in 2015.

Although Europe’s performance has been erratic so far in 2016, Blake is optimistic. Part of the slowdown at the beginning of the year, he says, came after a year of high investment followed by worries that markets were overheating. With low interest rates, recovery should keep going well into next year and maybe even to 2018.

Commercial hotspots

While foreign investment has slumped in Paris, its commercial sector is finally seeing some growth. For the first time since 2011, prime office rents in Paris are on the rise, up by 1.3% in Q1. This, combined with a 19% year-on-year increase in office take-up and a 10bp drop in vacancy, is giving the French capital a commercial boost that its residential market is not matching.

Office take-up has been strong elsewhere too. Brussels and Dublin posted year-on-year rise of 53% and 43% respectively in the first quarter, which, according to JLL, reflects a wider trend. Budapest’s market posted a 4.8% rise in office rents in Q1 and a 37% year-on-year increase in take-up.

Residential hotspots

The Netherlands is drawing investment into its residential sector. JLL reports year-on-year sales activity up by 20% in Q1. House prices rose by 5.5% over the previous year and transaction volumes reached €512m ($571m), helped in large part by the sale of 1,275 residential units across the country to Patrizia Immobilien for more than €152m.

Only a few cities have seen rises in prime residential prices. In Q1, prices in Geneva and Dublin increased by 2% and 1.4% respectively, while year-on-year figures showed prices rising in Monaco by 4.9% and in Madrid by 2.1%. Capital growth in Madrid’s residential markets as a whole rose by 3.4%, and JLL expects it to continue to rise in the medium-term as the market continues to recover.

Growth areas

Continuing on its modest commercial growth, Paris could start to see investment taking off as the 2017 elections approach. Knight Frank’s Bell says that with an upcoming election, France’s political leaders will want to invest in business, boosting demand for office space, particularly secondary offices in Paris.

After years of underinvestment, Lisbon’s transactions volume reached €352m in the first three months of 2016, compared with €51m a year before. With a growing tourist market and a recovering economy, Lisbon’s property prices rose by 3.7% year-on-year in Q1.

Risks and challenges

The low interest rate environment in Europe combined with weak oil prices have boosted consumption and economic growth in the eurozone. The low return being offered by government bonds makes transactions in property assets more favourable, says BNP Paribas Real Estate. But investment volumes, which amounted to €13.6bn in Q1 2016 and had fallen by 33% year-on-year, are being hampered by a lack of quality supply.


Must-have contacts

Eri Mitsostergiou, European research director, Savills, emitso@savills.com

Werner van Sprundel, head of research, Netherlands, Colliers International, werner.vansprundel@colliers.com

Nicolas Verdillon, head of capital markets, France, CBRE, nicolas.verdillon@cbre.fr

Ursula-Beate Neißer, head of research, Germany, Cushman & Wakefield, ursula-beate.neisser@cushwake.com


City guide: Lisbon

Overview

Only a few years ago Portugal was in the middle of an economic crisis. The government was forced to apply for bailouts, and foreign investment hit rock bottom in 2012. Since then the country’s GDP has started to rise again, with modest growth of 0.9% in 2014, 1.5% in 2015, and an expected 1.7% this year. As consumer and investor confidence is growing again, Lisbon is quickly becoming a centre for real estate development.

Why invest?

Since starting its recovery, Lisbon has made property a priority. New urban regeneration laws have opened up building opportunities and made licensing easier around the city. A booming tourism industry has also raised demand for hotels, while tax exemptions for regeneration projects and the Golden Visa programme, which gives foreign investors a five-year residence permit, are attracting investment from all over the world.

The numbers

10m passengers using Lisbon airport in 2015

1.2% all-time low residential mortgage interest rates in January 2016

€2,464 price per sq m for a city centre apartment

The opportunities

Regeneration, rebuilding and refurbishment are everywhere. In the Avenida da Liberdade business district in central Lisbon, foreign corporate investment is booming, creating opportunities to develop large stretches of residential housing in the area. But the most obvious opportunities are in the historic centre, where tourism is driving up demand for both short-term rents and property restoration.

Stand-out scheme

In April, Lisbon’s Metro opened its long-awaited blue line extension, connecting a major residential district in Amadora to the centre of the city. The €54m (£41.8m) project is a major factor in expanding Lisbon’s metropolitan area and making the business district more accessible. It will drastically cut down journey times and open up opportunities for investing in the residential market.

Top tips

Pack the sun cream: with an average of 276 days of sunshine every year, Lisbon is the sunniest capital in Europe.

Find out why Lisbon is buzzing about custard tarts. Head to Pastéis de Belém for a pastry whose 200-year-old recipe only five people in the world know.

One weekend a year, flooded Roman vaults underneath the city are drained to let visitors explore the galleries inside.

If you’re a bookworm, no trip to Lisbon is complete without a visit to the oldest bookshop in the world, Bertrand, which has been operating since 1732.

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