North American and Middle East buyers drive European property investment market

North American and Middle East investors are the major drivers of increased activity in the European commercial real estate market and buyers from outside the region now account for more than a quarter of all transactions in H1 2013, according to the latest data from CBRE.

The total value of commercial real estate investment activity in Europe continued to grow in Q2 2013 at 6% higher than the total for Q1 2013. The €32.6 billion recorded over the quarter shows a 22% increase on the same quarter last year and is the highest Q2 total since 2007 (before the financial crisis).

The level of cross-border investment in Europe continues to increase, both in absolute terms and as a proportion of the market as a whole. Over the first half of 2013, foreign buyers accounted for 44% of all transactions (by value) compared to 40% in the second half of 2012.

A significant change has developed in the sources of cross-border real estate investment, with intra-European investment (where the buyer is from another European country) accounting for just 16% of transactions in H1 2013. This percentage had been holding steady at around 20% of the market throughout 2011 and 2012.

Investment capital from outside Europe is becoming increasingly important to the market and now accounts for 28% of all transactions in H1 2013 (from 19% in H2 2012). Even within this group of non-European investors there has been a marked change in the sources of capital.

Buyers from North America accounted for a steadily increasing share of the market (13% of the entire market and 24% of cross-border transactions in H1 2013). This could have a significant effect on the dynamics of the property market as US investors – which make up the vast majority of activity – typically look at a more diverse range of markets.

Investors from the Middle East also increased investment activity (9% of the entire market and 21% of cross-border transactions in H1 2013). Capital from the Middle East is generally institutional in nature, with nearly half of the total coming from the region’s sovereign wealth funds. Transactions from Middle Eastern buyers show a strong bias towards London (nearly 50% of the total) and offices, although there were several large retail properties among the purchases made.

Within Europe, German investors remain the largest group of cross-border buyers; the open-ended funds continuing to be active buyers around Europe with acquisitions totaling well over €1 billion in H1 2013. The German ‘Spezial’ funds are also active, but their acquisitions have been strongly focused on Germany in the first half of this year.

To the end of July EUR 163 million of commercial real estate (CRE) turnover was registered in Hungary. The bulk of this volume was done in the institutional sector.  On top of CRE turnover, an estimated EUR 40-50 million was invested into vacant properties to date; continuing last year’s trend. Opportunistic investors are showing growing interest for well located, good quality vacant properties. – commented Tim O’Sullivan Head of Capital Markets at CBRE Hungary.