The European investment landscape has seen many seismic shifts over the last few years, with ever increasing flows of global capital and a transformation in debt markets. However, 2016 may well be remembered as providing one of the most notable changes with Germany surpassing the UK as the region’s largest investment market for the second half of the year.
EMEA investment volumes in Q4 2016 came in at US$85 billion, which represents a five percent decline year-on-year. This was largely a result of a decline in transaction levels in the UK – down 39 percent year-on-year in U.S. Dollar terms (-26 percent in sterling), causing it to fall into second place behind Germany in terms of market size.
Volumes in the EMEA region as a whole fell by eight percent to US$246 billion. However, excluding the UK, volumes increased seven per cent year-on-year. And although the UK fell behind Germany in terms of overall investment volumes, it remained Europe’s largest investment market in the final quarter with US$59 billion of transactions compared with Germany’s US$55 billion.
Despite the drop in activity in the UK, European volumes have been shored up by increased activity in Central and Eastern Europe (CEE), Russia and Greece.
CEE saw investment activity rise by 75 percent year-on-year for the full-year 2016. Poland, the largest country in the sub-region, the Czech Republic and Hungary were responsible for the largest transaction volumes. Many of the smaller countries in the region also registered strong increases.
Interestingly Greece registered a huge improvement in volumes, with US$554 million of transactions. Russia, too, recorded positive growth with US$4.5 billion (up 84 percent on 2015). The Nordics saw overall 2016 volumes fall by five percent, although this was largely due to a -41 percent decline in Norway. The remaining Nordic countries recorded positive growth.
Southern Europe’s volumes grew by 11 per cent year-on-year, driven by increases in Greece, Italy and Spain. France saw a decline of eight percent.
Outside of the political issues across the region, the lack of supply is the key issue. Demand for real estate, however, has been, and continues to be robust. While a more cautious approach to investing will persist globally, on the occupational side, strong demand continues to justify at least some modest rental growth in most developed markets.