Cross-regional investment boosts European property markets

Diversity of Investment Grows with Significant Capital Flowing from Brazil, China

Non-European investors are increasingly prominent in the commercial real estate market in Europe, with one fifth of capital coming from overseas in the first half of 2012 (H1 2012), according to the latest research from global property advisor CBRE.

Investors from outside of the region accounted for over €10 billion of European property investment, with capital coming primarily from North America, the Middle East and Asia. Increased investment activity from sovereign wealth funds and pension funds contributed significantly to this growing figure in H1 2012.

Interestingly, the global capital now acquiring European real estate also shows a remarkable diversity in origin, with significant investment heralding from Brazil for the first time, as well as from China, Malaysia and Chile.

The preferred sector for direct investment by non-European property investors is offices. In terms of geography, a north/south divide persists: London attracted half of all capital entering the region with non-European real estate investors accounting for seven of the 10 largest deals in the capital in H1 2012. Paris is also proving popular and these two cities alone accounted for over two-thirds of cross-regional investment compared with around a third at the peak of the market in 2007.

The German property investment markets together with Stockholm are also popular, regarded as safe-havens in the context of the ongoing eurozone crisis. This echoes the trend in the wider real estate market that is increasingly polarised in favour of Northern Europe. Correspondingly, when compared to H2 2011 declines persist in southern European markets, specifically Italy (-25%) and Spain (-56%).

Jonathan Hull, Head of EMEA Capital Markets, CBRE, commented: “Clearly northern Europe is an increasingly attractive region, securing capital from more non-European countries than ever before. Non-European investors are exceptionally active in London and Paris but are also looking more widely at cities in Germany and Sweden, for example, driving cross-regional investment to account for more of the European investment market than it has done at any other time since the downturn. This is a strong indication of the polarisation which is characterizing the European and indeed global real estate markets at present.”