Business March 27, 2019 Last updated March 20th, 2019 3,386 Reads share

European Commercial Real Estate: Investor Expectations vs Reality

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The general trends of 2018

After evaluating the state of the market in Q1 of 2018, experts from Savills predicted that the upcoming year would equal to the previous in terms of annual volume of investment in European commercial real estate, amounting to roughly $283 million. However, based on the latest RCA data, this did not come to be. Out of the ten largest European markets, compared to 2018 only Poland and Austria have shown growth.


In 2018 investors switched their attention to apartment complexes, hotels, nursing homes, and student housing making the residential sector the only class of real estate, where concluded transactions amount exceeded the figures from the previous year.

According to Savills preliminary estimates, the highest growth (about 80%) achieved in 2018 was seen in smaller markets such as Greece, Portugal, and Ireland.

The RCA report notes that despite low profitability in most sectors of German real estate, and a slight decrease in Germany’s economic growth, the market reached record volumes by Q4 in 2018. The UK, on the other hand, saw a significant decline during the same period (the slowdown in retail sales and the uncertainty of the upcoming Brexit deal played their part in this).

Savills states, that by the beginning of Q3 2018, the three main European markets: the UK, Germany, and France, would amount to 67% of the EU volume, while the total volume of investments in the first three quarters in European real estate totaled to approximately $182 billion. European countries attracted powerful cross-border flows of capital in 2018, which, together with major platform deals, became the bedrock for high liquidity of European assets. Foreign buyers made about 45% of all European property purchases.

The most active European investors in the regional lucrative real estate market turned out to be British, German, French, Swiss and Swedish. The decline in Chinese investor activity due to a tightened capital control by the Chinese authorities was leveled out by an increase in investments from Korea and Singapore. Citizens of the United States continued to be the most active cross-border players. Savills experts note that the distribution of assets by class and geographic area is becoming more distinct depending on the countries where the investors originate from.

A CBRE report on the prospects of the European real estate market in 2019 notes that the dominant feature of the past 20 years has been the ability of the European economies of capital cities to outpace the national ones. The cumulative GDP growth in the capital cities of Great Britain, France, Germany, Italy, Spain, Sweden, the Netherlands, and Ireland amounted to 2.2% over the last five years, which is 0.6% higher than the aggregate national indicator of these countries. However, the national investment volumes of transaction shares in the real estate markets in capitals vary depending on the specific city.

Thus, according to RCA, Paris commercial real estate transactions accounted for 74% of all real estate investments in France in the first half of 2018. Both Amsterdam and London accounted for a little over half of the national investment in profitable properties. And only 14% of all German commercial real estate purchases were made in Berlin during this period.

CBRE analysts predict that the flow of investment in European real estate will see a slight decline in 2019. Due to a very high investment turnover in the last couple of years, an absence of available assets for sale in some European countries occurred, which is expected to limit the volume of investments in European real estate in 2019. According to JLL, compared to last year, global investments will decline by about 5-10%, which is explained by investor caution and selectivity. A CBRE report claims that the reasons for the investor’s concern are the changes in the monetary policy of the European Central Bank (ECB), which completed its quantitative easing program in December 2018, making the ECB buy bonds of Eurozone countries to protect the European economy from deflation. This decision of the ECB may create prerequisites for raising interest rates by the end of 2019.

In addition, investors may be inclined to more cautious investment strategies: global risks associated with the escalation of international trade disputes, decline in the growth of Chinese economy spreading to other developing countries, uncertainty over the outcome of Brexit.

Leading markets of 2018:


A 2018 PwC survey conducted among the leading players in the European real estate market showed that the majority of the respondents were convinced that Brexit will provoke a decrease in British real estate investments and its value, and will also become a factor responsible for the other EU countries’ growth of investments in real estate. Meanwhile, 80% of the respondents believed that in 2018 the value of assets and investments in UK real estate would certainly decrease, while the other 12–20% expected that this decline to be significant.

European investors did not change their expectations much in 2019. The PwC rating, which reflects on the assessment of investments prospects for the main European cities in 2019, showed that London came 29th, surpassing only Moscow and Istanbul. UK regional centers, such as Birmingham, Manchester, and Edinburgh, also came towards the bottom of the ranking. Surveys revealed that European investors are concerned about the outcome of Brexit much more than their non-European counterparts, and, perhaps, for no good reason.

According to JLL, London kept its rank as the world’s largest private equity investment in commercial real estate in 2018, besting not only Paris, Frankfurt, and Berlin but also New York, Seoul, Shanghai, and Hong Kong. RCA statistics exclude transactions under $10 million, as well as those with an ‘under construction’ status, showed that by September 2018, London was behind only New York and Los Angeles.

Despite the difference in absolute figures, data from JLL and RCA confirm an increase in the flow of investments in London’s real estate. Contrary to the pessimistic forecasts of the market leaders, the volume of direct investment in profitable property in London has increased by 4%.

According to RCA’s preliminary estimates, the investment flow into London’s office market, which grew towards the end of the year, was expected to approach record levels of over $10.7 billion, about 4 billion of which were contributed by South Koreans, who increased their investments tenfold compared to 2017. The attractiveness of British real estate for Asian capital is, on the one hand, largely due to the sharp drop of the pound sterling, and on the other, because of the greater profitability of British real estate in comparison to properties in continental Europe.

The RCA also notes that office property in central London has risen in cost. Despite the fact that the office sector of real estate of the UK’s capital continues to attract the largest volumes of investments, an acute shortage of supply is being sensed.

Political uncertainty over Brexit has not stopped international investors who are considering long term projects. In 2018, 79% of transactions in central London were concluded with the participation of foreign buyers. After the Brexit referendum, the British real estate market showed amazing growth and stability in investment volumes in both 2017 and 2018. According to JLL, foreign capital inflows into London’s real estate will increase in 2019, and the volume of investments will amount to roughly $72 billion.


According to RCA analysts, the results of 2018 showed that Paris remained the most attractive city of continental Europe for investors, and saw an 18% increase in investment activity. However, in the company’s global rating of absolute figures, the capital of France has moved from fourth place to the tenth on the list.


From RCA’s calculations, it follows that by October 2018, investments in commercial real estate in Paris amounted to approximately $14 billion. Knight Frank data differs somewhat, according to which the real estate market of the Ile-de-France region, which incorporates Paris together with its outskirts, received about $13.25 billion worth of investment.

The transactions volume during this period saw a 7% increase; 85% of the transactions were related to the acquisition of metropolitan office real estate.

In the first three quarters of 2018, the Paris region became one of the fastest growing investment markets in Europe, reported PwC. Rapid growth was observed in the office real estate sector. This largely explains the increase in investors’ expectations from the real estate market in Paris, which is 2019 in the PwC investment attractiveness rating climbed from its previous 14th position to a respectable 11th. According to RCA, in 2018 the share of Parisian cross-border real estate investments increased to 42%, however, the volume of investments made by local investors declined.

As noted in the PwC survey, Paris is seen by many large Asian and Middle Eastern investors as a safe and business-friendly alternative to London. However, just like London, Paris is experiencing a shortage of supply. According to BNP Paribas Real Estate, the share of unoccupied space in central Paris is only 1.5% of the total fund.

Frankfurt & Berlin

For the fourth consecutive year, investments in German commercial real estate have exceeded 50 billion euros. In 2018, the commercial real estate market in Germany, which, according to Savills, is at the peak of the current cycle, reached $69.4 billion.

The “Big 7” German cities accounted for 55% of the total volume of commercial transactions. Berlin, the leader in 2017, gave way to Frankfurt in 2018 (7.8 against $10.3 billion worth of investments).

In the PwC investment attractiveness ranking, Frankfurt came fifth. The increased investor attention towards the city is a result of the potential benefits that Germany’s financial capital will attain after Brexit plays out. A number of major companies (including Morgan Stanley, Citigroup, Nomura, Standard Chartered and Goldman Sachs) have already announced plans to expand their representation in Frankfurt. In September 2018, the largest banks of Switzerland and Germany, UBS and Deutsche Bank, both confirmed that they have chosen Frankfurt as their new European hub after Brexit occurs. According to some observers, Frankfurt will compete with Paris, Dublin, and Amsterdam for the investment benefits from London’s exit from the EU. However, investor interest in Frankfurt is backed up by a number of serious factors such as lower living costs compared to London or Paris, neighboring to the ECB, and access to Germany’s largest airport.

As for Berlin, the level of vacant properties in the city, according to Savills, was, by Q2 of 2018, the lowest among all European cities, a mere 1.6%

A significant amount of office space is expected to be brought to Berlin’s real estate market in 2019-2020. This should both slow down the rent growth and provide fresh opportunities for the investment market. According to Savills, in spite of the record low level of average yield in the office sector of Berlin’s central districts, these assets will remain attractive in 2019. This is due to a positive difference in profitability relative to interest rates, as well as expectations of rental growth (5% in Berlin, 2.7% in Frankfurt).

The promising markets of 2019:


Highest investor expectations related to the European real estate market in 2019 are in fact oriented towards Lisbon. The capital of Portugal ranked second in the PwC rating, reflecting investors’ forecasts regarding the increase in the value of assets and rental rates. Despite the small size of the market (according to Knight Frank, about $1.18 billion in investments in 12 months prior to Q1 2018), the rental of real estate has a fairly high yield (4.6% in 2017). The results of a PwC survey show that office real estate owners in Lisbon are expecting a 10% rent increase in 2019 due to high demand from international corporations.

Lisbon’s appeal is largely due to a combination of various aspects: still relatively cheap labor, a sharp rise in the tourism sector (the tourist flow increased by 22% in 2017), low property cost, and a high quality of life. According to Knight Frank, Lisbon life quality wise ranks 38th out of 231 cities (Frankfurt came 7th, Dublin 34th).

Most Lisbon property buyers are investors from Europe (France, UK, Switzerland, and Sweden). In addition to the quality of life, these buyers are attracted by the preferential tax treatment for foreign investors. Since 2009, foreign tax residents who have not previously resided in Portugal have a fixed income tax rate of 20%if they choose to live permanently in the country. In addition to this, older people can receive income from abroad (including pension) without paying taxes. Since 2012, under the Golden Visa program, the Portuguese authorities, in exchange for investments in local real estate (starting from 500 thousand euros), have begun to provide foreign investors with the right to obtain a Portuguese residence permit. The Golden Visa program in Portugal is especially popular with investors from China, Brazil, South Africa, Morocco, Turkey, Iran, and Iraq.


Solid foundations exist for the anticipation of the Dublin real estate market rise. In 2017, the economy of Ireland grew by 7.3% and, for the fourth time, Ireland was the fastest growing economy in Europe. Demographic indicators are helping to maintain such rates in the long term, as the 20-34-year-old population of Dublin is expected to increase by 17% over the next decade according to forecasts.

Currently, Dublin holds the third position out of European cities in the PwC investment attractiveness rating. By the beginning of Q3 of 2018, the total amount of Dublin real estate transactions amounted to roughly to $3.48 billion (which is equal to the transactions of 2017).

These impressive numbers are largely due to the arrival of global tech companies, which are interested in the office sector, of the city. According to PwC, in the first half of 2018, they accounted for 43% of the total area occupied by commercial real estate in Dublin.

In the Q3 of 2018, Facebook officially confirmed the long-term rent deal of the Bankcentre office complex located in the Dublin suburb of Ballsbridge, the largest (56,656 m2) office block ever leased long-term on the Dublin real estate market. The move to Ballsbridge will increase the Facebook occupied office spaces in Dublin by four times and will provide 5,000 new jobs.

Google also closed a number of major deals in Dublin in 2018. The largest was the purchase of the under-construction Bolands Quay facility not far from the company’s headquarters. The completed project will include three new buildings, the tallest of which will tower at an impressive 53 meters. A 15-story residential building and a 49-meter, 13-story office building will also be constructed there. Microsoft has also opened a new campus in the south of Dublin in QI of 2018. The area occupied is 34,000 m2 and is designed for 2,000 employees.

As PwC points out, the internationalization of the labor market in Ireland has caused a boom in rental housing. According to the CBRE estimates, about $5.8 billion have been allocated for these purposes, the bulk of which is in Dublin. The fact that large institutional property owners and developers (Glenveagh Properties, Cairn Homes, Kennedy Wilson) listed on the stock exchange are appearing on Dublin’s development market, doesn’t only take Dublin’s property market to a new level but also reduces the supply deficit that was present in the previous years. According to Savills, the percentage of unoccupied space declined sharply in 2018. The average rent in Dublin grew by 8.8% in summer and is expected to continue growing over the next three years.

Sergei Gagulov – real estate writer for Tranio

Tranio is an international real estate platform with a dedicated and independent team of analysts and real estate investment experts. Our company publishes daily news, local property market reports, analysis on overseas property investors, expert advice for first-time buyers and investment tips.

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George Kachmazov

George Kachmazov

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