Middle East buyers continue to drive London property market
London continued to attract the attention of Middle Eastern investors as investment increased from 7.5% of total investment in 2012 to 17% in 2013, according to the recent research from global property advisor CBRE. The UK capital recorded the highest ever yearly total seen in Europe for a single city in 2013 to cement its position as the region’s number one investment destination.
Outside of London, Middle Eastern investors spread their capital across the continent, namely in Dusseldorf and Paris and to a growing extent some of the recovering Southern European markets, as well as Russia. Both Middle Eastern and Asian investors recorded their highest ever annual total of European real estate investment with nearly €10 billion worth of transactions each in 2013.
Nick Maclean, Managing Director, CBRE Middle East, commented, “Property markets and commercial real estate in particular across Germany and the UK is witnessing the strongest growth since the financial crisis and we anticipate further commitments from Middle Eastern investors in the future. London, in particular, is capturing the lion’s share of capital mainly attributed to its transparent legal system, stable political and economic environment and above all liquidity – key factors in attracting investment.”
A strong finish to 2013 took total commercial real estate investment volume in Europe to €165.6 billion, an increase of 30% on the previous year’s total. The Q4 2013 total of nearly €61 billion was the highest quarterly figure recorded in Europe since Q4 2007. The final quarter of the year normally sees the highest level of investment, but the activity seen represents significant acceleration in the rate of growth.
According to the report, despite the strong growth in total investment activity in 2013, the average deal size recorded remained essentially unchanged at €27million. Average deal size has been rising very slightly over the last few years, but on the whole the increase in total investment volume has been achieved mainly through an increase in the number of transactions. Buyers from Asia accounted for 22 of the transactions over €100 million and recorded an average lot size of €126 million. This was only just ahead of buyers from the Middle East, who accounted for 21 of these largest transactions and had an average lot size of €120 million.
The economic recovery in the UK continued to spur investment growth with London leading the way capturing over 23% of the total European market* with €32.2 billion worth of transactions in 2013. This is the second consecutive year of strong growth in investment activity with year-on-year increases of 45% (2011 to 2012) and 43% (2012 to 2013). On a quarterly basis, investment in London increased every quarter last year with Q4 2013 up 73% on Q3 2013.
Coincidentally, two transactions tied for the position as the largest CRE transaction in Europe in 2013. Both were in London, both were agreed right at the end of the year and both were for £1.7 billion (€2.0 billion). In one case the buyer was from Asia (Singaporean sovereign wealth fund GIC) and in the other the buyer was from the Middle East (St Martins, which is owned by the Kuwaiti sovereign wealth fund), notes the report.
Simon Barrowcliff, Executive Director, Central London Capital Markets, CBRE, commented, “London had a phenomenal year with the total value of investment reaching pre-global financial crisis levels. Looking forward to 2014, it is unlikely that the market will repeat this performance. Although cross-border investor demand, particularly from Asia, is getting even stronger, there are constraints on the supply side that will probably limit investment activity.
“Beyond London there remains scope for further growth in investment turnover in 2014. The UK had a remarkable year in 2013, particularly the last four or five months when investment activity jumped sharply. The rest of the UK saw a staggering 75% year-on-year increase in the total value of activity as investors searched for yield. The improving UK economy is enhancing the prospects for commercial real estate in the rest of the UK and encouraging even cross-regional investors to venture outside London.”
Germany continues to perform well with five cities featuring in CBRE’s top ten of European investment markets. Last year investment in Germany as a whole had a strong domestic component. Despite improvements in other European economies, German investors continue to be strongly focused on their home market. Each of the five saw local investors take more than a 50% share and in Hamburg nearly 85% of capital invested in 2013 came from local buyers.
Paris again occupies the second place, with over €11 billion of commercial real estate investment activity. However, by comparison with other top cities 2013 was a flat year for the Paris market with total investment falling by 8% year-on-year compared to significant increases in most of the other top ten markets.
Moscow has been a regular at the top of the list of most liquid markets in Europe for the last four years. Next to London it had the highest proportion of cross-border capital in 2013. Moscow attracts a significant amount of investment from North America helped by the fact that for the best quality property, rents are generally denominated in US dollars.
While 2013 was a strong year for Europe’s commercial real estate investment market as a whole, the recovering markets of Portugal, Italy, Ireland and Spain saw a dramatic resurgence. A greater appetite for risk from investors led to a sharp increase in investment activity. In 2013, total investment in these markets was more than double that in 2012, reaching €11.8 billion and marking the first year of growth in investment turnover since 2007.
Jonathan Hull, Managing Director, EMEA Capital Markets, CBRE, commented, “2013 was a turning point in a number of different ways for Europe’s commercial real estate investment market and we expect 2014 to be a year of further recovery. Last year’s most significant change by far was the resurgence in activity in those markets most adversely affected by the global financial crisis; namely Ireland, Italy, Spain and Portugal. Having doubled year-on-year in 2013, aggregate annual turnover in these four markets has already reached 2004/05 levels. As a result, we may expect to see markets like Madrid enter the top ten European investment destinations in 2014.
“Another trend that we expect to accelerate in 2014 is the flow of Chinese capital into Europe. This has been expected for some time, but increased dramatically in 2013 with €2.4 billion in acquisitions over the year – more than double the previous ten years combined. The Chinese insurance companies and sovereign wealth funds have clearly increased allocations to foreign real estate and we expect this to be an important feature of 2014.”
Zeeshan Masud, Grayling
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