Investment in commercial real estate in Europe increased 8% in 2017

In 2017, the investment value reaches €231.8 billion.

Knight Frank’s most recent research indicates that after €80.7 billion in transactions in Q4 of last year, European commercial property investment reached €231.8 billion in 2017. This represents an 8.4% increase over 2016.

The UK reclaimed its title as the most active market in Europe from Germany, which had edged ahead in the first half of the year, thanks to the ongoing inflow of capital from Greater China into the Central London office market. After a sluggish first half of the year, investment in the UK picked up steam in the second half, increasing annual volumes to €59.3 billion. German investment reached a ten-year high of €50.9 billion in 2017, and the nation was the main entry point for US capital into Europe.

The French investment market got off to a very slow start to the year, but it rebounded in the fourth quarter when more money was invested than in the three preceding quarters combined. This was partially caused by a recovery in investor confidence after earlier in the year’s political unrest. Local investors dominated the market, accounting for more than 70% of transaction volumes.

Knight Frank’s Managing Director for Europe, Chris Bell, said: “An 8.4% increase in investment in 2017 further demonstrated the resilience and strength of the European real estate markets. The Netherlands and Finland were the standout markets in 2017, along with the strength of the UK, Germany, and France, both of which had record years thanks to significant inflows of foreign investment. While the primary sources of capital in these two markets were North American and European investors, there was also an increase in investment from Asian investors, who are demonstrating growing interest in a wider range of European markets.”

“With investment volumes rising 42% year over year to a record €38.9 billion, or 17% of the total commercial market, the logistics and industrial sector had a stellar 2017. CIC’s purchase of Logicor for over €12 billion and GLP’s purchase of Gazeley for €2.4 billion both increased volume in this sector. These transactions show the strength of the market for logistics real estate and the interest of investors looking to invest significant sums of money in real estate in platform and portfolio deals.”

Even though yields in most of Europe had already fallen to record low levels, additional yield compression was observed in Q4 in markets like Amsterdam, Dublin, Frankfurt, and Milan. The Knight Frank European Weighted Average Prime Office Yield subsequently decreased to a new low of 4.20 percent, a seven basis point hardening.

Many European office occupier markets had a strong fourth quarter, with take-up rising by well over 50% year over year in Dublin, Madrid, Munich, and Prague. Overall take-up in the major European markets tracked by Knight Frank increased by 9% in 2017 compared to 2016.

Strong demand and decreasing availability drove European rental growth in Q4, which accelerated. The Knight Frank European Prime Office Rental Index rose by 1.5% during the third quarter as a result of increases in prime office rents in markets like Amsterdam, Berlin, Brussels, Frankfurt, Madrid, and Paris.