The European commercial property investment market has continued to gain positive momentum, with transaction volumes reaching €104.9 billion in the first half of 2015.
This was a 29% increase on the same period of 2014 and investment volumes for 2015 are forecast to reach €230 billion, which would make it comfortably the best year since the market peak of 2007.
The data from the analysis report from international real estate firm Knight Frank shows that increased investment volumes were recorded in the first six months of the year across a wide range of markets, in both the core and the periphery of Europe.
The continent’s two largest markets, the UK and Germany, performed strongly in the first half of the year, providing a significant boost to overall deal volumes. The UK is on course for a record breaking year for investment, while the German market has been buoyed the strong performances of Frankfurt and Berlin.
The analysis report shows that the revival of activity in Europe’s peripheral countries has continued, as investors move up the risk curve and seek value in non-core markets. Spain and Ireland, which have led the peripheral market recovery over the last 18 months, continue to attract heightened levels of investment, but the most impressive increases in activity during the first half of the year came in Italy and Portugal.
It also shows that the weight of money targeting commercial property has led to widespread yield compression, and prime office yields hardened in cities such as Amsterdam, Lisbon, Madrid, Milan and Paris during the second quarter of 2015.
Knight Frank’s European weighted average prime office yield moved in to 4.9%, its lowest level since the third quarter of 2007.
While investment activity is buoyant in the large majority of European markets, occupier market trends remain more varied. Rental growth was patchy in the second quarter with Dublin, Madrid and Vienna being among the small number of European markets to record increases in prime office rents.
However, rental growth is anticipated to become more prevalent in the medium term, on the back of the improving European economy and falling availability levels, particularly for CBD offices.
‘Investment volumes continue to be driven upwards by the strong international demand for European commercial property, particularly from US investors, and by the increasing number of large portfolio deals,’ said Andrew Sim, head of European Capital Markets at Knight Frank.
‘These trends are expected to continue over the rest of the year, and we forecast that annual European investment in 2015 will be more than 20% up on 2014. European transaction volumes are approaching the levels seen at the market peak of 2007, and several countries may well set new records this year,’ he added.
According to Matthew Colbourne, associate with the Knight Frank international research team, European occupier markets continue to see mixed trends, in contrast to the widespread buoyancy of investment markets.
‘Office take-up increased strongly in the key German and Spanish markets during the first half, but Paris saw muted levels of leasing activity. Over the last 12 months, office rental growth has been moderate outside of the hotspots of Dublin and London, but we expect to see more widespread increases in prime office rents over the coming quarters, particularly as supply shortages are emerging in many key European city centres,’ he said.