The third quarter saw strong investment volumes in Germany, France, Italy and Spain, despite central banks raising interest rates amid double-digit inflation in Europe.
However, it isexperts expressed caution, saying the macroeconomic picture cannot be ignored and is likely to put pressure on activity and prices in the coming months. “The days of yields above 2% may be over,” said Luke Dawson, managing director cross-border capital markets at Colliers EMEA, “Higher interest rates lead to asset appreciation and as a result boost yields (i property values decrease).”
One of the main markets experiencing a sharp slowdown is the United Kingdom, where investment volumes halved between the second and third quarters due to new political turmoil. “Q4 may provide a clearer indication of the trajectory of the UK market,” said Richard Dyval, director of cross-border capital markets. “However, in the UK and EMEA more broadly, the relative attractiveness of the real estate sector will support the market and continued investment activity, particularly in prime assets in major cities.”
The United Kingdom reports a sharp slowdown in quarterly growth
The volume of investment in the UK property market halved between the second and third quarters, from over £16bn to £8bn, with the decline affecting all sectors. Falling prices are slowing the pace of trades as investors need time to digest the implications of rising interest rates, political turmoil and subdued economic growth.
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France marks an active third quarter
The €640 million sale of the super-luxury 160 Champs Elysées building in central Paris is just part of the investment deals that totaled €7.4 billion in the quarter. Their total value has grown by 34% since the beginning of the year to 19.7 billion euros. While investment in the Paris region makes up about a quarter of the total, it is by no means the only major contributor to the total, with sectors such as logistics performing well nationwide. However, as elsewhere, rising bond yields and the cost of debt increased market uncertainty in the fourth quarter.
Rents in London have soared to record levels
Spain has registered a mega deal
The success of the first half of the year for Spanish real estate investments continued in the third quarter, with transaction volume reaching €4.75 billion. This number is due to a large-scale operation: the acquisition of 42 student accommodation by PGGM for a value of 900 million euros. If we assume from the figures below, high inflation, rising energy prices and rising finance costs are likely to have a significant impact on household savings and consumption, which will have a negative effect on the housing market.
Delays in investment volumes in the EEC
Central and Eastern Europe is also showing signs of uncertainty. Investment volumes in Poland are down 10% compared to the equivalent quarter of 2021 and market activity in the Czech Republic remains subdued, although Romania is posting growth and expects a strong fourth quarter.
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Germany reports large-scale transactions
The total transaction volume in Germany at 13.1 billion euros increased by about 27% compared to the previous quarter, and in the first nine months of the year – by about 8% compared to the same period of 2021 The data are for large transactions in the range >250 million euro, of particular interest for buildings that meet sustainable building standards. However, Colliers is seeing a shift in the market, which is increasingly dominated by buyers as the bigger economic picture tightens.
The Dutch market is heating up due to its “haven” status.
Major Dutch real estate has long had “haven” status. The third quarter results show that continues to be the case and interest in them is high. Colliers expects this trend to contribute to growth in investment volumes this year, and the planned 2023 increase in the property transfer tax will provide an additional incentive for this.
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