The value of European commercial real estate investments hit a new high of €3.4tn (£2.4tn) last year — pushing it well beyond the 2007 pre-recession peak.
According to DTZ’s 41st annual Money into Property the 2014 increase equated to a year-on-year rise of three per cent in pan-European invested stock levels. But, claims the commercial property services provider, “debt continues to replace equity in the capital stack as deleveraging continues”.
Nigel Almond, head of capital markets research at DTZ, explained: “The burden of debt across Europe has hindered its growth. The struggles of highly-leveraged European markets such as the UK, Ireland and Spain in recent years contrast with lower leveraged markets in Asia, for example, which have benefitted from stronger growth.”
Of the €3.4tn figure quoted in the report, €1.8tn (£1.2tn) is the value of debt outstanding to real estate, which shrank two per cent in 2014.
The reduction in debt has been led by Spain at 11 per cent, but the picture varies considerably across the region and debt has actually grown by one per cent in France and three per cent in Sweden.
Overall, equity grew six per cent to €1.6tn (£1.1tn) with the strongest growth through unlisted funds, which increased their equity holdings by €43bn (£30.8bn). Institutions grew by €21bn (£15.5bn) and listed companies just €5bn (£3.5bn).
Three of last year’s top 10 growth markets were European, including Turkey which saw the strongest stock value growth of 30 per cent, albeit from a relatively low base. Two Nordic markets — Finland at sixth with 15 per cent and Norway in 10th place with 12 per cent — also make the top 10 with solid double-digit increases in real estate stock value.
However, nine of the bottom 10 growth markets globally were also European. These markets saw their stock fall in value over the year, led by Russia’s dramatic 19 per cent fall after investment collapsed in the wake of economic sanctions and hostilities in Ukraine. Spain lost eight per cent and, to a lesser extent, the UK’s two per cent loss saw stock value reduce, driven down by further falls in debt.
“With record levels of new capital targeting commercial real estate, global investment activity is set to reach €678bn (£486bn) this year, just short of the €696bn (£499bn) record in 2007,” Almond continued.
“In Europe we see volumes reaching €250bn (£179bn) this year, which would surpass their previous peak of €230bn (£164bn). And we expect the appetite for investment continuing into 2016 as real estate still looks attractive to other assets in the current low interest rate environment.”
