European investment tumbles to 11-year low

European commercial real estate investment slumped to an 11-year low in the first quarter of 2023, according to latest Europe Capital Trends report from MSCI Real Assets. The volume of completed transactions fell 62% from a year earlier to €36.5bn (£31.5bn) in January through March with most of the major real estate sectors and national markets down. Offices, Europe’s largest real estate sector, had the fewest number of properties sold on record in the quarter, with the €10.8bn of transactions the lowest in 13 years. Tom Leahy, head of EMEA real assets research at MSCI, said: “The disparity in pricing expectations for buyers and sellers has widened since the second half of last year as appraisal values continue to adjust to the rapid rise in interest rates and on concerns over the muted economic outlook. “The office sector has also been particularly hard hit as changing occupier needs, such as the switch to hybrid working and a focus on energy efficiency, means a bias towards better quality assets has emerged.” The industrial sector had the quarter’s sharpest annual drop in investment sales among the major property types, with €5.4bn of transactions. The 76% decline was a significant reversal of fortune for a sector which had attracted strong investment flows and price gains after the Covid-19 pandemic highlighted its importance to supply chains and e-commerce. The UK remained Europe’s largest commercial real estate market, with €11.3bn of investment activity, a 59% decline from a year earlier. The quarter’s largest completed single-asset transactions in London were CDL’s €448m purchase of St Katherine Docks and Lazari Investments’ €483m purchase of the Fenwick department store and neighbouring buildings on New Bond Street. Just 53 London office sales competed in the first quarter, according to MSCI, the lowest number for a quarter on record. France, Germany, Spain and the Netherlands ranked next in the top five markets, in order of size. While almost every European country had falling transaction volumes, France and Spain notably fared less badly owing to local property sector trends, with annual declines of 40% and 13%, respectively. Paris overtook London to become Europe’s top investment destination thanks to the three largest single-property sales of the quarter. These included luxury retailer Kering’s €860m purchase of 35-37 Avenue Montaigne and the €836m forward purchase of a new headquarters in the 13th Arrondissement by Groupe AFD. Overall transaction volumes in Paris were unchanged from a year earlier at €5.3bn. Property sales in Spain totalled €3.3bn, supported by transactions of residential blocks and a revival of tourism supported investor demand for hotels. Barcelona was the only top 10 European city to see investment growth, largely the result of the €180m sale of the Hotel Sofia to Axa’s joint venture with Blasson Property Investments. Leahy said: “While there are obvious concerns about the availability of real estate finance following the banking turmoil in March, we have yet to see a widespread increase in distressed sales. For the market this is limiting scope for any dramatic shifts in transaction pricing. Anecdotally, lenders appear to be accommodating in the current environment and it is worth remembering that after the global financial crisis it was several years before we saw meaningful volumes of distressed sales.” To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews