Large-scale US, Asia-Pacific investors dominate European property investment markets

LONDON: New large-scale investors to Europe are reshaping markets and there are also more investments from the US, Asia-Pacific and family offices compared to just the traditional pan-European and domestic investors in the past, according to the latest Savills World Research European Investment report.

“As the share of global cross-border flows increases and some of the traditional pan-European and domestic players are holding back, the pattern of investors dominating the European investment markets is changing,” stated the report.

“Global buyers from the USA and Asia-Pacific are reshaping the markets in the periphery, while newcomers to the property investment market, ranging from family offices to insurance companies, are looking for higher returns in a low-interest rate environment.”

Savills identifies three groups that make up the top investors. The first group comprises prominent players which have been present for more than 10 years such as M&G Investments, The Union Investment Group and Blackstone. The second group consists of more recent entries that have made an impact due to their large-scale purchases like Qatari Investment Authority and Signa group. The third group is made up of newcomers that entered the market for the first time in 2013 such as Fibra Uno and IBA Capital Partners.

There are five sovereign wealth funds (SWFs) from the Middle East and Asia- Pacific among the top investors in Europe that have only been involved in nine transactions. Qatari Investment Authority was in the top five in Italy, Spain and France, while SWFs from Kuwait and Abu Dhabi were at the top in the UK and France respectively.

“Together, these SWFs have bought almost €5.5 billion (RM24.2 billion). The average deal size is the largest of all, at €700 million, although this figure is bloated by the €2 billion purchase of More London by St Martins. Without it, the average falls to €450 million,” the report said.

“Apart from the landmark assets More London and Porto Nuova in Milan, the SWFs bought luxury hotels in Barcelona and Rome. They ventured out to more European markets in 2013, and in some cases used JVs with local players to attain local knowledge but less management work.”

Private equity investors from the US have long been present in Europe and in 2013 Blackstone was once again the top buyer in France, Germany, the Netherlands and Italy. Another major US player, Lone Star, has only been active in Germany although it is trying to enter other markets.

“Over a third of this top private equity capital went to Germany, followed by the UK and France with 12% each. An interesting point is the high share of portfolio acquisitions, at around 50% of the total. Unsurprisingly this investor group is mostly going for value-added opportunities, or distressed sales like in Ireland with a certain preference for retail and industrial assets,” it said.

According to the report, there are only four private buyers/family offices among the top 100 investors. However, together they have invested approximately €1.3 billion, slightly more than 3.5% of the total, which makes them one of the biggest European investor groups.

The report said, “The two London acquisitions by a family office made this investor the sixth largest buyer in the UK last year. The other private acquisitions in Belgium and Spain were much smaller in comparison.”

According to Savills, real estate investments trusts (REITs) belong to top investors in the UK, Belgium and Spain.

“The Mexican REIT and Fibra Uno entered the European market for the first time in 2013, purchasing a portfolio of high street bank branches. Another major player is Canadian REIT Dundee which has so far only acquired German offices. There is no clear sector preference here, however the deal size is at the lower end of the spectrum,” said the report.

Savills predicts that consistently low-base rates and bond yields will mean that a diverse range of investors will continue to be attracted to investments in European commercial property a year from now.

“Given the improving economy and leasing market outlook, we expect that a broader group of investors will be moving up the risk curve. There will be a higher share of core plus and opportunistic investments among these main investor groups,” it said.

This article first appeared in The Edge Financial Daily, on June 13, 2014.

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