EUROPEAN QUARTERLY - Microsoft › research › 663 › ... · 2017-05-26 · 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2011 2012 2013 ... overseas

RESEARCH

EUROPEAN QUARTERLYCOMMERCIAL PROPERTY OUTLOOK Q1 2017

OCCUPIER TRENDS INVESTMENT TRENDS MARKET OUTLOOK

FIGURE 1

European commercial property investment volumes

Source: Real Capital Analytics / Knight Frank Research

0

10

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80

€ b

illio

n

2010Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2011 2012 2013Q1 Q2 Q3 Q4

2014 2015 2016 2017

Q1 2017 TRENDSQuarter-on-quarter change: -38.3%Year-on-year change: -8.3%

2

FIGURE 2

European weighted average prime office yield

Source: Knight Frank Research

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8

2014

2015

2016

2017

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

Q1 2017 TRENDSQuarter-on-quarter change: -4 bpsYear-on-year change: -28 bps

%

FIGURE 3

European prime office rental index

Source: Knight Frank Research

0

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60

80

100

120

140

2014

2015

2016

2017

2013

2012

2011

2010

2009

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Ind

ex, Q

1 20

02=

100

2005

2004

2003

2002

Quarter-on-quarter change: +0.2%Year-on-year change: +1.3%

Q1 2017 TRENDS

Please refer to the important notice at the end of this report

Following a strong end to 2016, European commercial property investment volumes eased to €44.2 billion in Q1 2017, an 8.3% decrease compared with the corresponding quarter of 2016 (Figure 1). However, contrasting trends were observed in the continent’s largest markets.

On a year-on-year basis, Q1 investment activity was down in both France (-33.2%) and the UK (-22.1%). The slowdown in France reflected investor caution in the run-up to the presidential election, while

UK investment activity continued to be influenced by uncertainty following last year’s Brexit vote. However, the overall decrease in UK volumes belied an upturn in the London office sector, driven by overseas buyers from Hong Kong, China and Germany.

The German investment market maintained the strong momentum which has seen it overtake the UK as Europe’s most active market in recent quarters. Q1 investment volumes increased by 27.3% year-on-

year, and were boosted by Blackstone’s completion of its acquisition of the €3 billion OfficeFirst portfolio.

A strong start to the year was also observed in Spain, where an improving economy and rental growth prospects fuelled international investor demand. Unusually, Madrid overtook Paris to be the second most active European city investment market in Q1, behind only London.

Regardless of the decrease in overall European investment volumes in Q1, investor demand for European real estate remains strong and it continues to drive yield compression. The Knight Frank Weighted Average Prime Office Yield hardened by four basis points in Q1 (Figure 2), on the back of inward yield movements in markets such as Amsterdam, Budapest, Prague and Stockholm.

Recent economic and political developments will have buoyed investor sentiment. The Eurozone recorded robust GDP growth of 0.5% in Q1, while election results in the Netherlands and France have calmed fears that the series of major European elections in 2017 would result in a lurch towards politicians with disruptive populist agendas.

Occupational activity remained robust across a range of European markets in Q1, with Paris, Milan, Munich and Warsaw being among the cities to make a strong start to the year. Aggregate office take-up in the markets monitored by Knight Frank was up by 8% year-on-year.

Despite the strong level of occupier activity in Q1, only modest prime rental growth was recorded across Europe during the quarter. This is reflected in the Knight Frank Prime Office Rental Index which increased by just 0.2% (Figure 3). However, there is the potential for rental growth over the rest of the year, as the diminishing availability of prime space in European CBDs is creating increasingly landlord-favourable markets. Prime rental growth prospects are strongest in key cities in France, Germany, Ireland, Spain and Sweden.

EUROPEAN OUTLOOKIn Q1 2017, Germany consolidated its position as the most active investment market in Europe.

RUSSIA

€0.4 bn+121.0%

POLAND

€0.6 bn-66.1%

NETHERLANDS

€1.7 bn-13.5%

FRANCE

€3.6 bn-32.2%

BELGIUM

€0.2 bn-67.3%

IRELAND

€0.5 bn-35.7%

GERMANY

€11.3 bn+27.3%

SWEDEN

€2.3 bn-20.1%

NORWAY

€1.9 bn+20.7%

FINLAND

€0.9 bn-23.5%

SWITZERLAND

€0.8 bn-26.4%

CZECHREPUBLIC

€1.4 bn+157.6%

AUSTRIA

€0.4 bn-33.9%

PORTUGAL

€0.5 bn-13.8%

SPAIN

€3.5 bn

+79.2%

UK

€10.8 bn-22.1%

ITALY

€1.6 bn-37.9%

HUNGARY

€0.5 bn

+228.5%

ROMANIA

€0.2 bn+37.4%

DENMARK

€0.4 bn-15.6%

2

6

83

7

4

5

1

-8.3%Change on

Q1 2016

€44.2 bnCommercial investment,

Q1 2017

EUROPE

3

MARKET HIGHLIGHTSBERLIN

The German capital continues to record heightened levels of occupier activity, with Q1 seeing large-scale transactions involving the Institute for Federal Real Estate (BIMA) (47,000 sq m) and Zalando (34,000 sq m).

1

MUNICH

The largest leasing transaction of an extremely active Q1 saw Deutsche Pfandbriefbank pre-lease approximately 14,000 sq m in a building to be constructed at the Business Campus München in Garching.

6DUBLIN

The TMT sector remains a key driver of occupational market activity in Dublin, and notable recent deals have included Facebook’s lease of around 100,000 sq ft (c. 9,300 sq m) at the Beckett Building in Dublin 3.

2

LONDON

Demonstrating the current dominance of Far Eastern investors in the London market, Hong Kong’s CC Land has agreed to buy the Leadenhall Building skyscraper for UK£1.15 billion (c. €1.3 billion).

3

MADRID

UK-based Intu Properties acquired the Xanadú shopping centre in Madrid for €530 million in Q1. This is Intu’s third shopping centre acquisition in Spain.

4

MILAN

US investors remain very active in the Milan investment market, with Hines and Blackstone both making sizeable office acquisitions in Q1.

5

PARIS

Île de France office take-up reached 638,800 sq m in Q1, making it the strongest opening quarter since 2007. There was one exceptionally large deal, which saw Natixis Bank pre-lease 88,500 sq m at the Tours Duo skyscraper project, which is scheduled for completion in 2021.

7

WARSAW

Gross take-up reached 194,000 sq m in Q1, a 40% year-on-year increase. The largest deal of the quarter saw AstraZeneca renew a lease of 7,000 sq m, and take an additional 6,200 sq m, at Postepu 14.

8

ORIGIN DESTINATION

USA

USA

USA

UK

HONG KONG

FRANCE

USA

CANADA

SWITZERLAND

USA

GERMANY

SINGAPORE

CANADA

USA

UK

UK

GERMANY

FRANCE

GERMANY

UK

GERMANY

NETHERLANDS

GERMANY

GERMANY

ITALY

UK

UK

UK

IRELAND

FRANCE

€2.0 bn€1.9 bn€1.9 bn€1.9 bn€1.9 bn€1.9 bn€1.7 bn€1.7 bn

€2.4bn€2.4bn€2.2bn

€2.9 bn€3.5 bn€5.8 bn€7.5 bn

RESULT Prime Minister Mark Rutte's VVD Party was returned as the largest party, beating the far-right PVV into second place. It is likely to be some months before a government is formed, as initial negotiations aimed at creating a four-party coalition collapsed in May.

IMPACT The election had little impact on the buoyant Dutch real estate market, and the failure of the far-right to make significant gains will have reassured many investors. However, uncertainty remains with the composition of the coalition to be confirmed.

RESULT The pro-EU centrist Emmanuel Macron beat the far-right candidate Marine Le Pen by a 66% to 34% margin in an election run-off.

IMPACT Investment activity slowed significantly in the run-up to the election, and clauses to be enacted in the event of a Le Pen victory were placed into some real estate contracts. The decisive result has eased investor uncertainties, and a post-election surge in activity is now anticipated.

OUTLOOK Conservative Prime Minister Theresa May has called a surprise snap election for 8th June. Opinion polls suggest that it is highly likely that the Conservative party will be returned to power with an increased majority.

IMPACT With a Conservative victory widely seen as an inevitability, the election is unlikely to provide many surprises for investors. Sentiment towards the UK market will be more greatly influenced by the progress of ongoing Brexit negotiations.

OUTLOOK Chancellor Angela Merkel’s centre-right CDU party will face a challenge from the centre-left SPD, with which it currently forms a coalition government. After making gains at regional elections in 2016, support for the anti-immigration AfD party appears to have slumped.

IMPACT With the CDU making a strong showing in 2017 regional elections and support for the AfD receding, it now seems unlikely that the federal election will deliver a seismic shift in the German political landscape. Although investors may show some caution around the time of the election, Germany should retain its current popularity as a safe haven market.

NETHERLANDSGeneral election, March 2017

UK General election, June 2017

GERMANY Federal election, September 2017

FRANCE Presidential election, April/May 2017

Europe is in the midst of a series of major elections. What impact will these have on real estate markets?

ELECTION WATCH

RUSSIA

€0.4 bn+121.0%

POLAND

€0.6 bn-66.1%

NETHERLANDS

€1.7 bn-13.5%

FRANCE

€3.6 bn-32.2%

BELGIUM

€0.2 bn-67.3%

IRELAND

€0.5 bn-35.7%

GERMANY

€11.3 bn+27.3%

SWEDEN

€2.3 bn-20.1%

NORWAY

€1.9 bn+20.7%

FINLAND

€0.9 bn-23.5%

SWITZERLAND

€0.8 bn-26.4%

CZECHREPUBLIC

€1.4 bn+157.6%

AUSTRIA

€0.4 bn-33.9%

PORTUGAL

€0.5 bn-13.8%

SPAIN

€3.5 bn

+79.2%

UK

€10.8 bn-22.1%

ITALY

€1.6 bn-37.9%

HUNGARY

€0.5 bn

+228.5%

ROMANIA

€0.2 bn+37.4%

DENMARK

€0.4 bn-15.6%

2

6

83

7

4

5

1

-8.3%Change on

Q1 2016

€44.2 bnCommercial investment,

Q1 2017

EUROPE

4

EUROPEAN QUARTERLY Q1 2017 RESEARCH

FIGURE 4

European commercial property investment volumes, Q1 2017

Source: Real Capital Analytics / Knight Frank Research Investment volumes comprise office, retail, industrial and hotel transactions

5

EUROPEAN QUARTERLY Q1 2017 RESEARCH

Commercial property prime rents and yields

Offices Logistics Shopping centres Retail warehousingCity Prime rents Prime yields Prime rents Prime yields Prime rents Prime yields Prime rents Prime yields (€/sq m/yr) (%) (€/sq m/yr) (%) (€/sq m/yr) (%) (€/sq m/yr) (%)Amsterdam 365 5 4.25 6 85 5 5.25 6 1,000 4 5.25 4 135 4 5.75 4Barcelona 261 5 4.25 6 72 5 6.00 6 600 5 4.50 4 129 4 5.75 4Berlin 360 5 3.50 6 69 4 5.25 6 1,380 4 3.90 6 150 4 5.50 6Brussels 300 4 5.00 6 55 4 6.00 6 1,800 4 4.75 4 185 4 5.50 4Bucharest 216 4 7.50 4 48 4 8.75 4 720 4 7.25 4 120 4 9.50 4Budapest 264 5 6.25 6 42 5 8.00 6 1,140 5 6.00 6 96 4 7.50 4Copenhagen 249 5 4.00 4 77 4 5.75 6 726 5 4.50 6 165 4 6.25 4Dublin 646 4 4.50 4 80 4 5.25 4 3,500* 5 4.50 4 290 4 5.25 4Edinburgh 418 5 5.25 4 100 4 6.50 4 2,747* 4 5.00 4 378 4 6.00 4Frankfurt 462 4 4.00 6 80 4 4.75 6 1,560 4 3.90 6 170 4 5.50 6Geneva 700 4 3.00 6 187 4 5.50 6 1,065 4 4.00 4 168 4 5.00 4Hamburg 300 4 3.50 6 72 4 5.00 6 1,650 4 3.90 6 150 4 5.50 6Helsinki 396 4 4.00 6 120 4 5.75 6 1,200 4 4.50 6 120 5 6.00 4Lisbon 222 4 5.00 4 45 4 6.50 4 1,170 5 5.00 4 120 4 7.00 4London 1,311 (WE) 6874 (City) 4 3.50 (WE) 4 4.25 (City) 4 175 4 4.50 4 5,556* 4 4.25 4 587 4 4.50 4Madrid 336 5 3.90 4 66 5 6.00 6 600 5 4.50 4 156 4 5.75 4Milan 500 4 4.50 4 50 4 7.00 4 850 4 5.50 4 300 4 7.00 4Moscow 726 4 10.00 4 75 6 11.50 4 3,260 4 10.50 4 N/A N/A Munich 432 4 3.30 6 85 4 4.75 6 1,900 4 3.90 6 180 4 5.00 6Oslo 469 4 3.75 4 133 4 5.50 6 1,310 4 4.25 4 143 4 5.75 4Paris 770 5 3.00 4 58 4 5.50 6 2,500 4 3.75 6 180 4 5.00 6Prague 240 5 4.75 6 48 4 6.25 6 1,380 4 5.25 6 120 4 7.50 6Stockholm 659 5 3.50 6 110 4 5.50 4 830 4 4.25 4 220 4 5.50 4Vienna 309 4 4.00 6 72 4 6.50 6 1,320 4 4.95 4 168 4 5.85 4Warsaw 276 6 5.25 4 60 4 7.00 4 1,800 4 5.50 4 132 4 7.50 4Zurich 747 4 3.00 4 233 4 5.50 6 1,401 4 4.00 4 187 4 5.00 6Indicative prime yields, as quoted locally, based upon a hypothetical Grade A unit. Office rents are for prime city area Grade A space, 2,000 sq m. Shopping Centre rents are based on prime covered shopping malls, quoted on best position, 100 sq m units. Retail Warehouse rents are for units of 1-5,000 sq m located in purpose built parks. Typical Retail Warehouse schemes vary between countries. Logistics rents are for prime industrial space of units over 5,000 sq m. The data above is provided for general reference purposes only. Local market conditions will vary. *Zoned/weighted figure. Arrows provide a broad indication of recent movements and the short-term outlook for prime rents and yields. London office data is quoted for the West End (WE) and City (C) submarkets.

Source: Knight Frank Research

Rents Bottoming Rental Growth – SlowingRental Growth – Accelerating Rents Declining

London (West End)Warsaw

GenevaHelsinkiMoscowOsloPragueZurich

AmsterdamBarcelonaBudapestLisbonMadridMilanParisStockholm

FIGURE 5

Prime office rental cycle

The above diagram is intended to provide a comparative guide to the current positions of European prime office markets in their rental cycles. Markets will move through their cycles at different speeds and, sometimes, in different directions. The positions indicated in the diagram do not constitute formal forecasts of future rental trends.

BerlinBrusselsBucharestCopenhagenDublinEdinburghFrankfurtHamburgMunich

London (City)Vienna

EUROPEAN MARKET INDICATORSAlthough Berlin saw a pause in rental growth in Q1, prime office rents in the German capital are 25% higher than a year ago.

Knight Frank Research Reports are available at KnightFrank.com/Research

Brussels Office Market Outlook Q1 2017

RESEARCH

OCCUPIER TRENDS INVESTMENT TRENDS MARKET OUTLOOK

BRUSSELSOFFICE MARKET OUTLOOK Q1 2017

The Germany Report - 2017

RESEARCH

THE

GERMANY REPORT 2017

Important Notice© Knight Frank LLP 2017 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

EUROPEAN RESEARCH

Lee Elliott Partner, Head of Commercial Research +44 20 7629 8171 [email protected]

Matthew Colbourne Associate, International Research +44 20 7629 8171 [email protected]

Vivienne Bolla Senior Analyst, International Research +44 20 7629 8171 [email protected]

EUROPE

Chris Bell Managing Director, Europe +44 20 7629 8171 [email protected]

Andrew Sim Head of Global Capital Markets +44 20 7629 8171 [email protected]

Nick Powlesland Head of European Valuations +44 20 7629 8171 [email protected]

Colin Fitzgerald Head of International Occupier Services +44 20 7629 8171 [email protected]

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