London left behind as European investors look elsewhere

By HopwoodHouse, 01 February, 2017



Changes to the European commercial real-estate market are underway as the main players are starting to cool down as investors look elsewhere.

Throughout Europe during the financial crisis, many real estate markets saw investors make their move. Interest rates are low and this means that returns from real-estate are attracting investors who are looking to make more money than the returns they are experiencing in the bond market.

London has been a popular destination for investors but the high demand has caused property prices to increase. Returns are decreasing and so investors are looking elsewhere.

When compared to the first nine months of 2015, the European commercial property market was down by 30%. The UK was at the front of the pack because of the problems that came with the EU referendum. However, other countries are performing well such as Spain and Poland.

In the UK, investment in commercial property decreased by 47% Germany and France saw decreases of 25% and 32% respectively.

Investors started moving themselves away from London way before the EU referendum because of the levels of uncertainty and the price of property. During the first half of 2016, offices prices in London did not rise but since the vote, activity has declined by an estimated 5%-10%.

However, the market is still being supported by foreign investment that is taking advantage of the weak pound, these include Investors from Asia and the Middle East but institutional investment has slowed down. In fact, overseas investors made up almost 80% of the sales in the commercial property sector between the months of July and September in London.

Despite this, it is still possible for London property investments to offer value in the long term although investors are still looking elsewhere. This includes other UK cities such as Birmingham and Manchester as well as other countries that had a slower rate of recovery following the financial crisis in 2008 as well as the Euro crisis.

Prime examples of the Euro crisis are Spain and Portugal, both of which were hit hard during the crisis, although now things have improved and their economies are faring much better. This has led to investment opportunities in Barcelona, Lisbon and Madrid, identifying a rebound effect to the Euro crisis.

The concerns have not completely dissolved because Brexit has caused a volatile environment throughout Europe with the growth of the European economy moving relatively slowly. This has led to investors having concerns over the strong demand that is coming from the low interest rates which is causing a property bubble in a number of markets.

For the time being, low interest rates are continuing to interest investors to real estate in Europe. It is expected that interest rates are going to be kept low by the European Central Bank but investors are still looking for the best yields which is pushing them to look further afield, something that is going to continue for some time yet.