Investment Market Update

Investment Market Update
Europe Q4 2010
Strong growth set to continue
19 January 2011

Total real estate investment activity reached €30.8bn in the
fourth quarter lifting annual volumes to €95.9bn, a 53% increase
on 2009. Looking forward we expect the strong growth in
investment activity to continue with volumes forecast to rise a
further 28% to €123bn (Figure 1).

Improving signals from the occupational markets, an increased
willingness to trade, particularly towards better quality secondary
space and the unwinding of legacy debt issues will support
further growth.

Among the biggest markets in Europe, France and Germany
posted strong growth of 73% and 42% respectively over the
quarter. The Nordics also registered strong quarterly growth
above 100%.

Cross border investors accounted for 38% of volumes (€11.6bn)
in Q4 2010. Investment from German and Asian investors
supported the rise in volumes. We expect further activity from
Asian investors in 2011.

Institutions were significant investors over the quarter, acquiring
€6.1bn of assets, compared to €3.2bn in Q3; taking advantage of
their lower levels of gearing.

The office and retail sectors continued to account for the largest
share of activity over the quarter (76%). However, an increase of
106% in the sale of mixed assets or portfolios helped grow their
overall market share to 13% in Q4.
Author
Magali Marton
Head of CEMEA Research
+33 1 49 64 49 54
[email protected]
Nigel Almond
Forecasting & Strategy Research
+44 (0)20 3296 2328
[email protected]
Contacts
Magali Marton
Head of CEMEA Research
+33 1 49 64 49 54
[email protected]
Tony McGough
Global Head of Forecasting &
Strategy Research
+44 (0)20 3296 2314
[email protected]
Hans Vrensen
Global Head of Research
+44 (0)20 3296 2159
[email protected]
Figure 1.
Outlook for European Investment Volumes
€bn
250
230
203
200
147
150
124
123
111
96
100
62
50
0
2004
2005
2006
2007
2008
2009
2010
2011 (f)
Source: DTZ Research
www.dtz.com
1
Investment Market Update
Strong recovery over the quarter and year
Cross border activity grows


Risk aversion remains among investors although we
have seen some willing to move up the risk cure.
During the fourth quarter we saw a few purchases of
speculative developments for prime office assets
located in the core markets.

Cross border investment maintained its share of
volumes over the year and accounted for 38% of
volumes in Q4 2010 (Figure 3). Intra-regional
investors – i.e. European investors investing in
Europe but outside their domestic market – have
been more active. Volumes rose 78% from €11.4bn
in 2009 to €20.3bn in 2010. German investors were
notably active, investing €6.1bn outside their home
market in 2010, up from €4.8bn in 2009.

Capital flows from outside Europe have been larger
in 2010. Here investment activity increased by 33%
to reach €13.7bn. We expect to see inter regional
investors increase their market share in the short
term, especially Asian investors who invested €1.2bn
in Q4 2010.
Commercial real estate investment across Europe
totalled €30.8bn in Q4 2010, a 36% increase on the
€22.7bn recorded in the third quarter (Figure 2).
Investment activity in 2010 as a whole reached
€95.9bn, posting a 53% increase on 2009, though
still below the ten year average of €125bn. The
investment market has ended the year with a
performance above investors’ expectations.

Among the biggest markets in Europe, France and
Germany posted strong growth of 73% and 42%
respectively over the quarter. In contrast volumes
rose by just 5% in the UK.

Other markets have benefitted from the recovery.
Both Italy and the Nordics registered growth above
100% over the quarter. In the Nordics volumes have
been strong over the course of the year rising 153%
€11.7bn this year. This was supported by strong
activity in both Sweden and Norway €6.8bn and
€4.0bn respectively. Volumes in CEE rose by 10% to
€870m over the quarter.

Institutions increase activity
Elsewhere in Europe volumes fell by 25% in Spain to
€0.8bn and by 11% to €0.6bn in Poland.


The growth in activity over the quarter and in 2010 as
a whole has been supported by an increase in the
average lot size. In 2010 Q4 the average lot size was
€32bn compared €26bn in the previous quarter. This
growth was supported by an increase in the value of
sales over €200m.
Institutions significantly increased their activity over
the quarter, investing €6.1bn, compared to €3.2bn in
Q3. Overall they were the biggest net investors in Q4
at €4.2bn. They have been active on large office and
retail deals across Europe, taking advantage of their
lower levels of gearing.
Figure 2
Figure 3
Quarterly European transaction volumes
Investment activity by purchaser type, Q4 2010
€bn
35
100%
31
25
90%
80%
30
70%
24
23
23
60%
19
20
50%
40%
15
30%
20%
10
10%
5
0%
0
2009.4
2010.1
2010.2
2010.3
2010.4
Domestic
Source: DTZ Research; Propertydata
www.dtz.com
Intra-regional
Inter-regional
Source: DTZ Research
2
Investment Market Update

Private property vehicles remained the most
dominant purchasers, investing €12.5bn over the
quarter (40% of activity). However, net investment
totalled just €3bn. Listed property companies,
including REITs, sold €5.3bn of assets over the
quarter. Despite a 110% increase in acquisitions to
€4.7bn, they remained net sellers by over €500m.
Outlook

Despite improving economic growth across Europe
over recent months, the expectation remains for
marginally weaker growth in 2011. Tensions in the
European bond markets remain high, particularly for
a number of peripheral European markets. We
therefore expect two-tier growth in Europe in 2011,
with core European markets outperforming.

However, we do see more positive signals from the
leasing markets, particularly towards prime product
leading to some modest rental growth. Our latest
forecasts point towards limited, but positive rental
growth in the next five years across all sectors. The
Q3 2010 DTZ Fair Value Index ™ also showed a
growing number of markets across Europe as hot or
warm.

This will provide investor confidence and support
increased trading, particularly towards better quality
second hand space. It will also be welcomed by
those investors who have been reluctant to trade
given concerns over their ability to reinvest.

Over 2011 we expect to see banks release further
stock, including more consensual sales as blockages
caused by swap breakage costs begin to unwind. We
also see increased sales from some German funds.

Against this backdrop, we expect further strong
growth in investment activity during 2011 with
volumes reaching €123bn in 2011, a 28% increase
on 2010.
Mixed-use sales remain strong

With €13.4bn invested, the office sector continued to
account for the largest share of activity, representing
44% of total volumes, in line with its annual share.
Retail volumes remained strong, rising from €7.7bn in
Q3 to €9.9bn in Q4, representing a further 32% of
activity, mainly concentrated on shopping centres,
supermarkets and retail parks (Figure 4).

Investment in mixed-use assets/ portfolios rose by
106% over the quarter to €4.1bn, reflecting 13% of
overall activity. There were a number of key deals
including acquisitions by Santander in the UK, and a
consortium of investors who acquired the Area Falck
project (including office, retail and residential) in Italy
(Table 1).

The shortage of investment opportunities in Europe
has forced purchasers with liquidity to invest to
modify their strategy and consider projects under
development or mixed use schemes. This new
strategy has the advantage of avoiding a large part of
competition and can be achieved through jointventures.
Figure 4
Figure 5
Investment by type of assets, 2009-2010
Outlook for European investment volumes
€bn
100%
250
230
90%
80%
203
200
70%
60%
50%
147
150
124
40%
123
111
30%
96
100
20%
62
10%
50
0%
0
2004
Office
Source: DTZ Research
www.dtz.com
Retail
Mixed Use
Industrial
2005
2006
2007
2008
2009
2010
2011 (f)
Other
Source: DTZ Research
3
Table 1
Significant deals
Address
Town/City
Property type
Purchaser
Vendor
Price (€ million)
Abbey National
Portfolio
Multi city, UK
Mixed-use
Santander
Mapeley
€582
Stockholm
Blåmannen 20
Stockholm
Mixed-use
Vasakronan
Commerz Real
€471
Area Falck
Milan
Mixed-use
Consortium of
investors
Risanamento
€405
O’Parinor
Aulnay Sous Bois
Shopping centre
Korean NPS
Hammerson
€223
Espace St Quentin
Montigny Le
Bretonneux
Shopping centre
Allianz
Hammerson
€172
(75% stake)
BBVA
Blibao
Office
Mutualidad de
la Abogacía
Tree Inversiones
Inmobiliarias
€100
Source: DTZ Research
Table 2
Investment market
Total investment
volume (€m)
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Yr to Q2
2010
Yr to Q3
2010
Yr to Q4
2010
23,940
19,328
23,066
22,660
30,844
82,920
88,993
95,897
Total real estate purchasing activity by sector (€m)
Offices
13,378
6,902
10,145
10,558
13,428
37,774
40,983
41,033
Retail
5,989
8,323
6,229
7,751
9,942
25,159
28,292
32,245
Industrial
1,727
1,612
2,500
1,652
2,026
7,513
7,491
7,790
Mixed
1,948
1,699
3,074
2,002
4,129
9,023
8,723
10,904
Other
898
792
1,118
696
1,318
3,451
3,505
3,925
Domestic
16,341
12,295
15,243
14,776
19,202
54,469
58,655
61,516
Foreign
7,599
7,033
7,823
7,883
11,641
28,451
30,338
34,381
Source: DTZ Research
This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no
responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to
without prior approval. Any such reproduction should be credited to DTZ.
© DTZ 2011
www.dtz.com
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