PROPERTY REPORT INVESTMENT IN EUROPE Q3 2009

Transcription

1 INVESTMENT IN EUROPE Q3 29

2 ON THE ROAD TO SLOW RECOVERY European economies have turned a corner in the recession. BNP Paribas Economic Research Survey data showed that after collapsing over the turn of the year, Euro area activity almost stabilised in the second quarter and should swing back to growth on a quarterly basis in the second half of the year. In the United Kingdom, GDP should even start expanding in Q4 29. However, both in the Euro area and the United Kingdom, the growth recovery should be slow and erratic. After six consecutive quarters of falls (since Q4 27), the commercial real estate investment market is showing slight signs of recovery. In fact, for two consecutive quarters, the investment volume of the 25 cities monitored by BNP Paribas Real Estate research has been growing. With a record low of 4bn during Q1 29 and a weak 5.5bn in Q2 29, the investment volume of the 25 cities monitored is heading back in the third quarter to a total of 8.4bn invested. This represents a rise of 53% compared to the previous quarter and only a slight decrease of 5% over Q3 28. It is the start of a commercial real estate investment revival. The rise in investment volume is mainly due to an increase in large deals thanks to cash-rich investors taking advantage of prime office yields stabilising in most cities. Deals are occurring from investors focused on high quality assets, fully let with long-term leases and vendors being happier with the prices being offered. Moreover, tensions in the financial market have softened, resulting in improved credit conditions and confidence coming back. According to BNP Paribas Economic Research, average GDP in the Euro area should contract by 3.8% in 29 and should bounce back by a little over 1% in 21. Economies will grow but way below their potential in 211. So labour market conditions will continue to deteriorate in Europe until end 21, with large discrepancies in the timing of improvement depending on the country. The time has not come yet to withdraw the monetary stimuli implemented by governments. Confidence is improving but has not been completely restored as financial markets remain fragile. European investment volume (25 cities) Investment volume by products billion Q1 Q2 Q3 Q % Office Retail Warehousing Other Q3 28 Q3 29 I2I

3 RAPID INCREASES SEEN IN MOST MARKETS IN Q3 29 started at a record low level ( 4bn) with the first signs of the recovery observed during the second quarter now confirmed by another increase in investment volume during Q3. After a continuous decrease between Q3 27 and Q1 29, investment volume rose twice: up 36% during Q2 29 and up 53% during Q3 29 to reach 8.4bn. Among the 25 cities monitored, 16 have recorded increases whilst the other nine still record drops compared to Q2 29. In the United Kingdom, all three markets recorded increases. Investment volume in Central London rose by 83% compared to the previous quarter and is up 73% on Q3 28, the highest for two years and could mark the start of a commercial real estate investment revival, but backward risks also reappear. It is back in a situation of potential overheating with the weight of money now moving into the market. Manchester has benefited from recovery in the UK investment scene, with the investment volume doubling (+111% compared to Q2 29) and increasing by 59% compared to Q3 28. The Thames Valley investment market stabilised in Q3 having improved the poor results of Q1 29 by 64% but is still 5% down on Q3 28. During Q3 29, the investment transaction market in Central Paris relaunched and totalled 1.3bn, an increase of 59% compared to Q2 29 and of 122% compared to Q1 29. However, investment volume is still down 44% on Q3 28. French regional investment markets are still idling, although activity should restart in the coming quarters. Even though investment volume decreased this quarter, Lyon stays the most active regional market with 79m. Marseille with 27m recorded a rise of 74% compared to Q2 29 and of 39% compared to Q3 28 but is still underperforming. Investment volume in the German big six amounted to 2.1bn, up 139% on Q2 29 and 11% on Q3 28. Compared to the previous quarter, Frankfurt and Berlin investment markets stabilised (+2% and +3%) but transaction activity remains low. Q3 29 brought significant increases in investment volume in Cologne, Düsseldorf, Hamburg and Munich (217%, 29%, 883% and 33% respectively) compared to Q2 29. These are good signs of recovery with the return of transactions in the medium and higher purchase price segment. Only Frankfurt and Cologne remain down on Q3 28 (-43% and -59% respectively). After two record low quarters, German funds are back in the Brussels investment market. Transaction volume amounted to 131.7m., an increase of 339% over Q2 29 and of 3% over last year certainly reflecting the start of a revival of cross border investment. Investment volume in Luxembourg doubled compared to last year and rose by 73% over Q2 29. The road to recovery is supported by the return of German funds to the market, but a supply shortage of prime investment product remains. In Italy, the investment market confirmed the trend evidenced during the first half of the year; limited volumes and small size deals. Both cities monitored have registered decreases during this quarter. For the third consecutive quarter, Milan investment volumes went down (-43% on Q2 29 and -56% on Q3 28). In Rome, the investment market was calm, after the good results of Q2 29. Transaction volume decreased by 28% compared to the last quarter. Investment volume in 29 Investment volume in 29 billion H1 29 Q million H1 29 Q Central London Central Paris Madrid Berlin Munich Milan Rome Hamburg Düsseldorf Vienna Amsterdam Frankfurt Barcelona Luxembourg Thames Valley The Hague Lyon Lille Cologne Brussels Athens Manchester Marseille Bratislava Bucharest I3I

4 Barcelona reverses the downward trend this quarter with a growth of 65% of its investment volume, thanks to a large sale and lease back transaction by BBVA but is still down 77% on Q3 28. Conversely, the investment volume in Madrid is only down 6% over the last quarter but up 23% compared to the same period last year. Most transactions took place in the retail market, while the office market stayed fairly inactive with buyers still waiting for prices to come down. Different results occurred in the two cities monitored in the Netherlands. In Amsterdam, the volume of investment increased significantly (18%) between Q2 and Q3 29. Non-domestic investors interest is rising as they feel the market is on its way to stabilisation. Conversely, in The Hague, investment volume went down 46% this quarter compared to Q2 29. However, the stable rental market and low vacancy rates make the market attractive for risk-averse investors. In Athens, the increase of investment yields in addition to the high level of cash held by real estate investment companies resulted in major property transactions, especially in the retail sector. Investment volume during Q3 29 has doubled compared to the previous quarter and tripled compared to Q3 28. The Slovakian investment market stood still over the summer with very limited demand. Investment volume in Bratislava only totalled up 18.5m. during the first three quarters of 29, with Q3 results decreasing by 8% over Q2 29 and by 32% compared to Q3 28. There are still discrepancies between buyer s and seller s price expectations. Due to the yield gap between buyers and sellers, the lack of bank financing and the lack of institutional investors, investment market in Vienna continued to be very slow. Transaction volume went down 67% on Q2 29 and 86% on Q3 28. The recovery should come slowly and possibly from German funds that are showing interest in re-entering the market. Activity remains subdued in Dublin as the absence of bank financing and a lack of investor confidence continue to take their toll. Yields continue to drift outwards as rental values across all sectors continue to fall due to rising competition for tenants. Approximately 5m of investment property is available for sale and vendors are becoming more realistic in their pricing. The arrival of the German funds, attracted no doubt by the long leases and an attractive yield spread, is creating some confidence that the bottom of the cycle might have been reached. Bucharest did not record a single transaction this quarter or the three previous quarters. However, other Romanian regional markets were not outdone, with 67m. invested in two retail transactions. Buyers expect a market recovery on the medium-term, with transactions (currently being negotiated) expected to be completed in Q4 29. Rolling year investment change 1 (%) Q3 29 / Q Athens Düsseldorf Luxembourg Central London Munich Berlin Rome Brussels Manchester Marseille Madrid The Hague Hamburg Amsterdam Lyon Lille Milan Frankfurt Thames Valley Central Paris Cologne Vienna Bratislava Barcelona Bucharest I4I

5 SOME PRIME YIELDS GOING DOWNWARD AGAIN Compared to Q2 29, prime office yields in the 25 cities monitored stabilised or started to go down. The seven cities (Central London, Central Paris, Madrid, Barcelona, Lyon, the Thames Valley and Manchester) that corrected prices the most have seen prime office yields go down this quarter with decreases that range between 25bp and 5bp. Both Central London and Central Paris have seen increasing levels of interest for high quality assets in prime locations. Buildings with a secure income from good tenant and long-term lease are attracting strong levels of competitive bidding. The other 18 cities prime office yields stayed stable over the last quarter. In line with H1 29, Germany s big six stayed the most expensive in terms of yields, followed by Vienna and Milan. Bucharest remains the cheapest location across the 25 cities monitored by BNP Paribas Real Estate. In Central Paris, players are keen on secure assets and this has actually led to a small dip in the prime office yield (5.8% - 6%). This downward pressure also applies to retail. The overall level of activity in the regions is much lower. However, there has been a slight drop in prime office yields in Lyon with the sale of the Triangle Part Dieu (7%). In the United Kingdom, prime office yields also seemed to have reached a peak in Q2 29. In Central London, the low supply of investment product and the substantial investor interest should make yields harden further in the next quarter. In the Thames Valley and Manchester prime office yields have moved back in more quickly than in Central London. FOREIGN INVESTORS ARE BACK IN BUSINESS During Q3 29, foreign investors confirmed their interest in the European commercial real estate market. After reaching a record low in Q1 29, the foreign investor s share of total investment recorded a second consecutive quarter of growth reaching 55%. Central to growth has been German funds whose activity accelerated. In fact, the price corrections of commercial real estate that took place over the last few quarters makes many European markets an attractive opportunity for the German open ended funds. In Central London, overseas investors were involved in the six biggest transactions (87% of the volume) this quarter attracted by a highly fluid situation. Concentration on Central London resulted in foreign investment being absent in the Thames Valley and Manchester markets, leaving UK funds and institutions as the most active players in these areas. In France, foreign investors are present in the most active markets such as Central Paris and Lyon but were not involved in a single deal in Marseille or Lille that were still quiet during Q3 29. The share of foreign investors increased in Germany after two quarters of almost no involvement, but remains very low in the longer comparison of activity. Whereas in Q2 29, foreign investors were absent in four of the big six cities, in Q3, their share in Berlin, Frankfurt and Hamburg, ranged between 19% and 27%. But in Munich and Düsseldorf they only represented 2% and 4% in Q3 29. However, for non-prime products, yields should continue to increase for a few quarters in many submarkets, mainly in outer rim areas. Net office prime yield 1 (%) Q3 29 Q3 28 Low point Bucharest Bratislava Lille Marseille Thames Valley Lyon Manchester The Hague Amsterdam Luxembourg Athens Brussels Madrid Rome Barcelona Central Paris Central London Milan Vienna Berlin Cologne Düsseldorf Frankfurt Hamburg Munich I5I

6 INVESTMENT MARKET INDICATORS Investment Volume ( million) Q3 29 Q3 28 Full year 28 Investment Volume, by product as % of Q3 29 %, Office % Retail % Industrial & Logistics Warehousing % Other Office Prime Yield (%) Net Gross Q3 29 Q2 29 Q3 28 Q3 29 Central London 2,96 1,715 1, Central Paris 1,31 2,335 8, * Madrid , Berlin , Vienna , n.a. Hamburg , Munich , Frankfurt , Rome , * * 5.65 n.a. Milan , * * 5.25 n.a. Thames Valley , Barcelona , Cologne , Amsterdam , Brussels , Düsseldorf Lyon * Bucharest n.a. Manchester Luxembourg The Hague Lille * * Marseille * * Athens Bratislava * no prime transaction recorded I6I

7 UNDERSTANDING OUR DATA BNP Paribas Real Estate is working on producing indicators which are as comparable as possible. This is a complex issue, due to cultural differences from market to market. Nevertheless, as we aim to actively contribute to the transparency of the markets, we have high lighted those definitions and indicators which are strictly comparable, so that our readers can understand what the indicators mean. Furthermore we have decided to adopt the PEPCIG 1 definitions, on which most of the following indicators published by BNP Paribas Real Estate are based. Other indicators are from INREV 2 and from BNP Paribas Real Estate. Central Business District average rent is the average of each of the last four quarters average headline rent in the CBD. Each quarterly average rent is weighted by the surface of each lease signed during the quarter, in either new or second-hand premises. The definition of CBD corresponds to local conventions. Completions represent the total amount of floor space that has reached practical completion and is occupied, ready for occupation or an occupancy permit where required has been issued during the survey period. Central London includes the following districts: West End, Midtown, City, Docklands, Southbank, Western Fringe and Northern Fringe. Central Paris includes the following districts: CBD, Paris out of CBD, La Défense, Western Crescent and Inner Rim. Core Investment Vehicles target returns at 11.5% and lower, with gearing level up to 6% of Gross Asset Value. Closed Ended Fund is a vehicle that has a targeted range of investor capital and a finite life. Development Pipeline represents the total amount of floor space for all developments under construction and/or schemes (including major refurbishments) that have the potential to be built in the future through having a secured level of planning permission but remain unimplemented at the survey date. It includes all proposed new buildings, those constructed behind retained facades and buildings (or parts of buildings) undergoing a change of use to offices. Exchange Rate from into for rents is the average value observed over the quarter. Exchange Rate from into for investment volumes for each quarter is the average value over that period. Full-year investment volumes in both currencies are made up by adding the four quarters of each year. German Open Ended Fund is a public vehicle that does not have a finite life, continually accepts new investor capital and makes new property investments. The list of German Open Ended Funds is published by the BVI (Bundesverband Investment und Asset Management e.v.). Gross Asset Value is the sum of the Gross Capital Value of properties, cash and marketable securities and other (non-operating) assets. Investment volume takes into account all commercial properties BNP Paribas Real Estate is aware of, whose owner has changed during the studied period, whatever the purchasing price. It includes Office buildings, Retail (supermarkets, hypermarkets), Industrial and Logistics Warehousing and Others (Hotels, Cinema, Leisure, Car Parks, Care Homes, parts of portfolio which can not be split up by product, and Development Sites in Germany). Quoted investment volumes are not definitive and are consequently subject to change. Initial Gross Yield is defined as Gross income (i.e. income before costs of ownership) over purchase price excluding costs of acquisition. Initial Net Yield is defined as Net income (or NOI) over purchase price plus all other costs of acquisition. Prime Office Rent / Prime Office Yield represent the top open-market rent/ yield at the survey date for an office unit: - of standard size commensurate with demand in each location - of the highest quality and specification - in the best location in a market Investment volume by investor/seller type refers to the following categories: Insurance, Private Investors, Public Sector, Corporates, Property Companies & REITS, Consortium, Funds and Other. Investment volume by investor/seller nationality refers to the following categories: Eurozone, Non-Eurozone, North America, Other America, Asia, Middle East, Australia, International and Other. Major Refurbishments represents refurbishments, where building work must involve either structural alteration, and/or the substantial replacement of the main services and finishes. The quality of the floor space must have been substantially improved from its previous condition so as to offer accommodation of a modern standard although not necessarily to the standard of a completely new building. Opportunistic Investment Vehicles target returns in excess of 17%, with gearing levels above 6% of Gross Asset Value. Actual transactions are used in France, Germany and Belgium to support the headline prime rental quoted, but one-off deals, which do not represent the market, are disregarded. In the UK & Spain, if there are no prime transactions during the survey period a hypothetical rent is quoted, based on expert opinion of market conditions. Space calculation differs in Spain, where figures in m² (Take-Up, Vacancy, Pipeline, Completions) as well as Rental values are based on Gross Letting Area space, contrary to the other main European markets, which use Net Letting Area. In order to make the Spanish figures comparable across all monitored markets, they should be multiplied by.82 (NLA =.82 GLA). This ratio is applied by BNP Paribas Real Estate to produce international indices and benchmarks. Take-Up represents the total floor space known to have been let or pre-let, sold or pre-sold to tenants or owner-occupiers during the survey period. It does not include space that is under offer A property is deemed to be taken-up only when contracts are signed or a binding agreement exists Pre-let refers to take-up that was either in the planning or construction stage All deals (including pre-lets) are recorded in the period in which they are signed Contract renewals are not included Sales and leasebacks are not included as there had been no change in occupation Quoted take-up volumes are not definitive and are consequently subject to change. The breakdown of take-up by business sector is compatible with the European NACE code. Under Construction represents the total amount of floor space in properties where construction has commenced on a new development or a major refurbishment (see separate definition) at the survey date. It includes properties for owner occupation, which are reported separately. It does not include sites being cleared for possible development in the future. Property that is under construction but pre-let or for owner occupation is recorded separately where appropriate. Value-added Investment Vehicles target returns of 11.5% to 17%, with gearing levels between 3% and 7% of Gross Asset Value. Vacancy represents the total floor space in existing properties, which are physically vacant, ready for occupation in the next three months (this period covers fit-out time) and being actively marketed at the survey date. Vacancy includes sublet space (except in Germany), but where possible, vacant sublet space is recorded separately. In France, vacancy excludes premises which the owner will renovate only once a lease is signed. Spain only counts immediately available space. Vacancy Rate represents the total vacant floor space including sub-lettings divided by the total stock at the survey date. 1 Pan-European Property Common Interest Group. This group assembles a wide range of European advisors and investors and major agents. 2 European Association for Investors in Non-listed Real Estate Vehicles. 29 BNP Paribas Real Estate Disclaimer clause BNP Paribas Real Estate cannot be held responsible if, despite its best efforts, the information contained in the present report turns out to be inaccurate or incomplete. This report is released by BNP Paribas Real Estate and the information in it is dedicated to the exclusive use of its clients. The report and the information contained in it may not be copied or reproduced without prior permission from BNP Paribas Real Estate. 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