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A look back: JLL

Despite the seismic macroeconomic events seen in Europe in 2016, Germany’s and Central and Eastern Europe’s property markets continued to be magnets for institutional capital in the region. 

Although UK real estate investment volumes tumbled during Q1 2016 to Q3 2016, compared to the same timeframe last year, volumes in continental Europe over the same period have been largely unaffected, according to Richard Bloxam, global head of capital markets at property services firm JLL.

JLL’s report noted that while volumes in the UK have slumped by 28 percent, from around €43 billion at the end of Q3 2015 to €31 billion at the end of Q3 2016, real estate investment in Europe, excluding the UK, rose by 6 percent.

“Germany has remained the most sought-after European market this year, reporting higher levels of investment than the UK during the third quarter,” said Bloxam. “The weight of demand in the German market is supported by a strong domestic investor base and growing international interest; non-domestic investors took a 46 percent share in 2016,” he added.

JLL data shows that, as continental Europe’s core market, Germany has been the key benefactor of increasing allocations to the sector from institutional investors. As a result, yields for prime assets in prime locations have compressed to 3.7 percent, the fastest rate of compression seen in two years.

In a year that has seen the UK’s ‘safe haven’ status challenged following Brexit, Germany’s economic stability, low unemployment rate – its lowest in 24 years – and rising population have been appealing to real estate investors.

Meanwhile, Central and Eastern Europe (CEE) was another big winner, according to Bloxam. “The CEE region has emerged as the year’s star performer with investment volumes totaling €6.9 billion – the highest-ever recorded in the first nine months of a year,” he added.

In its ‘CEE Investment Report 2016’, JLL stated that the CEE region is seen as an attractive and safe region by a growing number of institutional property investors, which are moving up the risk curve in search of yields.

The report added that core Western European markets offer a limited stock of trophy assets so investors are increasingly tempted by CEE assets, which present attractive yields and long-term profits.

Some of the most impressive GDP growth figures are also to be found in CEE with Poland, at 3.5 percent; Hungary, at 2.1 percent; Romania at 3.3 percent; and Czech Republic, at 2.2 percent, compared with Western European countries such as Germany, at 1.3 percent GDP growth; France, at 1.8 percent; the Netherlands, at 2 percent; and Belgium, at 1.5 percent.

“In the last two years, we have observed huge and still growing international capital inflows into the local CEE markets, coming mainly from German private insurance and pension funds, US pension funds and university endowments, as well as capital related to public insurance, originating from institutions primarily from Singapore and China, which manage the pension funds of their citizens and seek greater returns,” the report stated.

“History tells us that there is further room for investors to generate income if the occupier markets continue to perform. And that should be at the front of investors’ minds as they speculate on European real estate heading into 2017,” concluded Bloxam.