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ME investors boost Europe real estate market

The real estate investors from the Middle East region accounted for 12 per cent of the cross-border investment in European markets during the second quarter, said a report.

The non-European real estate investors, in total, accounted for 25 per cent of the European market in the second quarter, the highest proportion since Q2 2007, before the financial crisis, according to the latest research from CBRE on cross-border investment.

The total real estate investment activity contracted slightly to 24.3 billion euros ($31 billion) in the second quarter, down 5 per cent compared to the Q1 and nine per cent below the total for the second quarter, it stated.

Despite this, the amount of cross-border investment was higher, both as a percentage (making up 46 per cent of the total) and in absolute terms. Although the level of investment flows between European countries increased slightly, the big driver of the growth in cross-border investment was acquisitions by buyers from outside Europe.

The amount of buying activity from North American real estate investors remained high, but 2012 has also seen a significant increase in activity by buyers from Asia and Latin America, particularly in the second quarter, the report added.

Nicholas Maclean, the managing director, CBRE Middle East, said, “European property markets and infrastructure continues to prove interesting for Middle East investors. What we are likely to see going forward, however, is co-investment activity particularly involving Middle Eastern sovereign funds and Chinese state or quasi state investors.”

He pointed out that the significance of direct real estate investment by non-European buyers was in the relatively small number of markets that they have tended to target, with 62 per cent of the cross-regional investment in the first half going to the United Kingdom (UK) and a further 27 per cent going to France and Germany.

North American investors were more diversified than other cross-regional buyers, with London accounting for only 28 per cent of acquisitions while markets in Germany, France, Sweden as well as the rest of the UK accounted for most of the remainder.

The investment from Asia has been steadily increasing since 2011, but has been limited almost entirely to London and Paris, with a small number of direct transactions elsewhere in Europe, the CBRE said in its report.

Capital flows between European countries remain high despite the eurozone crisis. However, it is notable that the UK was the largest single destination for this intra-regional investment and Germany accounted for nearly half the total, showing a strong bias in favour of ‘safe haven’ destinations.

Non-European investors also targeted the largest lot sizes available in Europe. Whereas the average transaction size in Europe was around 27 million euros, domestic investors were over-represented in the smaller transactions, with an average deal size of 22 million euros.

The average transaction by a Europe-based, cross-border investor was significantly larger at 56 million euros, while non-European investors typically targeted the very largest transactions, with an average lot size of 79 million euros.

Jonathan Hull, the head of EMEA Capital Markets, CBRE, pointed out that the non-European real estate investors were currently dominating the markets in which they were active.

According to Hull, all of the ten largest transactions in London in the first half went to foreign investors, with nine of those deals from outside Europe.

“The cross-regional investors now have a significant influence on pricing in the European market, particularly for the prime product that is in demand,” he added.

-TradeArabia News Service, September 10, 2012