EMEA COVER DECEMBER Gathering Momentum. A Cushman & Wakefield Publication

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1 EMEA CAPITAL MARKET BRIEFING DECEMBER 2013 COVER MARKET UPDATE & retail focus Gathering Momentum The European commercial property sector is enjoying a strong close to the year, with Q3 investment volumes up 20.4% on the same period of 2012 and the market actually seeing its strongest third quarter since before the crisis hit in Volumes in the 12 months to Q3 were up 21% to 150.1bn, their highest in 5 years, while quarterly volumes rose 7.5% on Q2 to 36.7bn. Interest continues to spread to new areas as confidence grows and the market is going through the gears quickly: firstly with demand escalating in core cities, then with interest moving on to second tier core markets, followed by demand spreading to top tier cities in previously overlooked areas like southern Europe, and now with escalating demand for better quality secondary assets in top cities. With real momentum now building, the sector is set to continue to move quicker than most expect and a strong final quarter is under way, forecast to deliver an annual volume of 147bn, 11% up on last year. International capital has been a key part of the growth seen in the market although its share of trading activity has been little changed on the year at circa 40%, with domestic demand from institutions, property companies and private players also strong in most areas (albeit in some cases backed by foreign capital). By sector offices and industrial are performing well, with volumes rising 17% and 35% respectively on the previous quarter. Retail volumes meanwhile fell back in Q3 by 10% but this is likely to be a temporary fall, with demand strong and an improving supply picture set to boost activity. Indeed year on year retail trade is rising, up 31% over the year to Q3. Shopping centres rather than shops or retail warehouses have been the main driver of this and look set to be a highly demanded sector of the market in 2014 and a key part of the significant rise in market activity now forecast. Cushman & Wakefield, LLP Portman Square London W1A 3BG DECEMBER

2 DECEMBER 2013 PATTERNS OF DEMAND Investors remain keen to buy in the core of Europe, with both France and the UK up strongly in Q3 and Germany strong but stable. Overall the top 3 took a 65% share of the market, up from 57% in Q2. At the same time, a range of investors have shown themselves ready to take on more risk, moving from market to market to find opportunities. In Q1 it was Eastern Europe that benefitted, rising 167% while the market fell 26% on the previous quarter, in Q2 it was Southern Europe, rising 101% against a market increase of less than 2%, while in the third quarter Central Europe took up the running, with a 179% increase contrasting with 7.5% market rise. A range of investors have shown themselves ready to take on more risk, moving from market to market to find opportunities chart 1: top investment targets Quarterly average Quarterly average Quarterly average Quarterly average Quarterly Volume ( bn) UK Germany Nordics West* France East South Central MESA *West (Benelux, Austria and Switzerland) By country, the Czech Republic, Poland, the Netherlands, the UK and Ireland saw the better growth in activity in the past quarter and as demand has spread, values have stabilised. Yields in fact are under downward pressure in more and more prime markets and while the fall to date has been limited - just 8bp so far this year, (lifting capital values by an average of 1.1%) - the gains in leading markets have been greater and these improvements are expected to accelerate in the coming months. Indeed, a strong end to the year is clearly underway and we have lifted our forecast for year-end trading volumes to 147bn, 11% up on last year. Where demand will spread next is not certain given how footloose some capital is in pursuit of the right product, but what does seem sure is that the pricing correction which has started is only going to accelerate. Non-domestic buyers moderately outperformed in Q3 meanwhile, talking a 39% market share and boosting activity by 9% versus a 6.5% rise for domestic players. Over the year as a whole however foreign and local players are showing a similar appetite for investment growth, although it is worth noting that a number of domestic players are significantly backed by foreign capital, invested in their platform or using them to deploy capital locally. CZECH REPUBLIC, Prague THE PARK Q3 sale by Aberdeen Asset Management Deutschland AG reported to be the largest ever investment deal in the Czech Republic, to Starwood Capital. 2

3 emea capital market briefing With Europe being singled out as offering some degree of recovery potential but also a growing supply of opportunities and a falling level of risk, foreign players will continue to be drawn to the region and their market share is likely to escalate, going over 40% next year as more Chinese investors arrive and other Asian players get into their stride. chart 2: commercial property investment (emea) Domestic Cross border Annual Volume ( bn) Q Q Q Q Q Q3 Source: Cushman & Wakefield, KTI, RCA and Property Data 2009 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Foreign players won t have the market all their own way however with domestic fund, REIT and private buyer demand also set to increase in an environment of still low interest rates but declining occupational risk for the best space. As a result, with more fuel going on to the fire thanks to improving finance markets and a growing pipeline of stock, the market is only likely to get busier in TRENDS IN THE RETAIL MARKET While retail volumes dropped in the quarter, the sector faces a busy year-end, with more liquidity and sharper pricing bringing stock to the market and making buyers more eager to get deals done. More stock in fact started to come on to the market in Q3 from a range of sources, with bank-led sales but also approaching fund redemptions and some recent buyers prepared to re-trade stock, typically reinvesting higher up the risk curve. With a broader spread of buyers and a better flow of debt, there will be a quicker knock on effect on pricing than many expect as well as more activity, with 36bn now looking within reach for this year, a 7% increase on As in the market at large, retail demand continues to spread further afield as investors seek out large modern schemes and top trading streets. Often this is focussing attention on what had been overlooked markets either by geography or property quality. Indeed, while UK, German and Nordic cities continue to face very high demand, with stock limited, investors have had to look further afield with both southern and eastern Europe seeing a bounce in activity in the last few months for example. DENMARK, Odense ROSENGARDCENTRET Q3 sale of a 25% stake to ATP Real Estate by the ECE European Shopping Centre Fund who acquired the scheme in Q in a circa 400mn deal. 3

4 DECEMBER 2013 chart 3: investment by sector, quarter-on-quarter 40 Retail Office Industrial Quarterly Volume ( bn) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 In Central & Eastern Europe retail took a 33% market share in Q3 as volumes rose 7% thanks largely to activity in Poland but with a bounce in some smaller markets such as Romania and Slovakia as well. However it was southern Europe which showed the biggest upturn for retail, with volumes up 259% between the second and third quarters and retail taking a 57% market share. This has been driven by Italy and Spain and is set to continue with more shopping centres and retail parks in the pipeline in Italy and a more realistic view on sustainable rents underpinning positive views on Spanish assets. Increased demand from cross border players is set to drive the market higher and with a wider universe being considered, investors are coming to their own conclusions about what are the best risks to take and which markets are most favourable. Some prefer to bid up prices in core markets like the UK while others are ready to target new areas, as shown by the first significant Chinese investment in Poland and the first major Canadian purchase in Spain. The majority of retail investment remains focussed on the shopping centre market which actually gained ground in Q3 while other retail sectors fell back. Shopping centre volumes rose 18% in the quarter to 3.95bn, a market share of 49% compared to 41% on average over the last 5 years. High street shops meanwhile, while down on the quarter, have also made steady advances over recent years - doubling their market share in the downturn (from 10.8% in 2007 to 22.8% in 2009) as high net worth investors and funds turned to the relative security and liquidity of this market. It has maintained a high market share since 23% in Q3 versus a 5 year average of 20.7% - with growth in the luxury and cross border retailer markets boosting top streets across the region. POLAND, Wroclaw GALERIA DOMINIKAŃSKA Q3 sale by the Otto family and Deutsche Euroshop AG to Atrium European Real Estate for 151mn. 4

5 emea capital market briefing chart 4: top retail investment targets (europe) Quarterly Average 2011 Quarterly Average 2012 Quarterly Average 2013 Quarterly Average Quarterly Volume ( bn) UK Germany Nordics East France West* South Central *West (Benelux, Austria and Switzerland) The gains of these two sectors have not been matched by the retail warehouse market meanwhile, which saw a 22.6% drop in activity in Q3, taking its market share down to less than 18% compared to a 5 year average of 28.5%. The UK is the largest retail warehouse market in Europe and is seeing better demand for top schemes but in general around the region, retailer demand is shallower and cost sensitive, making some investors nervous about the outlook for the average retail warehouse scheme. CHART 5: RETAIL PROPERTY INVESTMENT BY SECTOR Shopping centre High street retail Retail warehousing Supermarkets Other retail Annual Volume ( bn) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 SPAIN, Asturias PARQUE PRINCIPADO Q4 purchase by Intu and Canada Pension Plan Investment Board (CPPIB) for 162mn from Sonae Sierra and CBRE GI. 5

6 DECEMBER 2013 market data country shops PRIME YIELDS - Q shopping centres offices warehouse YEAR TO SEP 13 GROWTH Q3 OVER Q2 YR TO Q3 13 OVER YR Q3 12 CORE EUROPE Germany 3.80% 4.80% 4.20% 6.50% % 38% UK 2.75% 5.15% 3.75% 5.50% % 16% France 3.75% 5.00% 4.25% 7.25% % -6% Switzerland 3.80% 4.10% 3.75% 5.50% % 91% Austria 4.20% 6.10% 4.90% 7.50% 0.6 7% -15% Denmark 4.75% 6.00% 5.00% 7.50% % 13% Finland 5.00% 5.00% 5.25% 7.50% % -13% Norway 5.00% 5.00% 5.00% 6.50% % 37% Sweden 4.50% 5.00% 4.50% 6.50% % 30% FRINGE EUROPE Italy 5.00% 7.00% 5.75% 8.25% % 7% Spain 4.85% 6.50% 6.00% 8.25% % 74% Portugal 7.00% 7.75% 7.75% 9.75% % 58% Ireland 6.25% 8.00% 6.25% 8.50% % 363% Greece 7.80% 8.80% 9.50% 13.00% % 261% BENELUX Belgium 4.35% 5.35% 6.25% 7.10% % 13% Netherlands 4.50% 6.25% 6.30% 7.70% % 5% Luxembourg 5.00% 5.25% 5.75% 8.50% % 16% CENTRAL EUROPE Poland 7.75% 5.75% 6.25% 7.50% % 102% Czech Republic 5.25% 5.75% 6.25% 8.25% % 32% Hungary 7.00% 7.25% 7.50% 9.00% 0.3 Na 10% Slovakia 7.25% 7.25% 7.25% 8.75% 0.2-4% -21% EASTERN EUROPE Bulgaria 9.25% 9.25% 9.50% 11.75% % 17% Romania 9.25% 8.50% 8.50% 9.50% 0.2 na -27% Russia 12.00% 9.25% 8.50% 11.50% 5.4-2% -9% Turkey 6.00% 7.00% 7.00% 9.00% % NOTE: YIELDS: THE FIGURES INCLUDED IN THE TABLE INDICATE THE VIEWS OF CUSHMAN & WAKEFIELD S CAPITAL MARKETS TEAM AND RELATE TO THE VERY BEST PRIME PROPERTY IN EACH MARKET CATEGORY. ALL RATES ARE FOR ILLUSTRATIVE PURPOSES ONLY. THOSE SHOWN IN RED ARE ON A NET BASIS. Investment Volumes: Source Cushman & Wakefield, Property Data, RCA and KTI 6

7 emea capital market briefing about the report The Capital Markets team provides trusted commercial advice and execution services globally to those engaged in buying, selling, investing in, financing or building real estate. We work closely with our clients in order to accurately advise them on maximising the value of their real estate. Our services include investment sales and acquisitions, sale-leasebacks, arranging senior debt and mezzanine finance, private placements, loan sales and indirect investment. Cushman & Wakefield is known the world-over as an industry knowledge leader and through the delivery of timely, accurate, high-quality research on the leading trends, markets around the world and business issues of the day, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position. In addition to producing regular global and local reports, the investors and developers. To discuss your immediate needs, please contact: David Hutchings Partner, Head of the European Research Group +44 (0) Jan Willem Bastijn Partner, Head of Capital Markets, EMEA * Front cover shot: Metropolitan, Warsaw Cushman & Wakefield is the world s largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world s major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and management assignments. Founded in 1917, it has approximately 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has nearly $4 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete Cushman & Wakefield, Inc. All rights reserved. Cushman & Wakefield, LLP Portman Square London W1A 3BG 7