In the first quarter of this year, European commercial property investment increased by 44%.

The European commercial property investment market had a good start to 2015, according to Knight Frank's latest European Quarterly Report, with a total of €50.1 billion traded in Q1. Apartment

Q1 2015 had a 44 percent increase in investment volume over Q1 2014, making it the best first quarter since 2007. Recent improvements in the European economic outlook have strengthened prospects for the remainder of 2015, and overall investment volumes are expected to reach €200 billion for the first time since the market high in 2007.

European-Commercial-Investment-Capital-Flows-Q1-2015.jpg

Investment volumes have continued to climb in a range of secondary cities and peripheral markets, reflecting investors' greater willingness for risk. Following the amazing recovery of the Spanish and Irish investment markets in 2014, activity in Italy and Portugal has increased significantly in the previous two quarters.

In several markets, prime yields are still falling, and cities including London, Paris, Munich, and Dublin all saw yield compression in Q1. As a result, the Knight Frank European Weighted Average Prime Office Yield fell 16 basis points to 5.05 percent in the first quarter, marking the greatest quarterly drop since Q2 2010.

"Following its extremely solid performance in Q1, the European investment market is on track for another good year," Matthew Colbourne, associate, international research, said. Annual transaction volumes are expected to reach over €220 billion in 2015, marking a new post-recession high. Indeed, volumes in numerous nations may exceed those witnessed during the market's peak. The better European economic outlook will encourage investment growth, and cross-border activity may be boosted by the weakening of the Euro, which has made European property prices more appealing to many foreign purchasers."

 

Spain is the most popular European property investment destination, with Germany coming in second.

Active investors regard Spain as the top investment destination in Europe, according to Knight Frank, with Germany following closely behind in 2015.

According to a recent European study conducted by Knight Frank, 27% of over 150 investors chose Spain as their favourite investment destination for the coming year, demonstrating the strength of the country's recent recovery with prices remaining significantly below their prior peak.

"The underlying justification for investing in Spain is even stronger than this time last year," says Humphrey White, Head of Capital Markets at Knight Frank Spain. Prime CBD office rents have gained 20% in the last year, but are still over 40% below their 2008 peak, while dominating retail mall attendance and sales have been climbing for six straight quarters."

Over a quarter of the guests (25.4%) identified Germany as their favorite destination. The results reflect the country's brisk investment activity, with €30 billion spent in property in the first half of 2015, up 35% over the same period last year.

"The growth is driven by the increased flow of foreign capital into the nation and the 50% growth in local investor activity," says Joachim von Radecke, Head of German Desk at Knight Frank in London. Foreign investors' stake in the German market continues to rise, accounting for about 60% of all transactions in the first half of 2015." With 78 percent of all office sales reported in these locations, we noticed the normal tendency towards the "big five" markets of Berlin, Frankfurt, Munich, Hamburg, and Düsseldorf."

On the strength of the continued recovery that has now extended to the UK regions, the UK performed well in this year's poll, receiving 17.4 percent of the votes.

"The UK is significantly ahead of the rest of Europe in terms of the property cycle and has already witnessed considerable yield compression," says Chris Bell, Managing Director of Knight Frank Europe. However, it is promising that rental growth is re-emerging more widely across Europe, aided by the strengthening of occupier demand and the progressively declining availability of excellent quality space, which has been aggravated by the absence of construction in the prior recessionary years."

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