According to international real estate advisor Savills, total investment volumes at the end of 2015 in the 15 European countries monitored* could top €210 billion, up 5-10% on the €199.3 billion transacted in 2014. The firm predicts that Q1 2015 investment volumes will reach circa €38 billion which is in line with the same period last year.
 
Marcus Lemli, head of European Investment at Savills, comments: “We predict that 2015 will be another strong year for European investment and will continue on the upward trajectory we saw in 2014 with total volumes increasing by 36% yoy from 2013. The quantitative easing program announced by the ECB, the expected devaluation of the Euro against other currencies and low interest rates will all help to continue to make Europe an attractive place for real estate investment.”
 
Savills reports that the core European markets continued to absorb the majority of cross border investment with France, Germany and the UK all recording total investment volume increases of 38%, 28% and 16% respectively. However, it was the peripheral markets of Spain and Ireland which saw the most drastic increases of 194% and 132% respectively. In these countries, volumes were underpinned by the disposal of properties by the public asset development funds of NAMA in Ireland and SAREB in Spain. The Nordics also saw strong increases in investment activity at 80%, 62% and 58% for Sweden, Norway and Finland respectively. In these markets activity was predominantly driven by domestic investment. Poland was the only country in the survey area not to see increased investment, with a marginal drop of 9%. 
 
The firm predicts that industrial investment in Europe could grow in 2015 by up to 13% as the sector continues to adapt to online retail trends. The share of industrial investment in 2014 grew from 11% to 12%, however, a larger increase is expected this year with investor interest growing, notably amongst large institutional investors. They have pan European strategies, specifically targeting distribution hubs such as Poland and the Nordics. Investment in the office sector accounted for the highest total at 51% and retail 25%, which was down on previous years. Whilst the firm attributes the slow decline in retail investment to continued weak consumer confidence, it expects it will rise in popularity in 2015 and 2016 as economic recovery continues in Europe.
 
Savills finds that 2014 marked the return of mega deals, those over €1 billion, which it predicts will continue in 2015. Over €7.7 billion was invested in mega deals in 2014, an 80% increase on 2013. Approximately 92% of mega deals were invested in the UK and France and 65% of those were portfolio deals. Office investment accounted for 72% of all mega deals with retail investment totalling 28%.
 
The firm forecasts that the yield gap between core and peripheral markets will continue to harden in 2015. As a result of strong yield compression in the peripheral markets the yield gap narrowed in 2014 to 168bp. Non-CBD office yields moved in by 36bp in 2014 and the growing appetite for logistics assets also translated in strong yields hardening, with the average prime industrial yield moving in to 6.87%, 40bp down from 2013.
 
Lydia Brissy, Director of European Research, adds: “The competitive pricing in prime segments and the lack of supply will ensure continued investor interest in 2015 in peripheral markets and secondary assets in core markets. This will cause yields to continue to harden and in addition we predict we may see some parties start to consider tactical sales to capitalise on the recent bounce in values. This could bring more prime opportunities to the market which would in turn trigger even strong appetite from investors hoping to catch the cycle.”

 * Countries monitored include Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden, UK