A total of €43.7 billion was invested in the European commercial property market in Q2 2016 according to the latest Knight Frank European Quarterly Commercial Outlook Report. The value of transactions in the first half of the year now stands at €81.1 billion. This represents a 25% decrease in comparison to the first half of 2015. The fall in the value of transactions can be associated with decreased activity in Europe’s two largest markets; on a year-on-year basis, volumes were down by 50.1% in the UK and by 47.2% in Germany. However, other European markets showed more positive trends and Q2 volumes were up, year-on-year, in countries including France (+18.5%), Italy (+94.6%), Poland (+43.6%), Spain (+51.3%) and Sweden (+83.2%). Despite the lower level of overall transaction volumes, prime yields remained under downward pressure in a significant number of European markets in Q2. Occupier market activity has remained strong across a range of European cities, with aggregate office take-up in the major markets monitored by Knight Frank up by 5.4% in Q2 2016 compared with the same quarter of 2015. However, only a handful of major markets, including Berlin and Madrid, recorded prime office rental growth in Q2 with rental growth in Dublin remaining stable at €57.50 psf.
In light of the UK’s decision to leave the European Union, there has been much discussion about UK firms relocating their activities to other European countries such as Dublin, Paris and Frankfurt. This edition of Knight Frank’s European Quarterly Commercial Outlook Report conducted an analysis of five European cities best placed to benefit from occupier relocations. According to the analysis, Dublin is well placed to benefit from any UK and US companies seeking to retain an EU presence due to the fact that it is the only English speaking capital city in Europe. Dublin’s favourable corporate tax regime and its growing reputation as a tech location will also be helpful in this regard. However, the report also warned that the lack of available office space, soaring rents and shortage of residential accommodation could result in Dublin losing out to cities such as Frankfurt, Amsterdam, Paris and Berlin who are also included in the analysis.
In terms of the outlook for the rest of the year, Investors continue to have large volumes of capital allocated to real estate, and this money may increasingly be targeted at prime assets in core continental European cities, as investors become more risk averse in light of economic and political uncertainties. Low interest rates and bond yields will continue to support property investment activity, with central bank interest rates expected to stay lower for longer in the aftermath of the Brexit decision.