€515bn ready to invest in European real estate

Berlin, Germany, one of many markets expected to enjoy spillover from investment in Europe’s traditional hotspots of London and Paris Photo:   Alexander Steinhof

A report from financial advisor Catella says that the volume of capital looking to invest in European real estate now stands at €515 billion – double the €250 billion knocking on Europe’s door before the financial crisis in 2007.

Indeed, global investment fund managers claim that Europe is their main target market in the next 12 months.

“We see this large volume of capital changing the investment markets in Europe in the medium term,” says Thomas Beyerle, Group Head of Research at Catella. “As capital spills over from traditional Europe investment centres London and Paris in the next 12 months, we expect to see increasing investment activity in Germany, the Nordics and Spain.”

Catella’s research indicates that cross-border activity between these markets will gain momentum and the investment markets will become increasingly international. Domestic investors will be challenged by the new investors attempting to enter these markets. The reasons why this large investment volume is targeted at the European market now are complex. It is not only thanks to the
high liquidity provided by the FED and ECB, but also because of the need for stabilised long-term investment, strong increase of Chinese and Middle Eastern investment capital and rising interest from US investors and private equity funds.

“While the figures seem dramatic and impressive, we expect about half of the capital to actually find its way into the markets in the end,” adds Beyerle. “The reasons are shortage of core segment properties, mismatched price expectations and complex regulations that hamper new funds’ investment ability. Therefore, our forecast for 2014 is positive but cautious, predicting a European transaction volume of around €215 billion, which is slightly lower compared to 2007, but an increase of 53 per cent compared to 2013.”