Political and currency movements bring opportunity to the European Investment market


Upcoming elections and currency movements should bring opportunity for the European commercial property market as investor appetite remains strong despite continuing uncertainty across the continent, according to Knight Frank’s European Commercial Property Outlook for 2017.

With several major elections upcoming in 2017, increased political instability has the potential to impact the Eurozone’s fragile economic recovery, but could also create opportunity for agile investors, according to the report.

Last year saw the investment market lose some momentum as European investment volumes were at least 20% below the exceptional levels of 2015, which saw investment amount to €253 billion. Preliminary figures indicate that 2016 volumes were in the range of €190 – €200 billion, which although down on the previous year, are still 20% above the long term average of €156 billion. Volumes are expected to stabilise somewhat in 2017 and although a prolonged low interest environment will foster further yield compression, the rate of compression will slow.

Current economic and political circumstances, along with banks falling under pressure to meet lending volumes, are setting investors on a quest to find safe assets which can provide them with reliable income streams. As a result, the specialist sectors are growing in popularity, providing stability of income returns in comparison to mainstream real estate.

Geographically, investors into Europe are looking increasingly at smaller capital and second tier cities as competition intensifies and major markets become ‘fully priced’. Rental growth prospects can be found in cities such as Madrid, Dublin, Berlin and Stockholm, and as a result of improving occupier demand these cities are attracting a significant weight of capital.

European commercial property remains an attractive value proposition for investors, and on-going political and currency movements which were expected to cause disruption and potentially negative effects, could in fact create new opportunities if investors target the right assets within the right markets.

Chris Bell, Managing Director, Europe at Knight Frank commented:

“Investor appetite for European real estate remains strong, despite heightened levels of global geopolitical uncertainty.

“Germany in particular is widely regarded as the safe haven for capital in continental Europe, and in the risk-averse climate many investors are willing to sacrifice some yield for lower risk. German investment volumes have overtaken UK volumes post-Brexit.

“Although some may see investment in these conditions as risky, this uncertainty has created pools of opportunity across Europe and targeting safe investments within the right markets should give investors a real advantage in less certain times.”

James Roberts, Chief Economist at Knight Frank added:

“Currency movements are increasingly factored into the thinking of international real estate investors. They look for short-term weakness in the currency of a country whose real estate market has strong long-term fundamentals, and buy accordingly. Upcoming elections in France, Germany and The Netherlands, could buffet the Euro in 2017, and we expect to see overseas investors using any dips for the currency to buy property in key European cities. Similarly, the on-going uncertainty on Brexit is keeping UK property firmly in overseas investors’ sights, particularly buyers from Asia-Pacific.”