Commercial real estate investment falls with Brexit fears, other issues

Nery Alaev writes about commercial property investment in Europe.

In Europe, the United Kingdom’s potential exit from the European Union alongside other global concerns has contributed to a drop in commercial property investment.

The sharp drop of 40% in Q1 2016, compared to the same period last year, has been reported in Europe Real Estate. I’ve decided to find out more and summarise.

Major concerns

Concerns have reduced investment

The beginning of 2015 saw refreshingly low oil prices (for some states), relative calm in China and little mention of a ‘Brexit’ in Europe. Throughout 2015, however, oil has stayed disconcertingly cheap, China’s economy has seen massive ructions and the ‘Brexit’ debate in the UK has heated to the point of a physical referendum taking place in June of this year.

Commenting on this, Tim Leahy of Real Capital Analytics (who carried out the research), said:

“The high level of investment last year was unsustainable, so a slowdown was probably inevitable. The volatility in financial and commodities markets, concerns about China, falling global trade volumes, and uncertainty surrounding the United Kingdom’s referendum on European Union membership are just some of the factors that caused many investors to take stock. However, pricing is holding up and the fundamentals that have made real estate so attractive to investors remain in place.”

Mr Leahy’s comment underlines the effects macroeconomic trauma have upon real estate – something for investors to consider. I have made presentations previously on the oil situation which indicate its importance to industries around the world.

Sharp drops

All of these macroeconomic factors have effected real estate investment in Europe – the figures are clear. Analysis has revealed that a total of €46.7bn of properties exchanged hands in the first quarter of 2016, compared with the €77.6bn of deals registered in Q1 2015. Investment has fallen across all major western European commercial real estate markets with France at the helm with a drop of nearly 60%.

Bucking the trend, Finland and Poland were projected to see increases in investment, thanks to major purchases from Sponda, CBRE Global Investors and Union Investment respectively.

Nery Alaev

Nery Alaev is the current Director of ESN Investments GmbH, which engages in acquisition and development of commercial and residential property in Germany and Austria.