Expect a year of political uncertainty and the challenge of rising interest rates in Europe in 2017 Politics aside, however, the gradual tightening of some occupier markets seen in 2016 will continue in 2017, especially for better properties in the better locations Despite a gradual turnaround in the long-term interest rate trend, there is still scope for further yield compression in prime assets as rental growth and low interest rates by historical standards continues to make property look attractive 2018 or 2019, rather than 2017 are likely to be the years when the yield cycle starts to turn
Prime Rents •Rents continue to rise at a steady pace, though some markets show signs of decline. Demand •Buoyant take-up levels lead to new cyclical Q1 peak. Vacancy •Vacancy rate continues to decline, exacerbated by a still limited supply response. Development •Forecast completions begin to pick up in select cities across the region. Investment •Stable investment volumes despite regional economic uncertainty.
• Total nominal value of the European Commercial Real Estate (CRE) investment debt decreased slightly over the course of 2016 from €1.14 trillion to €1.06 trillion, which is largely attributed to reduced levels of investment transactions in 2016 • We estimate that new debt issued increased from €68 billion in 2013 to €125 billion in 2015, while maintaining at €116 billion in 2016 • Additionally, the amount of debt retired in 2016 is also in line with the new origination levels over the past year • 2016 was the first year, since post-GFC loan sale activity commenced in Europe, that real estate secured loan sale activity fell • In 2017, we expect loan sale activity to pick up from 2016, albeit the activity will be relatively concentrated across several key jurisdictions, for instance Italy and Spain
The overall European hotel investment volume was down -15% y/y for Q1 2017. Germany, Italy and Spain, however, bucked the trend and all recorded growth based on Q1 2016. Some of the key findings to consider are: Germany recorded its highest Q1 investment volume since records began (€1.12 billion). The UK is beginning to see portfolio break-ups; resulting in larger single assets coming to the market. Opportunistic capital is increasingly targeting CEE markets.
Europe commercial real estate investment totalled €56.1bn in Q1 2017; €259.0bn TTM. Trading activity in continental Europe increased despite elections in several notable markets. A total investment volume of €39.9bn was recorded; up 12% on Q1 last year. Czech Republic, Germany, Hungary, Spain and Sweden all had a record Q1.