European Real Estate Investment Hit Record Levels

Fuelled by the potential to make serious financial gains in the overseas property market, direct investment into European real estate reached record levels last year.

Total transaction volumes reached €242 billion (£163 billion) for the year up 39 per cent on 2005 as a combination of high returns, freeing up of investment markets and unilateral economic growth boosted spending on the continent’s property, according to the latest Jones Lang LaSalle European Capital Markets Bulletin.

But the key figure is found in the boom in cross border transactions, which are now worth €150 billion (£101 billion), two thirds of total investment value.

This research is clear evidence that it is no longer just retirees and holiday homes seekers who buy property abroad. Property investors looking for a monetary return rather than a second home are increasingly casting their eyes to ripe markets across the Channel.

Marking a turnaround from a decade of stagnancy in the market, investment volumes in Germany rose by a remarkable 141 per cent over the course of the last 12 months to €49.5 billion (£33 billion).

France has also seen a large influx of investment, with €24.1 billion (£16 billion) flooding into the country, an increase of 67 per cent in 2006.

Although the UK property has one of the highest investment volumes in Europe at €80 billion (£53 billion), this figure has remained static since the previous year suggesting that the more dynamic markets, certainly in terms of investment flows, are to be found overseas.

Tony Horrell, CEO of european capital markets at Jones Lang LaSalle, commented: “Investors in European real estate in the past couple of years have been rewarded with record returns.

“Demand continues to be fuelled by investors up-weighting their allocation to real estate, which has outperformed equities and bonds over the last one, three, five and ten years.”

However, Mr Horrell predicted that this year, the European property market will be “below the performance of recent years” but still expects strong real returns for those bold enough to invest their cash.

He said: “Although the performance of real estate is set to be lower in 2007, it will remain attractive on a relative basis compared both equities and bonds – our central scenario is for real returns across Europe of nine to 11 per cent in 2007.”

Although there were sharp rises in investment in eastern Europe, such as 70 growth in Poland, the major markets of the UK, Germany and Spain property dominated total volumes due to their inherent stability.

Rey Bogart