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European real estate markets stand firm through Q3 economic headwinds, brace for tougher Q4

EMEA Capital Markets Q3 2022 Hero Image

Rising interest rates and weaker growth prospects are beginning to be reflected in asset pricing

Waves of uncertainty emanating from Europe’s macro-economic and geopolitical turbulence are beginning to ripple through commercial real estate (CRE) markets, but on the evidence of Q3 investor activity appetite remains strong, as reported in the latest Capital Markets snapshot for Europe, the Middle East and Africa (EMEA).

Germany, France, Italy and Spain all saw strong headline investment volumes for Q3, even as central banks hiked interest rates over the quarter in the face of double-digit inflation across Europe.

Nevertheless, despite robust headline figures, Colliers experts expressed caution, stating that the macro-economic picture cannot be ignored, and is likely to pressurize activity and pricing in the months ahead. “The days of yields of 2-plus percent may be over,” said Luke Dawson, Managing Director, EMEA Cross Border Capital Markets at Colliers, “Higher interest rates are re-pricing assets, and yields are softening accordingly.”

One major market that did register a sharp slowdown was the UK, where investment volumes halved between Q2 and Q3, amid a renewed bout of political and policy turbulence. “Q4 may turn out to be a clearer indication of the trajectory of the UK market,” said Richard Divall, Director of EMEA Cross Border Capital Markets at Colliers “Nonetheless in the UK and EMEA more broadly, real estate’s relative attractiveness will support the market and continued investment activity, particularly around prime product in major cities.” 

UK posts sharp quarterly slowdown

Investment volumes halved between Q2 and Q3 in the UK market, falling from over £16 billion to £8 billion, with the slowdown felt across all sectors. Re-pricing is slowing the pace of transactions as investors process the implications of rising interest rates, political upheaval and stuttering economic growth. 

France sees active Q3

The €640 million sale of the super-prime 160 Champs Elysées in central Paris was one component of €7.4 billion-worth of transactions over the quarter, with total transactions up 34% in the year to date, at €19.7 billion. While the greater Paris region made up about a quarter of the total, it was by no means the whole story, with sectors such as logistics holding up well nationally. Nevertheless, as elsewhere, rising bond yields and debt costs are heightening market uncertainty going into the fourth quarter.    

Spain logs student mega-deal

The stellar first half of the year for Spanish CRE investment continued into the third quarter, with investment volume reaching €4.75 billion. This number was flattered by one mega-deal, a €900 million acquisition of 42 student housing assets by PGGM. Looking beyond the headline figure, high inflation, soaring energy prices and rising financial costs are likely to make a noticeable dent in household savings and consumption, with knock-on effects in the residential market in particular.  

CEE volumes lag

Central and Eastern Europe also showed signs of uncertainty. Volumes in Poland were down 10% on the equivalent quarter of 2021 and market activity in the Czech Republic remained minimal, although Romania posted growth and is looking forward to a potentially strong Q4.

Germany excels based on big deals

At €13.1 billion, total transaction volume in Germany was up by around 27% from the previous quarter, while the first nine months of the year were up by around 8% on the same period of 2021. The numbers are being driven by big deals in the >€250 million bracket, with particular interest in buildings with strong sustainability credentials. Nevertheless, Colliers perceives a shift in the market, with power shifting from sellers to buyers as the wider economic picture becomes cloudier. 

Netherlands’ market heats up on safe haven status

Core Dutch real estate has long been viewed as a place of safety in times of trouble, and Q3’s results suggest that this remains the case, with demand buoyant. Colliers expects this factor to support growing investment volumes this year, with a planned transfer tax increase in 2023 a further impetus.

Download the EMEA Capital Markets Q3 2022 Snapshot to learn more.


 

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Anna Silkstone

Head of Content

London - West End

Anna is an experienced B2B marketer, communications and business development adviser. She specialises in content creation and the resultant campaign output. In her role as Head of Content, EMEA she develops compelling communications for multi-channel direct and social marketing, media and internal communications. This is done in partnership with the business line leaders, research, digital and creative leads.

Anna has developed all of her career experience in the real estate industry. This has included leading on market response campaigns, thought leadership content development, research report identification, production and launch, client engagement and market profiling campaigns, proposal responses and bid presentation management, value propositions for marketing material, trade show presence, stakeholder management, internal and external communications, and building a remote-working marketing team. 

Prior to Colliers Anna worked at the global law firm, Dentons LLP as a Senior Business Development Manager for the Real Estate team and latterly as Head of Campaigns for the UKIME region, focusing on Environmental, Social and Governance. Anna also worked at CBRE for over two years and supported the Occupier Services section of the EMEA business. Before CBRE, Anna was at Lambert Smith Hampton for nearly nine years in a regional marketing role and later as a UK campaign manager. 

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United Kingdom

Luke Dawson

Head of Global and EMEA Capital Markets

London - West End

As of 2021, I took on the leadership of our EMEA Cross Border Capital Markets team, based in London.    We look to support global investors with accessing opportunities across the region as well as leveraging our local relationships into the wider region.  It is a client-led approach  across asset classes and countries formulated on the idea of matching our structure to how investors view the markets.  We look to build relationships at the decision maker level by meeting capital in their home countries on a regular basis and really understanding their long-term objectives.

I started with Colliers in 2003 working as Director of Corporate Development with a focus on mergers and acquistions across the globe.  After leading the acquisitions of several Colliers businesses across Europe, I relocated to Europe in 2007 and took on several roles across the business in both regional management and Capital Markets capacities. During this period I was responsible for  business development, key accounts, investment sales and overall business accountability across our Central and Eastern European businesses.

In 2014 I left Colliers to run one of the largest private family offices in the middle east.  This involved leading all asset management, acquisitions and dispositions across the globe and the overall leadership of the organization. 

In early 2017 I returned to Colliers to take on the regional management and Capital Markets leadership across Central Europe.  My focus was on driving our investment sales business across Central Europe as well as strategic leadership of the overall  Central Europe business.

 

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