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Direct European real estate investment volumes totalled €26 billion in Q1 2011; 32% increase year-on-year while Ireland sees its lowest quarterly volume ever

Volume of equity targeting commercial real estate continues to rise according to Jones Lang LaSalle’s European Investment Volumes Update

Direct commercial real estate investment volumes in Europe in the first quarter 2011 (Q1 2011) totalled €26 billion, a 32 percent increase on figures for Q1 2010, according to new research from Jones Lang LaSalle.  Successful debt and equity issuance has provided liquidity to the market, which in turn drove cross-border investment from equity-rich investors. Jones Lang LaSalle expects the current positive trends to continue and maintains its forecast for 2011 of up to a 30 percent increase in volumes across the region compared to 2010 figures (€102 billion), as the volume of equity targeting European markets continues to rise.

Predominately driven by a continuing interest in core London assets, the UK continued to dominate the European investment market in Q1 2011, capturing 38 percent of all investment capital in the region (compared with 35 percent in Q1 2010). UK transactions totalled €10 billion in Q1 2011, which equates to a 41 percent increase year-on-year. 
Significant activity was also witnessed in the French, German and Swiss investment markets, whilst Poland, Russia and the Czech Republic all experienced a strong start to 2011 with volumes notably up on those recorded in the Q1 2010.  Russia, in particular, has seen a defined uptick in transactional activity; at €763 million investment volumes in Q1 are almost three times higher than levels seen in the first quarter of 2010.  In Poland, activity is 200 percent higher in comparison to Q1 2010 and investment volumes for the Czech Republic are already 89 percent of its 2010 total.

Richard Bloxam, Director EMEA Capital Markets at Jones Lang LaSalle, said: “The European real estate investment market is much broader than seen previously.  In 2010 investors sought shelter in the core mature markets of the UK, France and Germany; however the increasing shortage of available product is shifting capital flows towards secondary and emerging markets such as Warsaw, Budapest, Prague and Moscow.  We expect to see further transactional activity in these areas as investors seek to move up the risk curve and look outside of their domestic markets.  However, whilst investors will compete on price for assets in these locations, they are less inclined to compete on quality.”

In contrast, the ongoing Eurozone sovereign debt crisis is dampening activity on the Iberian Peninsula, with Portugal and Spain recording significant year-on-year falls in volumes, down 72 percent and 53 percent respectively.  For most cross-border investors, the risk in these markets remains too high but there are a number of active domestic opportunistic funds seeking core assets.

It is not only the geographical focus of investors that has changed over the past 12 months, but the type of purchasers and sources of funding:  “We are starting to see a wider range of equity providers increasing their presence in the European market as traditional lending facilities remain restricted,” added Robert Stassen, head of EMEA Capital Markets Research at Jones Lang LaSalle.
Robert continued: “Cross-border capital flows are now originating from an ever more diverse investor base, with global sovereign wealth, pension funds and insurance companies proving to be strong buying groups and who will continue to increase their targeting of European assets this year.” 

Commenting on the report, John Moran, Managing Director, Jones Lang LaSalle Ireland said that “European investment activity is in stark contrast to what is happening in the Irish Investment market.  To date this year there has been only one investor purchase in the Irish market at a value of €10 million.  This is an absolutely clear message from both the overseas and domestic investment community of the negative impact on market activity arising out of the proposals surrounding rent reviews.  At the beginning of 2011 we identified nearly €4 billion of potential buying power in the Irish market which is capital that is absolutely required to deal with the volumes of distressed assets held by NAMA and the banks.  Most of this money, which is foreign, has voted with its feet and chosen not to deploy itself, citing that Government interference with the market and contracts is an absolute impediment to investment”.