International real estate advisor Savills latest Market in Minutes states that there has been an 18% increase in mega deals, those over €100 million, year on year in Q1 2015.
Additionally, the firm has also found that portfolio transactions have increased by 23% year on year accounting for more than two thirds of the value of all mega deals and 45% of the total transaction volume.
Marcus Lemli, head of European investment at Savills, comments: “We expect to see an increase in mega deals throughout 2015, especially as a result of portfolio sales which we believe will underpin investment activity going forward. The low interest rates and ECB purchase programme will insure demand for real estate remains high in the strong markets such as UK, Germany and France and the recovering ones such as Spain, Italy, Ireland and The Netherlands.”
Savills finds that most of the mega deals were driven by UK, US and German investors who accounted for more than half of the activity in terms of number of deals and 62% in terms of total value. Portfolio assets were of particular interest to new entrants to the European investment market who were able to exploit favourable financing conditions and the market cycle pick up.
Whilst mega deal volumes were up, Savills notes that total Q1 2015 volumes in the area surveyed were down on the previous quarter by one third, at €49.7 billon compared to €69.5 billion. However, Q1 2015 was 25% stronger then Q1 2014 which recorded total investment volumes of €38.5 billion. Investors continued to favour the core markets with Germany and the UK accounting for almost two thirds of activity.
The firm reports that the office sector was the most popular with investors, accounting for 40% of total activity and as high as 84% in France. Notably in the UK the top deals were not dominated by the office sector but the student housing market, with the Liberty Living portfolio accounting for over €1.5 billion. In Germany, the first quarter saw an increase of the share of retail investment transactions due to the sale of the German part of the Corio portfolio.
Eri Mitsostergiou, director of research at Savills, adds: “Competitive market conditions have led to further yield compression across sectors. The average prime CBD office, shopping centre and industrial yields are all down year on year at 4.87%, 5.3% and 7.39%, respectively. Continued investor demand, especially from the international parties and REIT’s which have been particularly active in Q1 2015, will cause yields to continue to harden.”
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