London Tops European Commercial Investment

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London ranks highest in the top 10 cities for 2013 commercial real estate investment in Europe, recording the highest ever yearly total for a European city.

The city of London captured 23 percent of the European market, recording €32.2 billion ($44.2 billion) worth of transactions in 2013, increasing 43 percent from the prior year. This marks the second consecutive year of strong investment activity growth after increasing 45 percent from 2011 to 2012. 

Investment in London increased every quarter in 2013, with the fourth quarter up 73 percent from the previous quarter.

"London had a phenomenal year with the total value of investment reaching pre-global financial crisis levels. Looking forward to 2014, it is unlikely that the market will repeat this performance," Simon Barrowcliff, executive director, Central London Capital Markets, CBRE, said in the report. "Although cross-border investor demand, particularly from Asia, is getting even stronger, there are constraints on the supply side that will probably limit investment activity." 

Beyond London, other areas in the U.K. also enjoyed positive investment growth in 2013, with investment activity increasing in the last four or five months of the year. 

"The rest of the UK saw a staggering 75 percent year-on-year increase in the total value of activity as investors searched for yield," Mr. Barrowcliff said. "The improving UK economy is enhancing the prospects for commercial real estate in the rest of the UK and encouraging even cross-regional investors to venture outside London."

As a whole, commercial real estate investment volume in Europe grew to €165.6 billion, increasing 30 percent from the previous year's total. The fourth quarter total, almost €61 billion, was the highest quarterly figure recorded in Europe since the fourth quarter of 2007, CBRE reports. 

Five German cities were included in the report's top 10, underscoring the country's continued performance. Local investors continue to play a strong role in Germany, taking more than a 50 percent share in each of the five major cities. In Hamburg, local buyers represented 85 percent of capital invested in 2013. 

The second-highest city for European investment was Paris, with more than €11 billion of commercial real estate investment activity. However, it was a relatively flat year for the city, as total investment fell by eight percent year-over-year, while other top ten markets recorded significant increases.

Last year, the markets most adversely affected by the financial crisis -- Ireland, Italy, Spain and Portugal -- recorded a total investment of €11.8 billion, more than double the figure in 2012, marking the first year of growth in investment turnover since 2007. 

As a result of the recovery in those markets, the firm expects markets like Madrid will enter the top ten European investment markets in 2014. 

The firm also forecasts an acceleration in the flow of Chinese capital into Europe this year.

"This has been expected for some time, but increased dramatically in 2013 with €2.4 billion in acquisitions over the year - more than double the previous ten years combined," said Jonathan Hull, managing director, EMEA Capital Markets, CBRE. "The Chinese insurance companies and sovereign wealth funds have clearly increased allocations to foreign real estate and we expect this to be an important feature of 2014."