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04 September 2014

BNP Paribas Real Estate - Tier 2 markets gained ground in 2014

Investment volume increased by 76% in H1 2014 compared to H1 2013, totaling € 12.8 billion* Foreign investment volume in Tier 2 countries almost doubled compared to H1 2013 and reached the highest share ever recorded.

BNP Paribas Real Estate: Tier 2 markets gained ground in 2014

 - Investment volume increased by 76% in H1 2014
compared to H1 2013, totaling € 12.8 billion* -

 - Foreign investment volume in Tier 2 countries almost doubled
compared to H1 2013 and reached the highest share ever recorded -

In the latest issue of the analysis focused on European Tier 2 markets, the Global Research teams at BNP Paribas Real Estate presents a detailed analysis of the investment market in H1 2014 with a focus on eight countries (Belgium, Italy, Ireland, Luxembourg, Poland, Romania, Spain and The Netherlands) and ten cities (Amsterdam, Barcelona, Brussels, Bucharest, Dublin, Luxembourg, Madrid, Milan, Rome and Warsaw). 

In 2014, all European Tier 2 countries’ GDP growth will be positive, even though discrepancies remain amongst countries on the pace of recovery. The labour market is also on the road to recovery, with jobs being created for the first time since 2008 in Spain. Office take-up has stabilised and should see a positive impact in 2015.

With an investment volume of €12.8 bn, the selected Tier 2 countries recorded in six months the result of the nine first months of 2013. Indeed, they showed great dynamism with an increase of 76% between H1 2013 and H1 2014”, said Céline Cotasson-Fauvet, Head of European Analysis, International Research, BNP Paribas Real Estate. “In the meantime the commercial real estate investment volume in the Tier 1 countries, amounting to € 54bn, grew by 22% between H1 2013 and H1 2014.

BNP Paribas Real Estate selected Tier 2 countries gained ground in 2014

The fierce competition for prime assets has led investors to look beyond Tier 1 markets. It is clear that they moved up the risk curve and search for quality properties in Tier 2 markets.” said Guillaume Delattre, Executive Regional Head, International Advisory, BNP Paribas Real Estate. “The selected Tier 2 countries raised their share of the total investment volume in Europe to 16% (vs. 11% last year) while the share of France, Germany and the UK (Tier 1 countries) stayed constant at 69%.”

Globally the commercial real estate investment volume in Europe remains high, totaling € 79bn so far (+21% compared to H1 2013) after an already buoyant year 2013.


244% growth of the retail investment volume

Offices and retail premises stayed largely favoured by investors. Tier 2 markets stand out with a 244% growth of the retail investment volume and a doubling of its share between H1 2013 and H1 2014. Moreover, retail investment volume even exceeded that of offices in Q2 2014 on a rolling year basis.

Volume of mega deals doubled between H1 2013 and H1 2014

The fast growth of commercial real estate investment volume in the Tier 2 countries was driven by a significant increase of mega deals (over €100 m) for which the volume has doubled between H1 2013 and H1 2014. They now represent 47% of the total volume compared to 41% a year ago, a similar share to the 49% experienced by Tier 1 markets. Amongst the largest deals, North Galaxy, an office building located in Brussels, was sold for € 475 m. to the danish pension fund, ATP, in JV with an insurance company. The volume of deals between € 40 and € 100 million also doubled compared to H1 2013.

Foreign investment volume reached the highest share ever recorded

During H1 2014, foreign investment volume in Tier 2 countries almost doubled compared to H1 2013 and reached the highest share ever recorded (69% of the total investment volume in H1 2014 vs. 60% in H1 2013).  It should be kept in mind that some foreign investors are initiating deals through domestic vehicles. An example of this is where BNP Paribas Real Estate advised Hispania Real Socimi (Spanish REIT) in their acquisition of Diagonal Mar in Barcelona for € 64 m, in which two US hedge funds hold stakes.

Asian buyers entered the Tier 2 markets with 9% market share

Asian investors, who were once only willing to invest in core cities such as London or Paris, are now diversifying into Tier 2 markets, as illustrated by the acquisition of Edificio de España, 67 400 m² in Madrid for € 265 m. At the end of June 2014, they represented 9% the total foreign investment volume balancing the marked absence of Middle Eastern investors.

An attractive spread between office prime yields in Tier 1 and Tier 2 markets

The spread between office prime yields in Tier 1 markets (Paris, London and the big four German cities) and Tier 2 markets remain very attractive for investors; giving a well-compensated risk for less liquid markets than the core ones. The gap between average office prime yields in core markets and in Tier 2 markets stands at 151 bp in Q2 2014, slightly down the historic high of 165 bp at the end of 2013 but far from its record low of 45 bp in 2007.

 

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