The Global Real Estate Commercial Markets Series – Part I, Europe & Middle East

Recent times have seen revival in the global real estate industry with continuous surge in investments in real estate asset classes. The capital inflows are emanating from various channels such private investors, private equity funds & corporates.

The economic & political contingencies across the globe & the recent failures in some of the major financial markets have been reinforcing the fact that- Probably the best investment on Earth is Earth. Real estate as an asset class provide a safe & secured channel for making meaningful investment & if adopted with a long-term perspective & backed up with strong research, it can ensure returns that could easily outperform various other investment classes.

Out of the various asset classes, it is the office real estate, that has its own unique place in any real estate investment. Office real estate are leased & hence can offer a continuous stream of returns, are generally associated with high intrinsic values & can offer effective hedging against inflation.

The office real estate series is a special collection of analysis & commentaries compiled by Square Yards, capturing major trends & equations in the global office real estate, primarily over the last 3 months- July to August- Q3, 2016.

Based on extensive secondary research as well as inputs from Square Yards own international workforce along with independent analysts, the commentary will be published in series, covering one individual geography in every post. The first post of the series will capture the Europe & Central Asia office market dynamics.

Europe & Central Asia

In Europe, major office real estate markets have been rallying ahead on the backdrop of recovering economy & tightened present supplies.

BREXIT has been one of the major events, that has the potential to influence the European real estate industry in the times to come, but it will take some time to tabulate the exact longitude & the latitude.

For the time being, it could be said that the UK’s leaving the Eurozone had put the otherwise buoyant market in moderating zone with large number of investors preferring a wait & watch mode.

The overall investment in UK’s office sector has been slashed by over 25% in Q3, 2016 on a Y-o-Y basis. In Central London, the total investment made in the office real estate in Q3, 2016 has been around USD 2.1 billion- a significant dip from USD 6.2 billion a year before.

However, it is also believed in some industry quarters believe that with tighter supply & strong economic fundamentals, UK’s real estate sector could reflect more signs of resilience.

German cities are at the forefront of the new investment paradigms in European office real estate with investments from bonds continue to move into the office real estate sector. As per the research Colliers, the total office uptake in Munich has been in tune of 5.95 million Sq. Ft. so far in 2016. Nearly 47% of the demand is being driven by manufacturing, technology & consulting. The occupancy rate is estimated at around 97%.

On the backdrop of subdued supply & a prevalent expansion mode in existing companies, demand is expected to be lively in Munich in near future. In Frankfurt, the occupancy & total office uptake has been around 88% & 3.7 million Sq. Ft in Q3, 2016. The Frankfurt market seems to be driven by the consulting & the BFSI sector.

Central & Eastern Europe is led by emerging economies such as Poland & Czech Republic. Poland has demonstrated a robust office real estate market in the recent past with a total investment of around USD 490 million in Q3, 2016. The real estate industry in Poland is driven by healthy economic performance, surge in tourist inflow & a rise in per capita income.

As per the global business consultancy KPMG, by 2018 Poland will have 1.2 million individuals that could be termed as rich & affluent. This could be a major boost to the Polish real estate industry in the times to come. Office real estate in Czech Republic is being driven by the burgeoning BPO industry that is expected to grow by over 16.33% between 2014-19.

In Spain, Central Business Districts in prime cities such as Madrid & Barcelona are striking chords with both domestic & international buyers. Due to a recovering economy, shrinking un-employment rate & an undersupply of good quality office space, Spanish office real estate surging ahead. This coupled with a depreciating euro value is further stimulating the interest of international buyers.

A total of 1.07 million Sq. Ft. of office space is expected to enter in the Spanish market in the near time. But it is expected that the demand will outpace this handsomely, thereby keeping the sentiments strong.

Slump in oil prices have resulted in subdued economic sentiments in Central Asia. However, the region is fraught with various frontiers & emerging markets such as Kazakhstan, Azerbaijan & Uzbekistan wherein real estate dynamics are moving ahead.

Mongolia is one of the major markets that many global investors had put high up on their agenda in the recent times. The country enjoyed a bustling real estate industry driven by high GDP growth rate & large commodity exports.

However, with a slowdown in commodity export, the real estate sector faltered along with the general economic growth momentum.