Cross-border flows of investment play an important role in domestic markets as investors become more sophisticated.
In London, where the level and liquidity of foreign investment is higher than in any other European city, foreign buyers accounted for 39% of the £1.95bn office investment market last year, according to Jones Lang Wootton. Prepared to outbid local investors, and often trading among themselves, foreign purchasers had a tangible impact on values and liquidity in the market.
In France last year, foreign purchasers accounted for half of the FFr 3.2bn commercial investment market, according to Bourdais. In the peak year of 1989, they spent over FFr 10bn. UK property companies and US vulture funds were the most prominent buyers in 1995, although German purchasers also made some smaller acquisitions.
Madrid, by comparison, was on the shopping list of UK and US funds throughout last year, with not a single office deal accomplished. Local buyers were simply prepared to pay higher prices and were not put off by the fact that the heralded rental growth failed to materialise.
Spanish shopping centres continue to be much in demand by foreign investors, although, again, deals have been thin on the ground. Dutch fund ING confirmed its interest last month, taking a 10% stake in Spanish retail developers Filo.
To track some of these trends, Jones Lang Wootton has carried out a detailed analysis of around 110 transactions in Europe during 1995, representing £2bn of cross-border investment. The firm looked at transactions of Ecu 5m (£3.4m) and above, where the purchaser was non-domestic.
The UK was the largest destination for foreign money, accounting for 52% of the transactions. France came second by a long way, attracting 13% of the £2bn total. The Netherlands, Germany and Belgium were all level at around 8% to 9%, while other European countries accounted for the remaining 9%.
Perhaps not surprisingly, offices made up only 62% of the cross-border market by value of transactions; the higher profile retail deals were scarce last year as local investors in France and Spain work up to the value of these investments. Retail deals only accounted for 6% of the total.
The maturity and transparency of the London office market, its status as a world financial centre, the relatively low UK taxes and the security provided by the 25-year lease are all reasons why London has traditionally dominated, says JLW international investment partner David Seddon.
A quick look at the source of funds confirms these reasons: German buyers accounted for 28% of the total, well ahead of the 7% of Middle Eastern buyers who were the second biggest cross border investors, not including the UK.
The cash-rich German open-ended funds dominate flows of money within Europe. Since 1991, five of the funds have amassed office property worth £1.5bn in central London. Now they are turning their attention to retail, bidding on developments as far afield as Amsterdam and Vienna.
At the end of last year, north American buyers emerged as a major force in the French property market, offering a glimmer of hope to the beleaguered banks. Meanwhile US fund managers are keen to lure European investors across the pond.
