The UK reclaimed its crown as Europe’s busiest real estate investment market in 2022, with London also stealing a lead on all other cities.
However, the market still suffered a slump in activity during the final months of the year. Data from index provider MSCI showed the UK attracted €72.7bn (£63.8bn) of investment during the year, down by 15% on a year earlier – although still allowing the country to overtake Germany as Europe’s largest real estate investment market.
London clocked in as the number one European city for investment, having lost out to Berlin last year and Paris in 2020. Deals in the capital totalled €25.5bn, down by 13% year-on-year, and included the four largest European deals of the year: the £1.2bn sale of UBS’s headquarters by CK Asset Holdings to LaSalle; Lendlease’s £809m acquisition of Landsec’s 21 Moorfields; Google’s £720m purchase of Central Saint Giles; and the £718m purchase of The Scalpel by Singapore’s Ho Bee Land.
The year was dragged down by a sharp dive in Q4, when investment volume fell 61%, reflecting a wider European trend. The volume of London real estate deals sank by more than 80% compared with the final months of 2021, to the lowest level for any quarter since 2009.
In the central London office market, just €535m of assets changed hands in the final quarter of 2022, marking the second-slowest quarter on record for the submarket behind the second quarter of 2020.
This downturn, linked to rising interest rates which have negatively impacted capital values, saw City of London office capital values fall 14% in 2022, according to the MSCI UK Monthly Property Index, while West End and Midtown office values were down 8%.
Market growth was hindered across Europe by factors including the Russian invasion of Ukraine, rising inflation, higher interest rates, higher debt costs and concerns over economic growth resulting in lower volumes, lower values and falling total returns, said the report.
This dip was also evident in the industrial and residential apartments sectors, which were the sectors most favoured by investors through the pandemic but have since shown the sharpest downswings.
The report said the slowdown in industrial investment was led by the UK, where quarterly volume fell by 70% to €2.4bn. It added that there is an “already-deep correction in industrial capital values as yields have moved out from record-low levels”.
UK student housing, conversely, led the European market, accounting for two-thirds of all student housing transaction volume in 2022. This, according to the report, “reflects the early institutionalization of the asset class” and the emergence of specialist operators such as Unite.
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