The UK has fared better than average as investment volumes plunged across Europe.
According to MSCI Real Assets’ Q2 Europe Capital Trends report, European commercial real estate investment more than halved in the second quarter, registering the lowest volume of transactions since 2010.
The volume of completed transactions fell 58% from a year earlier to €34.4bn (£29.4bn) between April and the end of June. MSCI said the “generalised slump” spared no real estate sector or major national market, leaving the €74.6bn (£63.9bn) of first-half property sales, 59% below where volumes stood in the same period one year earlier.
In the UK investment, volumes fell below the average, dropping 54% in the second quarter from a year earlier to €9.2bn (£7.8bn).
The UK remained Europe’s largest commercial real estate market with €21.1bn (£18bn) of investment activity in the first half of 2023, despite a 56% decline from a year earlier.
MSCI’s Real Estate Market Size report for 2022, released in July, showed the UK sinking into fourth place behind the US, China, and Japan.
But London remained in second place, after Paris, as the first half’s top European investment destination. The British capital recorded €7.3bn (£6.2bn) of property sales, 59% lower than a year earlier during the six-month period.
Manchester ranked sixth among Europe’s top markets for the first half of 2023, with a 25% jump in first-half investment volumes to €1.5bn (£1.2bn), largely thanks to Blackstone’s purchase of Trafford Park and Heywood Distribution Park from Harbert Management and Canmoor Asset Management.
Tom Leahy, head of EMEA real assets research at MSCI, said: “In these extremely challenging market conditions, the office sector stands out as hardest hit from the consequences of higher interest rates and as occupiers shift to hybrid working. There is a substantial disconnect in the pricing expectations of sellers and buyers. This will most likely continue until investors gain more visibility on borrowing costs and the health of the occupier market.”
Offices, Europe’s largest real estate sector, registered the fewest number of properties sold since MSCI’s records began in 2007.
Office sales totalled just €8.3bn (£7.1bn) in the first quarter, 68% lower than a year earlier.
The €7.3bn (£6.2bn) transacted in the industrial sector was 55% below the Q2 2022 levels, even as pricing corrected rapidly from last year’s record low yields.
Investment in the residential sector also suffered a reverse, declining 54% to €7.2bn (£6.1bn).
Hotels were the least badly affected sector, with a 16% decline in deals in the first half from a year earlier to €5.9bn (£5bn).
Leahy added: “Prospects for the remainder of the year hinge on how far central banks raise interest rates to quell persistent inflation. Once there is clarity on borrowing costs, the uncertainty over pricing should ease and deal volumes may in due course start to pick up.”
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