European commercial real estate dealmaking hit an 11-year low in the first quarter of the year, according to MSCI data, as rising interest rates, banking turmoil and fears around economic growth made investors more cautious.
There were €36.5bn worth of deals in the quarter, down 62 per cent from last year, as the sharp rise in interest rates left buyers and sellers struggling to agree on the true price of properties.
Falling commercial property values and anxiety in the banking sector after the collapse of Credit Suisse have fuelled concerns that overstretched real estate investors or lenders could be the next source of major financial distress.
“While there are obvious concerns about the availability of real estate finance following the banking turmoil in March, we’ve yet to see a widespread increase in distressed sales,” said Tom Leahy, head of Emea real assets research at MSCI.
“It’s worth remembering that after the global financial crisis it was several years before we saw meaningful volumes of distressed sales,” he added.
Leahy said the lack of forced sellers has meant that asset prices have been slower to adjust, as owners wait rather than selling at a discount. MSCI’s data showed buyer and seller price expectations moved further apart in recent months.
Overseas investment in European real estate slowed sharply to the lowest level since 2011, despite a number of Asian investors taking advantage of the weak pound to swoop on London office deals.
The number of office deals hit the lowest on records going back to 2007. The increase in hybrid working during the Covid-19 pandemic has added to the headwinds facing office owners.
Paris bucked the trend with flat deal volumes, putting it ahead of London as the top destination for investment as transaction volume in the UK capital fell 58 per cent. However, MSCI said the French office market was boosted by a small number of large deals including luxury group Kering buying two Paris buildings for €1.5bn in total.
Mat Oakley, director at Savills, said the London market is more reliant on overseas investors, who tend to be less active in uncertain periods. “I suspect that you are seeing a reduction in cross border investment activity penalising London,” he said.
