Europe, the Middle East and Africa (EMEA) attract more overseas capital than any other global real estate market, according to research from real estate advisor Savills.
EMEA real estate markets received $183 billion of capital funding during 2015, 63 percent of which originated from overseas.
North America was the biggest source, deploying $75 billion in 2015, while domestic and Asian investors invested $68 billion and $24 billion, respectively.
“For core buyers, there are a number of capital cities and gateway cities across EMEA such as London, Paris and the five big German cities, all of which offer an abundance of Grade A real estate with secure income streams,” said Rasheed Hassan, head of cross border investment at Savills.
“For more opportunistic buyers, in particular American funds, there are still distressed/value-add opportunities throughout EMEA in locations such as Spain, Greece and Italy.”
North American investors generate higher liquidity in the EMEA market because their investments tend to be more highly leveraged and with a shorter holding period. The average loan-to-value is 64 percent for North American investors, compared with Asian buyers at 53 percent and those from EMEA at 59 percent.
In addition, mainland Europe produces plenty of NPL (non-performing loan) and large portfolio deals due to its slower recovery from the GFC.
Despite concerns that Asian pension funds, state funds and insurance companies with longer investment horizons and lower leveraged transactions could create less liquidity in some European markets, their investment activities in EMEA are actually growing.
Yolande Barnes, head of Savills world research, anticipates two potential changes for the real estate environment in EMEA: A shift of investment from core cities to second-tier cities and more investment into residential, healthcare and leisure.
“Smaller cities which are already successfully harnessing the tech economy, such as Dublin and Warsaw, or second-tier cities, such as Bristol and Leeds, are among those where rental growth and investor interest should impact total returns,” Barnes said.
Care homes, prime green offices and micro-apartments are also becoming increasingly attractive. This is because affluent countries are impacted by the long-term macro-economic and demographic changes of ageing populations, rapid urbanisation and an increase in single-person households, the research said.