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UK leads European slowdown in H1 2016

Investors' appetite of European real estate market is affected by the economic growth prospects and geopolitical risk.

The UK has led a slowdown in commercial real estate investment across Europe in the first half of 2016, partly attributed to the uncertainty brought by the country’s referendum on its European Union membership, according to a report from Real Capital Analytics (RCA).

The total value of commercial property transactions in the UK fell by 45 percent from a year earlier to €29.5 billion ($32.9 billion), as investor concerns in the run-up to the “Brexit” vote and high pricing played a part in slowing investor activity. The value of transactions in London also registered a decline of 52 percent to €14 billion.

“The build-up to the Brexit vote added to these concerns and was a notable brake on investment in the UK,” said Tom Leahy, RCA’s director of EMEA analytics.

The country has also accounted for more than half of the total drop in investment in European commercial properties during the period. The total value of commercial property transactions completed in Europe during the first six months dropped by 35 percent from the same period in 2015, to €107 billion.

Germany, was second to the UK, suffering from a 36 percent decrease in investment volumes versus the first half of 2015. It was followed by France, which dropped 29 percent over the same period.

“A number of global economic, financial and social risks have made investors more cautious about where to deploy their capital allocation to European real estate after a record-breaking year in 2015,” the RCA report explains. In particularly, US-based investors’ investment fell 59 percent from the first half of 2015 to €11 billion.

Yet, there were a number of bright spots in Europe. In Sweden, first half transaction volumes were up 39 percent and 35 percent in Poland. Investment in Spain, the Netherlands and Italy in the second quarter of 2016 also went up substantially.

“The second half is likely to see a continuation of the slowdown in transaction volumes in comparison with the strong 2015, but we do not expect market activity to slow to levels seen during the last downturn in 2008-09,” Leahy predicted.

“The Brexit vote has certainly heightened uncertainty about prospects for the U.K. market, although ‘lower for longer’ interest rates and the weaker pound will present investment opportunities for those willing to seize them.”

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