U.S. investors are buying European commercial property at a record pace as the dollar’s eight-month rally and struggling economies on the continent make offices, shops and warehouses cheap.
U.S. spending on European commercial real estate last year was just short of the 2007 peak, according to Real Capital Analytics Inc.
The record may be broken this year after a strong first quarter, said Simon Mallinson, RCA’s managing director for Europe, the Middle East and Africa.
“With the U.S. markets becoming increasingly expensive and with the currency advantage we are starting to see, the U.S. institutions are making a big push for Europe,” said Richard Divall, head of cross-border capital markets at broker Colliers International. “Europe is the region of the world that still has distress.”
The U.S. currency has jumped amid speculation that the Federal Reserve is moving toward raising interest rates this year as the economy surges. Meanwhile, stagnation and the prospect of deflation in Europe is prompting European Central Bank President Mario Draghi to implement a 1.1 trillion-euro quantitative-easing program to stimulate growth. The dollar gained 26 per cent against the euro in the last 12 months.
U.S. investment in European commercial property climbed 90 per cent last year to 41.2 billion euros ($45.3 billion), just shy of the 2007 peak of 41.5 billion euros, RCA said.
Another 8.9 billion euros has been spent this year through March 25, with a further 3.3 billion under contract.
Record Pace
“The U.S. dollar-euro exchange rate movements make unhedged European real estate look increasingly cheap and U.S. investors remain convinced that mis-pricing opportunities exist across the continent,” RCA’s Mallinson said by e-mail. Americans will “likely outpace their previous peak.”
Europe’s recovery will probably strengthen this year, leading to job growth and higher domestic demand for real estate, according to a report by Deutsche Asset & Wealth Management. Overall investment in European property climbed 12 per cent to 160 billion euros last year, according to the report.
Even with increased competition for assets, European commercial properties will remain attractive to foreign buyers this year, according to investors.
“I don’t see the trend stopping,” said Pierre Vaquier, chief executive officer of Axa Real Estate. “All of the countries that are dollar dominated should continue to deploy in Europe.”
Record-low returns from fixed-income investments have spurred money managers to buy real estate in a search for higher returns. Institutional investors will increase their real estate spending by $52.5 billion this year, with Europe a key target, Colliers said.
News by Bloomberg, edited by ESM
